OPERATIONS

SEED PREPARATORY KIT

2019

Research and Scholastic Development Team

In collaboration with
Contents
Production Planning ................................................................................................................................ 5
Strategic Business Plan ....................................................................................................................... 5
Production Plan................................................................................................................................... 5
Master Production Schedule .............................................................................................................. 6
Material Requirements Plan ............................................................................................................... 7
Bills of Material ................................................................................................................................... 7
Purchasing and Production Activity Control ....................................................................................... 8
MRP II – Manufacturing Resource Planning ....................................................................................... 9
Inventory ................................................................................................................................................. 9
Cycle stock........................................................................................................................................... 9
Pipeline stock .................................................................................................................................... 10
Safety stock ....................................................................................................................................... 10
Dead stock......................................................................................................................................... 10
Anticipation inventory ...................................................................................................................... 10
Enterprise Resource Planning ........................................................................................................... 10
Process Analysis Terms ......................................................................................................................... 11
Order qualifiers & Order winners ..................................................................................................... 11
Process capacity ................................................................................................................................ 11
Capacity utilization............................................................................................................................ 11
Takt Time........................................................................................................................................... 12
Cycle Time ......................................................................................................................................... 12
Lead Time .......................................................................................................................................... 13
Throughput time ............................................................................................................................... 13
Idle time ............................................................................................................................................ 13
Changeover time ............................................................................................................................... 13
Buffer ................................................................................................................................................ 14
Manufacturing Strategies ..................................................................................................................... 14
Make to Stock (MTS) ......................................................................................................................... 14
Assemble to Order (ATO) .................................................................................................................. 14
Make to Order (MTO) ....................................................................................................................... 14
Engineer to Order (ETO).................................................................................................................... 15
Bottleneck ......................................................................................................................................... 15
Job production .................................................................................................................................. 16
Batch production .............................................................................................................................. 16
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 Mass production ............................................................................................................................... 16
Incoterms .............................................................................................................................................. 17
Manufacturing Practices ....................................................................................................................... 20
Lean ................................................................................................................................................... 20
Kaizen ................................................................................................................................................ 20
Toyota Production System ................................................................................................................ 20
Jidoka ................................................................................................................................................ 21
Heijunka ............................................................................................................................................ 22
Poka Yoke .......................................................................................................................................... 23
Just-In-Time (JIT) ............................................................................................................................... 23
Kanban .............................................................................................................................................. 24
Gemba, Gembutsu, Genjitsu ............................................................................................................. 25
Theory of Constraints........................................................................................................................ 26
Service Operations ................................................................................................................................ 28
Manufacturing & Services – Similarities & Differences .................................................................... 28
Service Blueprint ............................................................................................................................... 28
Key Elements of a Service Blueprint: ................................................................................................ 29
Moments of truth ............................................................................................................................. 30
Queuing ............................................................................................................................................. 31
Forecasting ............................................................................................................................................ 33
Forecasting Techniques .................................................................................................................... 33
Forecast Error.................................................................................................................................... 37
Quality ................................................................................................................................................... 38
Cost of Quality................................................................................................................................... 39
Quality control Tools ......................................................................................................................... 39
5S....................................................................................................................................................... 44
Types of Waste (TIMWOODS) ........................................................................................................... 46
Statistical Process Control................................................................................................................. 47
PDCA ................................................................................................................................................. 48
Six Sigma ........................................................................................................................................... 48
Quality Function Deployment ........................................................................................................... 50
Zero Defects – The Theory and Implementation .............................................................................. 51
International Organization for Standardization (ISO) ....................................................................... 51
Supply Chain.......................................................................................................................................... 53
Value Chain ....................................................................................................................................... 54

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 Functional product ............................................................................................................................ 55
Innovative Product ............................................................................................................................ 55
Bullwhip effect .................................................................................................................................. 56
1PL - First-Party Logistics .................................................................................................................. 56
2PL - Second-Party Logistics.............................................................................................................. 56
3PL - Third-Party Logistics ................................................................................................................. 56
4PL - Fourth-Party Logistics............................................................................................................... 57
5PL - Fifth-Party Logistics .................................................................................................................. 57
Difference between 3PL and 4PL ...................................................................................................... 58
Reverse Logistics ............................................................................................................................... 59
Project Management ............................................................................................................................ 60
Float/Slack......................................................................................................................................... 60
What exactly is the “Successful” Project?......................................................................................... 60
Project Management Methodologies ................................................................................................... 62
Waterfall Model of Project Management......................................................................................... 62
Agile Project Management ............................................................................................................... 64
Critical Chain Project Management .................................................................................................. 66
Triple Constraint ............................................................................................................................... 68
Process Groups ................................................................................................................................. 69
Knowledge Areas .............................................................................................................................. 70
Work Break down (WBS) Structure .................................................................................................. 70
Inventory management ........................................................................................................................ 72
E - Commerce ........................................................................................................................................ 73
Distribution Strategies ...................................................................................................................... 74
Milk Run ............................................................................................................................................ 75
Hub & Spoke Model .......................................................................................................................... 76
Delivery Types ................................................................................................................................... 77
IOT ......................................................................................................................................................... 77
Which sectors use the IoT? ............................................................................................................... 77
What are the risks? ........................................................................................................................... 77
BlockChain............................................................................................................................................. 78
Supply Chain Possibilities of Blockchain: .......................................................................................... 79
Benefits in a Nutshell ........................................................................................................................ 79

4
Production Planning

Manufacturing is complex. Some firms make a few different products, whereas others make many
products. A good planning system must answer four questions:

1. What are we going to make?

2. What does it take to make it?
3. What do we have?
4. What do we need?

There are five major levels in the manufacturing planning and control (MPC) system:

1. Strategic business plan.

2. Production plan (sales and operations plan).
3. Master production schedule.
4. Material requirements plan.
5. Purchasing and production activity control.

Since each level is for a different time span and for different purposes, each differs in the following:

1. Purpose of the plan.

2. Planning horizon—the time span from now to sometime in the future for which the plan is
created.
3. Level of detail—the detail about products required for the plan.
4. Planning cycle—the frequency with which the plan is reviewed.

Strategic Business Plan

The strategic business plan is a statement of the major goals and objectives the company
expects to achieve over the next 2 to 10 years or more. It is a statement of the broad direction
of the firm and shows the kind of business—product lines, markets, and so on—the firm
wants to do in the future. It is based on long-range forecasts and includes participation from
marketing, finance, production, and engineering.

Production Plan

Given the objectives set by the strategic business plan, production management is
concerned with the following:

1. The quantities of each product group that must be produced in each period.

2. The desired inventory levels.

3. The resources of equipment, labor, and material needed in each period.

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 4. The availability of the resources needed.

The level of detail is not high.

For example, if a company manufactures children’s bicycles, tricycles, and scooters in
various models, each with many options, the production plan will show major product
groups, or families: bicycles, tricycles, and scooters. The planning horizon is usually 6 to 18
months and is reviewed perhaps each month or quarter.

Master Production Schedule

The master production schedule (MPS) is a plan for the production of individual end items. It
breaks down the production plan to show, for each period, the quantity of each end item to
be made.

For example, it might show that 200 Model A23 scooters are to be built each week. Inputs to
the MPS are the production plan, the forecast for individual end items, sales orders,
inventories, and existing capacity.

The level of detail for the MPS is higher than for the production plan. Whereas the production
plan was based upon families of products (tricycles), the master production schedule is
developed for individual end items (each model of tricycle). The planning horizon usually
extends from 3 to 18 months but primarily depends on the purchasing and manufacturing
lead times.

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 Fig 1: Manufacturing planning and control system

Material Requirements Plan

The material requirements plan (MRP) is a plan for the production and purchase of the
components used in making the items in the master production schedule. It shows the
quantities needed and when manufacturing intends to make or use them. The level of detail
is high. As with the master production schedule, it usually extends from 3 to 18 months.

Bills of Material
The Association for Operations Management defines a bill of material (BOM) as “a listing of
all the subassemblies, intermediates, parts, and raw materials that go into making the parent
assembly showing the quantities of each required to make an assembly.”

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 Table 1: A simplified BOM

Purchasing and Production Activity Control

The time comes when plans must be put into action. Production activity control (PAC) is
responsible for executing the master production schedule and the material requirements
plan. At the same time, it must make good use of labour and machines, minimize work-in-
process inventory, and maintain customer service. The material requirements plan authorizes
PAC to manage day-to-day activity and provide the necessary support.

The planning horizon is very short, perhaps from a day to a month. The level of detail is high
since it is concerned with individual components, workstations, and orders. Plans are
reviewed and revised daily.

Fig 2: Overview of production planning

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MRP II – Manufacturing Resource Planning
Manufacturing Resource Planning (MRP II) is an integrated information system used by
businesses. Manufacturing Resource Planning (MRP II) evolved from early Materials
Requirement Planning (MRP) systems by including the integration of additional data, financial
planning in dollars and labour requirement. MRP II provides coordination between marketing
and production. Marketing, finance, and production agree on a total workable plan expressed
in the production plan. Marketing and production must work together on a weekly and daily
basis to adjust the plan as changes occur. Order sizes may need to be changed, orders
canceled, and delivery dates adjusted.

It is made up of a variety of processes, each linked together: business planning, production

planning (sales and operations planning), master production scheduling, material
requirements planning and capacity requirements planning. The system is designed to
centralize, integrate and process information for effective decision making in scheduling,
design engineering, inventory management and cost control in manufacturing.

Inventory
Cycle stock
Organizations usually produce/buy and transport in batches to meet economies of scale. The
inventory resulting from this is called cycle inventory. This is the inventory that is used to
replenish the stock at the different warehouses/depots.

Fig 3: Calculating order cycle

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Average Cycle Inventory in the system = (opening inventory + closing inventory)/2

= (0+Q)/2 = Q/2

Pipeline stock
It is of 2 types

 Work in process inventory – Since it takes a finite amount of time for conversion from
raw material to finished goods there is always some inventory that is currently being
worked upon. This is called Work in process inventory.
 In-transit inventory – since it takes finite time for the movement of goods, there is
always some inventory that is currently in movement from one point to another. This
is in-transit inventory.

Safety stock
Safety stock is generally used to safeguard against uncertainties of supply and demand.

Demand uncertainty can be due to bullwhip effects, sudden unanticipated demand, etc.

Supply uncertainty can be due to

 Production variability (may be some machine is down for maintenance, delay or

unavailability of raw material)
 Lead time variability.

Dead stock
It is the non-moving inventory that is of no use in supply chain or markets. It includes those
items that have become obsolete.

Anticipation inventory
It consists of stock that is accumulated in advance of due to some promotional activity. It may
also include stock built in advance due to some anticipated labour strikes, price or supply
shocks, etc.

Enterprise Resource Planning

An Enterprise resource planning (ERP) system is a fully integrated business management

system covering functional areas of an enterprise like Logistics, Production, Finance,
Accounting and Human Resources. It organizes and integrates operation processes and
information flows to make optimum use of resources such as men, material, money and
machine.

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Enterprise resource planning promises one database, one application, one user interface for
the entire enterprise, where once disparate systems ruled manufacturing, distribution,
finance and sales.

Process Analysis Terms

Order qualifiers & Order winners

Order qualifiers are the competitive advantages that a company must demonstrate in order
to be a viable competitor in the business arena.

Order winning attributes are other attributes that have the potential to sufficiently motivate
the customer to buy the product or service. Order winners are the competitive advantages
such as quality, delivery speed, reliability, product design, flexibility, and image that cause a
firm's customers to select that company's products or services. It is the main reason why
customers purchase a company's product.

The difference between order winners and qualifiers is that order qualifiers are the
competitive standards that make a firm's products viewed as fit for purchase by consumers,
while order winners are the standards that separate the products or services of one firm from
another.

Example:

A brand name car can be an “order qualifier”

Repair services can be “order winners”

Process capacity
The capacity of the process is its maximum output rate, measured in units produced per unit
time. The capacity of the series of task is determined by the lowest capacity in the string.
Whereas the capacity of the parallel strings of tasks is the sum of the capacities of the two
strings, except for the cases in which the two strings have different outputs that are
combined. In such cases, the capacity of two parallel strings of tasks is that of the lowest
capacity parallel string.

Capacity utilization
The percentage of the process capacity that actually being used
𝐴𝑐𝑡𝑢𝑎𝑙 𝑙𝑒𝑣𝑒𝑙 𝑜𝑓𝑜𝑢𝑡𝑝𝑢𝑡
∗ 100
𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑝𝑜𝑠𝑠𝑖𝑏𝑙𝑒 𝑜𝑢𝑡𝑝𝑢𝑡

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Takt Time
Takt time is the rate at which you need to complete the production process in order to meet
the customer demand.
𝑁𝑒𝑡 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑇𝑖𝑚𝑒
𝑻𝒂𝒌𝒕 𝑻𝒊𝒎𝒆 =
𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟 𝐷𝑒𝑚𝑎𝑛𝑑
Net production time = Time available for production (till the delivery to the customer)
Customer Demand = Order placed by the customer
NOTE: Takt time is customer demand based and cannot be measure by a stop watch.
Let's break this calculation down a little further:

Available production time - for the purposes of this definition, we assume the electronics
manufacturer operates an 8-hour shift, 5 days a week. 8 hours x 60 minutes equates to 480
total minutes. Assuming there are 2 x 10-minute tea breaks, 30 minutes for lunch and another
20 minutes in total consumed at the start and end of each day for miscellaneous activites, the
"available" production time is in fact 410 minutes.

Customer demand - this relates to the number of units the customer requires each day. We
will assume it is 100 per day for this definition

Takt time - if we take our available production time (410 minutes) and divide that by our
customer demand (100), the takt time equates to 4.1 minutes or 246 seconds. This means a
completed unit must be finished every 246 seconds or there is a danger the electronics
manufacturer will not meet their customer's demand.

Cycle Time
The time between the completion of two discrete units of production.
𝑁𝑒𝑡 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑇𝑖𝑚𝑒
𝑪𝒚𝒄𝒍𝒆 𝑻𝒊𝒎𝒆 =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑈𝑛𝑖𝑡𝑠 𝑃𝑟𝑜𝑑𝑢𝑐𝑒𝑑
NOTE: Cycle time is work process based and can be measured using a stop watch.
It is the time between successive units as they are output from the process. In another words,
cycle time of the process is equal to the longest task cycle time, when the production of an
item requires various units to be produced in succession and each unit has a different cycle
time.

Cycle time= 3 minutes cycle time= 3 minutes

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Difference between Cycle time and Takt time:

Cycle Time and Takt Time are different. Cycle Time is how often a part is completed by a
particular process and Takt Time is a customer demand calculation that tells you how often
a part should be completed by a particular process in order to meet demand. In other
words, Cycle Time is the actual time it takes to complete your widget or product and the
Takt Time calculation lets you know whether or not you are producing fast enough to keep
up with customer demand. In a perfect world Takt Time should match Cycle Time. If there is
a mismatch between Takt Time and Cycle Time it can create a lots of problems.

Lead Time
Lead time is the time it takes for one unit to make its way through your operation from front
to end (i.e. from taking order to receiving payment). In other words, time taken between
product to be ordered by customer and customer receiving the product.

Throughput time
Throughput Time is a measure of the time required for a material, part or sub-assembly to
pass through a manufacturing process following the release of an order to dispatch of the
product.

Throughput Time includes the following time intervals:

 Processing time: This is the time spent transforming raw materials into finished goods.
 Inspection time: This is the time spent inspecting raw materials, work-in-process and
finished goods, possibly at multiple stages of the production process.
 Move time: This is the time required to move items into and out of the manufacturing
area, as well as between workstations within the production area.
 Queue time: This is the time spent waiting prior to the processing, inspection and
move activities.

Throughput time: Raw Material Receipt to Dispatch

Idle time
Time when no activity is being performed. For example, when an activity is waiting for a work
to arrive from the previous activity. The term can be used to describe both machine idle time
and worker idle time.

Changeover time
It is the time taken to modify the production line for different products or new batches of the
same product. Setup and changeover are sometimes used interchangeably. Setup is viewed
13
as a component of changeover that is focused on configuring a machine for a different
product type. Both setup and changeover are non-value added operations and so should be
minimized as much as possible. It is recommend to use the term ‘changeover’ when talking
about switching between products, and ‘setup’ when focusing on what is going on with the
machine or process.

Buffer
In manufacturing, the concept of buffering is defined as maintaining enough supplies to keep
operations running smoothly. These supplies often include the raw materials needed for
production, and also the inventories of finished products waiting for shipment. For example,
a manufacturer will want to keep enough raw materials inventory to tide it over in case its
supplier is unable to deliver its shipments on time.

Manufacturing Strategies
Make to Stock (MTS)
A traditional production strategy used by businesses to match production with consumer
demand forecasts. The make-to-stock (MTS) method forecasts demand to determine how
much stock should be produced. If demand for the product can be accurately forecasted, the
MTS strategy can be an efficient choice.

The main drawback to the make-to-stock (MTS) method is that it relies heavily on the
accuracy of demand forecasts. Inaccurate forecasts will lead to losses stemming from
excessive inventory or stock outs.

Assemble to Order (ATO)

A business production strategy where products ordered by customers is produced quickly and
is customizable to a certain extent. The assemble-to-order (ATO) strategy requires that the
basic parts for the product are already manufactured but not yet assembled. Once an order
is received, the parts are assembled quickly and sent to the customer. The ATO strategy
attempts to combine the benefits of both strategies - getting products into customers' hands
quickly while allowing for the product to be customizable. Customer involvement in the
design of the product is limited to selecting the component part options needed

Make to Order (MTO)

A business production strategy that typically allows consumers to purchase products that are
customized to their specifications. The make to order (MTO) strategy only manufactures the
end product once the customer places the order. This creates additional wait time for the
consumer to receive the product, but allows for more flexible customization compared to
purchasing from retailers' shelves.

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Engineer to Order (ETO)
A business production strategy where customer specifications require unique engineering
design, significant customization, or new purchased material. Usually the customer is highly
involved in the product design. Each customer order results in a unique set of part numbers, bill
of material, and routings. ETO strategy theoretically are slowest to fulfill: time is required not
only to build the product, but to custom design it to meet the customer’s unique
requirements.

Table 2: Manufacturing strategies

Bottleneck
It refers to a phenomenon where the performance or capacity of an entire system is limited
by a single or small number of components or resources. In production and project
management, a bottleneck is one process in a chain of processes, such that its limited capacity
reduces the capacity of the whole chain. Bottlenecks not only slow or limit the capacity of a
process but also cause to other problems in a process which are:

 Process Blocking: this occurs when there is no more room to store WIP or buffer stock
before the bottleneck process. This will cause the production line to bank up and stop
until the WIP is cleared or processed. For example a process can become blocked
when the WIP area cannot take any more material until the next process processes
some.

 Process Starvation: this occurs when the steps after the bottleneck step are forced to
stop or idle because of no material process until the bottleneck process can supply
materials to this next step. For example a process become starved because its cycle
time is less than the previous step and will be forced to idle while it waits for materials
or WIP.

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Job production
Under Job production, special or non-standardized products are produced in accordance with
the orders received from the customers. As each product is non- standardized varying in size
and nature, it requires separate job for production. The machines and equipment’s are
adjusted in such a manner so as to suit the requirements of a particular job.

Example: ship building, dam construction

Batch production
Batch production pertains to repetitive production. It refers to the production of goods, the
quantity of which is known in advance. It is that form of production where identical products
are produced in batches on the basis of demand of customers’ or of expected demand for
products.

Example: Generally adopted in case of manufacturing biscuits, motor, medicines

Mass production
It is a continuous production of standardized products on a large scale. Under this method,
production remains continuous in anticipation of future demand. Standardization is the basis
of mass production. Standardized products are produced under this method by using
standardized materials and equipment. There is a continuous or uninterrupted flow of
production obtained by arranging the machines in a proper sequence of operations.

Example: plastic goods, hardware, electric fans. Ford Model T is the most famous mass
produced automobile.

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Incoterms

The INCOTERMS (International Commercial Terms) are a set of rules which define the
responsibilities of sellers and buyers for the delivery of goods under sales contracts. They are
published by the International Chamber of Commerce (ICC) and are widely used in
commercial transactions. Shippers worldwide use standard trade definitions (called
Incoterms) to spell out who’s responsible for the shipping, insurance, and tariffs on an item.
It also indicates which party assumes all the risk and transportation costs.

Following are the few widely used incoterms:

Incoterms that apply to any mode of transport are:

 EXW (Ex Works)

 FCA (Free Carrier)

 CPT (Carriage Paid To)

 CIP (Carriage and Insurance Paid To)

 DAT (Delivered at Terminal)

 DAP (Delivered at Place)

 DDP (Delivered Duty Unpaid)

 DDP (Delivered Duty Paid)

EXW (EX Works) is an international trade term that describes an agreement in which the seller
is required to make goods ready for pickup at his or her own place of business. The buyer
must carry out all tasks of export & import clearance. Carriage & insurance is to be arranged
by the buyer.

FCA (Free Carrier) means that the seller fulfils his obligation to deliver when he has handed
over the goods, cleared for export, into the charge of the carrier named by the buyer at the
specified place or point. If no precise point is indicated by buyer, the seller may choose within
the place or range where carrier shall take the goods into his charge. Regardless of the
number of transportation modes involved in the shipment, the transportation point must be
a location within the seller’s home nation.

CPT (Carriage Paid To) This term means that the seller delivers the goods to the carrier
nominated by him but the seller must in addition pay the cost of carriage necessary to bring
the goods to the named destination. The buyer bears all costs occurring after the goods have

17
been so delivered. The seller must clear the goods for export. This term may be used
irrespective of the mode of transport (including multimodal)

CIP (Carriage and Insurance Paid to) This term is the same as CPT with the exception that the
seller also has to procure insurance against the buyer's risk of loss or damage to the goods
during the carriage. This term may be used for any mode of transportation.

DAT (Delivered at Terminal) The seller is responsible for arranging carriage and for delivering
the goods, unloaded from the arriving conveyance, at the named place. Risk transfers from
seller to buyer when the goods have been unloaded. ‘Terminal’ can be any place – a quay,
container yard, warehouse or transport hub. The buyer is responsible for import clearance
and any applicable local taxes or import duties.

DAP (Delivered at Place) The seller is responsible for arranging carriage and for delivering the
goods, ready for unloading from the arriving conveyance, at the named place. (An important
difference from Delivered At Terminal DAT, where the seller is responsible for unloading.)
Risk transfers from seller to buyer when the goods are available for unloading; so unloading
is at the buyer’s risk. The buyer is responsible for import clearance and any applicable local
taxes or import duties

DDU (Delivered Duty Unpaid) This term means the seller delivers the goods to the buyer, not
cleared for import, and not unloaded from arriving means of transport at the named place of
destination. The seller bears all costs & risks involved in bringing the goods to the named
place other than "duty" (which includes the responsibility for customs formalities & payment
of those formalities, duties & taxes) for import into the country of destination. Buyer is
responsible for payment of all customs & duties & taxes.

DDP (Delivered Duty Paid) represents maximum obligation to the seller. This term should not
be used if the seller is unable to directly or indirectly to obtain the import license. The terms
means the same as the DDU(Delivered Duty Unpaid) term with the exception that the seller
also will bear all costs & risks of carrying out customs formalities including the payment of
duties, taxes & customs fees.

Incoterms that apply to sea and inland waterway transport only:

 FAS Free Alongside Ship

 FOB Free on Board

 CFR Cost and Freight

 CIF Cost, Insurance, and Freight

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FAS (Free alongside ship) this term means that the seller delivers the goods by placing themd
alongside the vessel at the named port of shipment. The seller is required to clear the goods
for export. The buyer has to bear all costs & risks of loss or damage to the goods from that
moment. This term can be used for ocean transport only.

FOB (free on board) Free on board shipment terms indicates that the seller delivers the goods
on a designated vessel. The term indicates whether the seller or the buyer is liable for goods
that are damaged or destroyed during shipping. "FOB shipping point" or "FOB origin"
means the buyer is at risk once the seller ships the goods. "FOB destination" means the seller
retains the risk of loss until the goods reach the buyer.

CIF (cost, insurance and freight) Cost, Insurance, and Freight (CIF) terms indicate the seller
must deliver the goods to a designated port and load them on a specified vessel, assuming
responsibility for paying all transportation, insurance, and loading costs. After that, the buyer
assumes the cost and risk associated with transporting the cargo from the designated port to
its warehouse or business.

CIP (carriage and insurance paid to) indicates that the seller delivers the goods to a carrier or
to another person nominated by the seller, at a place mutually agreed upon by the buyer and
seller, and that the seller pays the freight and insurance charges to transport the goods to the
specified destination. The risk of damage or loss to the goods is transferred from seller to
buyer as soon as the goods have been delivered to the carrier.

Fig 4: Incoterms
19
Manufacturing Practices
Lean
Doing more with less by employing 'lean thinking'. Lean manufacturing involves never ending
efforts to eliminate or reduce 'muda' (Japanese for waste or any activity that consumes
resources without adding value) in design, manufacturing, distribution, and customer service
processes. It was developed by Toyota Executive Taiichi Ohno during post-Second World War
reconstruction period in Japan.

The primary elements of Lean are:

 to have only the required inventory when needed;

 to improve quality to zero defects;
 to reduce lead times by reducing setup times, queue lengths, and lot sizes;
 to incrementally revise the operations themselves;
 to accomplish these things at minimum cost.

Kaizen
 Kaizen is a lean manufacturing tool that encourages continuous improvement in
quality, technology, processes, productivity, safety, and workplace culture. Kaizen
focuses on applying small, daily changes that result in major improvements over time.
 Kaizen provides one simple principle: look at how things can be improved, improve
them, and then improve them again and again. Some of the tools used to achieve
kaizen are :
 Automation: Look for processes that can be automated to improve efficiency and
make work easier.
 Kanban: Reduce waste by getting the inventory you need, when you need it.
 5S: Adopt 5S as a system for continuous improvement by achieving facility-wide
organization and cleanliness.
 TPM: Eliminate downtime and boost overall production through Total Productive
Maintenance.

Toyota Production System

The production system was developed by Toyota Motor Corporation to provide best quality,
lowest cost, and shortest lead time through the elimination of waste.

TPS is comprised of two pillars, Just-in-Time and Jidoka (autonomation)

TPS is maintained and improved through iterations of standardized work and kaizen
(continuous improvement), following Plan–Do-Check-Act.

20
 Fig 5: Toyota Production System “House”

Jidoka
The term jidoka used in the TPS (Toyota Production System) can be defined as "automation
with a human touch." Providing machines and operators the ability to detect when an
abnormal condition has occurred and immediately stop work. This enables operations to build
in quality at each process and to separate men and machines for more efficient work. Jidoka
sometimes is called autonomation, meaning automation with human intelligence. This is
because it gives equipment the ability to distinguish good parts from bad autonomously,
without being monitored by an operator. This eliminates the need for operators to
continuously watch machines and leads in turn to large productivity gains because one
operator can handle several machines, often termed multiprocess handling.

Jidoka originated in the form of a simple device that could stop the shuttle of an automatic
loom if the thread broke. The mechanism was able to detect if a thread is broken and
therefore immediately shut down the machine and signal that there’s a problem to avoid
producing defects. Afterward, the worker operating the loom had to fix the problem and
resume the production process.

Since equipment stops when a problem arises, a single operator can visually monitor and
efficiently control many machines. As an important tool for this "visual control" or "problem
visualization," Toyota plants use a problem display board system called "andon" that allows
operators to identify problems in the production line with only a glance.

21
 Fig 6: Concept of Jidoka

Heijunka
A technique to facilitate Just-In-Time (JIT) production, levelling the type and quantity of
production over a fixed period of time. This enables production to efficiently meet customer
demands while avoiding batching and results in minimum inventories, capital costs,
manpower, and production lead time through the whole value stream.
Say a hat producer receives orders for 500 of the same hat per week: 200 orders on Monday,
100 on Tuesday, 50 on Wednesday, 100 on Thursday, and 50 on Friday. Instead of trying to
meet demand in sequence of the orders, the hat producer would use heijunka to level
demand by producing an inventory of 100 hats near shipping to fulfill Monday’s orders. Every
Monday, 100 hats will be in inventory. The rest of the week, production will make a 100 hats
per day – a level amount. The inventory might look a little suspicious to Lean purists, but it
has its fans – it is the method the Toyota Production System uses today.

What if the situation involves multiple types of hats? Consider that orders are being placed
for hat models A, B, C and D. A mass producer will want to minimize waste around equipment
changeovers. Its production schedule will look something like this: AAAAABBBCCDD.
But what if a buyer decides at the last minute that orders of A need to be B instead? What if
order volumes for A suddenly drop off the map and orders for C begin to increase? A mass
producer might be desperate to find capacity to make more C while its A capacity sits. To
avoid such waste, a heijunka production schedule might look like AABCDAABCDAB, with
emphasis placed on efficient changeover times and buffer inventories that meet demand for
more popular items.

22
Relationship among Predictability, Flexibility and Stability Is Heijunka – When implemented
correctly, heijunka provides predictability by levelling the demand, flexibility by decreasing
changeover time and stability by averaging production volume and type over the long term.

Fig 7: Heijunka

Poka Yoke
The term means “foolproof” and refers to a device or mechanism that prevents defects from
occurring.

Example:

 Electric plugs have an earth pin that is longer than the other pins and is the first to
make contact with the socket. The protective shield of the neutral and earth sockets
are then opened safely.

 The device could be a clamp that can be placed only in a certain way

 A lid that can be turned in only one direction.

 In McDonald’s, the French fry scoop and standard size bag used to measure the
correct quantity are poka-yokes.

 Checklists are another type of poka yoke.

Just-In-Time (JIT)
Just-in-time is an inventory strategy companies employ to increase efficiency and decrease
waste by receiving goods only as they are needed in the production process, thereby reducing
inventory costs. This method requires producers to forecast demand accurately.

23
This inventory supply system represents a shift away from the older just-in-case strategy, in
which producers carried large inventories in case higher demand had to be met.
 The main objective of JIT manufacturing is to reduce manufacturing lead times.
 This is primarily achieved by drastic reductions in work-in-process (WIP).
 100% capacity utilization is not the predominant objective.
 The result is a smooth, uninterrupted flow of small lots of products throughout
production.
Example: Dell has leveraged JIT principles to make its manufacturing process a success. Dell’s
approach to JIT is different in that they leverage their suppliers to achieve the JIT goal. They
are also unique in that Dell is able to provide exceptionally short lead times to their
customers, by forcing their suppliers to carry inventory instead of carrying it themselves and
then demanding (and receiving) short lead times on components so that products can be
simply assembled by Dell quickly and then shipped to the customer.

Kanban
Kanban is a visual system for managing work as it moves through a process. Kanban visualizes
both the process (the workflow) and the actual work passing through that process. The goal
of Kanban is to identify potential bottlenecks in your process and fix them so work can flow
through it cost-effectively at an optimal speed or throughput. It is a method for managing the
creation of products with an emphasis on continual delivery while not overburdening the
development team.

Kanban is based on 3 basic principles:

 Visualize what you do today (workflow): seeing all the items in context of each other
can be very informative
 Limit the amount of work in progress (WIP): this helps balance the flow-based
approach so teams don’t start and commit to too much work at once
 Enhance flow: when something is finished, the next highest thing from the backlog is
pulled into play. Kanban promotes continuous collaboration and encourages active,
ongoing learning and improving by defining the best possible team workflow.

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Kanban WIP Limits
A key aspect of Kanban is to reduce the amount of multi-tasking that most teams and
knowledge workers are prone to do and instead encourage them to “Stop Starting! And Start
Finishing!”, a mantra coined by Dr. Arne Roock (of www.Software-Kanban.de). WIP – Work-
in-Progress – Limits defined at each stage of the workflow on a Kanban board encourage team
members to finish work at hand and only then, take up the next piece of work.

Gemba, Gembutsu, Genjitsu

 Gemba – Place of Production
Gemba is a term that is often used to describe ‘where the action occurs’ or in the case of
most manufacturing facilities, the shop floor. A related term gemba walk, means to get out
of your office and go out to the shop floor where the actual work is performed.

The idea behind gemba walks, and gemba in general, is to end the trend of managers sitting
in their offices and making decisions based exclusively on reports or second hand
information. While this type of information is critical, it is no substitute for actually seeing
how things are running and interacting with the front line employees.

 Gembutsu – The Actual Product

Looking at the actual end product and the product at various stages of manufacturing helps
you see where the value is added throughout the manufacturing process. It helps you to
streamline its creation by eliminating costly or time consuming steps that don’t add
significant value to the customers. This is critical because anything that expends the facility’s
time or other resources without adding value in the eyes of the customer is a significant
form of waste.

 Genjitsu – The Facts

Genjitsu means ‘the facts.’ In this context it means that managers need to work hard to find
the facts of any given situation. Many people mistake this for meaning they need to find out
who or what to blame for problems, but that is not the case.

25
Making an effort to determine the facts of the matter will give you the information needed
to make changes required to avoid problems and eliminate waste wherever possible. Even if
it is determined that someone is doing something wrong, that does not necessarily mean
that they need to be disciplined or even fired. Instead, it should be looked at as a learning
opportunity for both the employee and the whole team.

Theory of Constraints
The core concept of the Theory of Constraints is that every process has a single constraint and
that total process throughput can only be improved when the constraint is improved. A very
important corollary to this is that spending time optimizing non-constraints will not provide
significant benefits; only improvements to the constraint will further the goal (achieving more
profit).The Five Steps of the Theory of Constraints:

 Identify the System Constraint: Identify the current constraint (the single part of the
process that limits the rate at which the goal is achieved).

 Decide How to Exploit the Constraint: Make quick improvements to the throughput
of the constraint using existing resources (i.e. make the most of what you have).

 Subordinate Everything Else: The non-constraint components of the system must be

adjusted to a "setting" that will enable the constraint to operate at maximum
effectiveness. Once this has been done, the overall system is evaluated to determine
if the constraint has shifted to another component. If the constraint has been
eliminated, the change agent jumps to step five.

 Elevate the Constraint: If the constraint still exists (i.e. it has not moved), consider
what further actions can be taken to eliminate it from being the constraint. Normally,
actions are continued at this step until the constraint has been “broken” (until it has
moved somewhere else). In some cases, capital investment may be required.This step
is only considered if steps two and three have not been successful. Major changes to
the existing system are considered at this step.

 Return to Step One, But Beware of "Inertia"

What are Constraints?

Constraints are anything that prevents the organization from making progress towards its
goal. In manufacturing processes, constraints are often referred to as bottlenecks.
Interestingly, constraints can take many forms other than equipment.

26
 Physical Typically equipment, but can also be other tangible items, such as material
shortages, lack of people, or lack of space.

Policy Required or recommended ways of working. May be informal (e.g. described

to new employees as “how things are done here”). Examples include company
procedures (e.g. how lot sizes are calculated, bonus plans, overtime policy),
union contracts (e.g. a contract that prohibits cross-training), or government
regulations (e.g. mandated breaks).

Paradigm Deeply engrained beliefs or habits. For example, the belief that “we must
always keep our equipment running to lower the manufacturing cost per piece”.
A close relative of the policy constraint.

Market Occurs when production capacity exceeds sales (the external marketplace is
constraining throughput). If there is an effective ongoing application of the
Theory of Constraints, eventually the constraint is likely to move to the
marketplace.

Example:
Step 1 Identify the System’s Bottleneck(s): At Akito’s Flowers, identify the floral arrangers as
the bottleneck.
Step 2 Exploit the Bottleneck(s): For the floral shop, take orders ahead of time to make sure
there is always a buffer of orders for the arrangers to work on. This prevents idle time at the
bottleneck resource.
Step 3 Subordinate All Other Decisions to Step 2: Schedule non- bottleneck resources to
support the maximum use of the bottleneck. For Akito’s Flowers, have the clerk transfer
orders to the arrangers every ten minutes at the start of the day to make sure the bottleneck
is fully used. You may have to arrive early or stay late to be sure the orders are processed and
waiting for the arrangers to arrive first thing each day.
Step 4 Elevate the Bottleneck(s): If after Steps 1 through 3 the bottleneck is still a constraint,
then consider increasing the capacity of the bottleneck. At Akito’s Flowers, add another floral
arranger.
Step 5 Do Not Let Inertia Set In: Although the floral arrangers may improve their throughput,
check to see whether new constraints have developed. If so, work on increasing throughput.

27
Service Operations
Manufacturing & Services – Similarities & Differences

Manufacturing Organization Service Organization

Physical, durable product Intangible, perishable product

Output can be inventoried Output cannot be inventoried

Low customer contact High customer contact

Long response time Short response time

Large facility Small facility

Capital intensive Labour intensive

Quality easily measured Quality not easily measured

Service Blueprint
A service blueprint is an operational planning tool that provides guidance on how a service
will be provided, specifying the physical evidence, staff actions, and support systems /
infrastructure needed to deliver the service across its different channels.
For example, to plan how you will loan devices to users, a service blueprint would help
determine how this would happen at a service desk, what kinds of maintenance and support
activities were needed behind the scenes, how users would learn about what’s available, how
it would be checked in and out, and by what means users would be trained on how to use the
device.
Service blueprints are instrumental in complex scenarios spanning many service-related
offerings. Blueprinting is an ideal approach to experiences that are omni-channel, involve
multiple touchpoints, or require a cross-functional effort (that is, coordination of multiple
departments).
A service blueprint corresponds to a specific customer journey and the specific user goals
associated to that journey. This journey can vary in scope. Thus, for the same service, you
may have multiple blueprints if there are several different scenarios that it can accommodate.
For example, with a restaurant business, you may have separate service blueprints for the
tasks of ordering food for takeout versus dining in the restaurant.

28
Service blueprints should always align to a business goal: reducing redundancies, improving
the employee experience, or converging siloed processes.
Key Elements of a Service Blueprint:
The key elements of a service blueprint are:
 Customer actions
Steps, choices, activities, and interactions that customer performs while interacting with a
service to reach a particular goal. Customer actions are derived from research or a customer-
journey map.
 Frontstage actions
Actions that occur directly in view of the customer. These actions can be human-to-human or
human-to-computer actions.. Each time a customer interacts with a service (through an
employee or via technology), a moment of truth occurs. During these moments of truth,
customers judge your quality and make decisions regarding future purchases.
 Backstage actions
Steps and activities that occur behind the scenes to support onstage happenings. These
actions could be performed by a backstage employee (e.g., a cook in the kitchen) or by a
frontstage employee who does something not visible to the customer (e.g., a waiter entering
an order into the kitchen display system).
 Processes
Internal steps, and interactions that support the employees in delivering the service.
In a service blueprint, key elements are organized into clusters with lines that separate them.
There are three primary lines:
 The line of interaction depicts the direct interactions between the customer and the
organization.
 The line of visibility separates all service activities that are visible to the customer from
those that are not visible. Everything frontstage (visible) appears above this line, while
everything backstage (not visible) appears below this line.
 The line of internal interaction separates contact employees from those who do not
directly support interactions with customers/users.
 The last layer of a service blueprint is evidence, which is made of the props and places
that anyone in the blueprint has an exchange with. Evidence can be involved in both
frontstage and backstage processes and actions.

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 Fig 8: Service Blueprint

Moments of truth
First Moment of Truth (FMOT) - It's what people think when they see your product, and the
impressions they form when they read the words describing your product.

Second Moment of Truth (SMOT) - It's what people feel, think, see, hear, touch, smell and
(sometimes) taste as they experience your product over time. It's also how your company
supports them in their efforts throughout the relationship. This can occur before purchasing
the product, such as experiencing a hands-on demonstration of a new phone, but may also
happen after a purchase, which occurs frequently in the modern age of online shopping
where a customer does not truly experience the product until after it arrives.

30
Ultimate Moment of Truth (UMOT). Also known as the Third Moment of Truth, the UMOT is
centered on feedback from customers concerning the product. During the UMOT, a customer
may choose to share their opinions on the service with the company that provided it, write a
review online and give their opinions to family, friends and colleagues. These takeaways will
influence whether they become a return customer and is known as the Ultimate Moment
because it may become the Zero Moment of Truth for other people in the future.

Zero Moment of Truth (ZMOT). Introduced by Google, it's what people search for and find
after encountering the stimulus that directs their next steps. At this time, a customer will
encounter reviews and more information about the product before moving forward in the
journey.

Queuing
The principal actors in a queuing situation are the customer and the server. Typically
queues are customers waiting for service. Customers are generated from a source. On
arrival at a service facility, they can start service immediately or wait in a queue, if the
facility is busy. To analyze this sub-system we need information relating to:
Arrival process

 how customers arrive e.g. singly or in groups (batch or bulk arrivals)

 how the arrivals are distributed in time (e.g. what is the probability distribution of
time between successive arrivals (the interarrival time distribution)

 whether there is a finite population of customers or (effectively) an infinite number

Service mechanism

 a description of the resources needed for service to begin

 how long the service will take (the service time distribution)
 the number of servers available
 whether the servers are in series (each server has a separate queue) or in parallel (one
queue for all servers)
 whether preemption is allowed (a server can stop processing a customer to deal with
another "emergency" customer)

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Queue characteristics

 How, from the set of customers waiting for service, do we choose the one to be served
next (e.g. FIFO (first-in first-out) - also known as FCFS (first-come first served); LIFO (last-in
first-out); randomly) (this is often called the queue discipline)
 Do we have:
o balking (customers deciding not to join the queue if it is too long)
o reneging (customers leave the queue if they have waited too long for service)
ojockeying (customers switch between queues if they think they will get served faster
by so doing)
o a queue of finite capacity or (effectively) of infinite capacity

Single Queues

Multiple Queues

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Forecasting
There are many types of forecasting models. They differ in their degree of complexity, the
amount of data they use, and the way they generate the forecast. However, some features
are common to all forecasting models. They include the following:

 Forecasts are rarely perfect: Forecasting the future involves uncertainty. Therefore, it
is almost impossible to make a perfect prediction. The goal of forecasting is to
generate good forecasts on the average over time and to keep forecast errors as low
as possible.
 Every forecast should include an estimate of error: Since forecasts are expected to be
wrong, the real question is “By how much?” Every forecast should include an estimate
of error often expressed as a percentage (plus and minus) of the forecast or as a range
between maximum and minimum values.
 Forecasts are more accurate for groups or families of items rather than for individual
items: When items are grouped together, their individual high and low values can
cancel each other out. The data for a group of items can be stable even when
individual items in the group are very unstable. Consequently, one can obtain a higher
degree of accuracy when forecasting for a group of items rather than for individual
items. For example, you cannot expect the same degree of accuracy if you are
forecasting sales of long-sleeved hunter green polo shirts that you can expect when
forecasting sales of all polo shirts.
 Forecasts are more accurate for shorter than longer time horizons: The shorter the
time horizon of the forecast, the lower the degree of uncertainty. Data do not change
very much in the short run. As the time horizon increases, however, there is a much
greater likelihood that changes in established patterns and relationships will occur.
For example, it is much harder to predict sales of a product two years from now than
to predict sales two weeks from now.

Forecasting Techniques
There are many forecasting methods, but they can usually be classified into:
Qualitative Techniques

Qualitative forecasting methods, often called judgmental methods, are methods in which the
forecast is made subjectively by the forecaster. They are educated guesses by forecasters or
experts based on intuition, knowledge, and experience. When you decide, based on your
intuition, that a particular team is going to win a cricket game, you are making a qualitative
forecast. Because qualitative methods are made by people, they are often biased.

33
Quantitative Techniques

Quantitative forecasting methods, on the other hand, are based on mathematical modeling.
Because they are mathematical, these methods are consistent. The same model will generate
the exact same forecast from the same set of data every time. These methods are also
objective. They do not suffer from the biases found in qualitative forecasting. Finally, these
methods can consider a lot of information at one time. Because people have limited
information-processing abilities and can easily experience information overload, they cannot
compete with mathematically generated forecasts in this area.

Table 3: Types of Forecasting Methods

Types of Qualitative Techniques

Table 4: Types of Qualitative Methods

34
Types of Quantitative Techniques
 Moving Average

Procedure is to calculate the average company sales for previous years. Moving averages
name is due to dropping sales in the oldest period and replacing it by sales in the newest
period.

Example:

Table 5: Moving Average Method

 Weighted Moving Average

The weighted moving average is calculated by multiplying each datum in your series by a
different ratio and then taking the sum of those products. Weighted averages assign a heavier
weighting to more current data points since they are more relevant than data points in the
distant past. The sum of the weighting should add up to 1 (or 100%).

Example:

Table 6: Weighted Moving Average Method

The weighted average is calculated by multiplying the given price by its associated weighting
and then summing the values. In the example above, the weighted 5-day moving average
would be $90.62.

35
Calculation

((90.9*(5/15)) + (90.36*(4/15)) + (90.28*(3/15)) + (90.83*(2/15)) + (90.91*(1/15)))

 Exponential smoothing

It is not necessary to keep months of history to get a moving average because the previously
calculated forecast has already allowed for this history. Therefore, the forecast can be based
on the old calculated forecast and the new data.

New forecast = (alpha) (latest demand) + (1 – alpha) (previous forecast)

Alpha is known as smoothing constant. When more weight is to be assigned to latest demand,
alpha is more than 0.5 and vice versa.
Exponential smoothing provides a routine method for regularly updating item forecasts. It
works quite well when dealing with stable items. Generally, it has been found satisfactory for
short-range forecasting. It is not satisfactory where the demand is low or intermittent.
Exponential smoothing will detect trends, although the forecast will lag actual demand if a
definite trend exists.
If a trend exists, it is possible to use a slightly more complex formula called double exponential
smoothing. This technique uses the same principles but notes whether each successive value
of the forecast is moving up or down on a trend line.

Level, Trend, Seasonality and Noise

A useful abstraction for selecting forecasting methods is to break a time series down into
systematic and unsystematic components.
 Systematic: Components of the time series that have consistency or recurrence and can
be described and modeled.
 Non-Systematic: Components of the time series that cannot be directly modeled.
A given time series is thought to consist of three systematic components including level,
trend, seasonality, and one non-systematic component called noise.
These components are defined as follows:
 Level: The average value in the series.
 Trend: The increasing or decreasing value in the series.
 Seasonality: The repeating short-term cycle in the series.
36
  Noise: The random variation in the series.

These components can be combined to form the time series either additively or
multiplicatively, i.e:
Additive: y(t) = Level + Trend + Seasonality + Noise
Multiplicative: y(t) = Level * Trend * Seasonality * Noise

Table 7: Forecasting Methods

Forecast Error
In statistics, a forecast error is the difference between the actual or real and the predicted or
forecast value of a time series or any other phenomenon of interest. Since the forecast error
is derived from the same scale of data, comparisons between the forecast errors of different
series can only be made when the series are on the same scale.

Forecast error is the difference between actual demand and forecast demand. Various
techniques to map the efficiency of model or find accuracy of model:

37
 Mean absolute deviation (MAD)
It takes the absolute value of forecast errors and averages them over the entirety of the
forecast time periods. Taking an absolute value of a number disregards whether the number
is negative or positive and, in this case, avoids the positives and negatives cancelling each
other out.
 Mean absolute percentage error (MAPE)

It is the most common measure of forecast error. MAPE functions best when there are no
extremes to the data (including zeros). MAPE is the average absolute percent error for each
time period or forecast minus actuals divided by actuals.

Quality
Quality means user satisfaction: that goods or services satisfy the needs and expectations of
the user. To achieve quality according to this definition, we must consider

1. Quality and product policy

2. Product design

3. Manufacturing

4. Final use of the product.

Dimensions of Quality
1. Performance

2. Features

3. Conformance

4. Warranty

5. Service

6. Aesthetics

7. Perceived Quality

8. Price

38
Cost of Quality
 Costs of Controlling Quality
Prevention costs: The costs of avoiding trouble by doing the job right in the first place. They
include training, statistical process control, machine maintenance, design improvements, and
quality planning costs.

Appraisal costs: The costs associated with checking and auditing quality in the organization.
They include product inspection, quality audits, testing, and calibration.

 Costs of Failure
The costs of failing to control quality are the costs of producing material that does not meet
specification.

Internal failure costs: The costs of correcting problems that occur while the goods are still in
the production facility. Such costs are scrap, rework, and spoilage. These costs would
disappear if no defects existed in the product before shipment.

External failure costs: The costs of correcting problems after goods or services have been
delivered to the customer. They include warranty costs, field servicing of customer goods and
all the other costs associated with trying to satisfy customer complaints.

Quality control Tools

The Seven Basic Tools of Quality is a designation given to a fixed set of graphical techniques
identified as being most helpful in troubleshooting issues related to quality.

A. Tools for Generating the Data

1. Check sheet
2. Scatter Diagram
3. Cause-and-effect diagram (also known as the "fishbone" or Ishikawa diagram)
B. Tools for Organizing the Data
1. Pareto Chart
2. Flowchart (Process Diagram)
C. Tools for Identifying Problems
1. Histogram
2. Statistical Process Control Chart

39
Check Sheet
These represent a very simple method to collect data. Once an issue of interest has been
determined (for example, customer complaints about some product or service), the sources
of the complaints are listed as they occur. Whenever a complaint reason is repeated, a check
is put beside the reason.

Below is shown a check sheet for Telephone Interruptions and its causes.

Fig 9: Check Sheet

Scatter Diagram
A scatter plot is a type of mathematical diagram using Cartesian coordinates to display values
for two variables for a set of data.

The data is displayed as a collection of points, each having the value of one variable
determining the position on the horizontal axis and the value of the other variable
determining the position on the vertical axis.

Fig 10: Scatter Plot of Temperature vs Month

40
Cause-and-effect diagram
Ishikawa diagrams are causal diagrams created by Kaoru Ishikawa (1968) that show the causes
of a specific event. These diagrams are used to plot out all the potential causes for an
identified problem (effect). Causes are grouped into 6 major groups to make it easier to
understand.

 Manpower: People associated with the process

 Methods: Method of performing a process and requirement arrangement
 Machines: Various tools, equipment or processors involved in process
 Materials: Feed/Raw material, intermediate materials required to produce end product
Measurements: Quality deciding factors in form of various data generated using various
parameters
 Mother Nature: Environmental, cultural or engineering factors affecting process

As specific problems are branched out from the major effect area, the result appears to look
something like a fishbone. Common uses of the Ishikawa diagram are product design and
quality defect prevention, to identify potential factors causing an overall effect.

Fig 11: Fish-bone diagram

Pareto Chart
A Pareto chart is a type of chart that contains both bars and a line graph, where individual
values are represented in descending order by bars, and the line represents the cumulative
total. It is technique of arranging data according to priority or importance and using it into a
problem solving frame work. It helps to focus on those few vital problems, for identifying the
41
root causes of problems and Useful in checking the effectiveness of the remedy on its
implementation.

Below mentioned Pareto chart shows that three major causes for customer complaints are
waiting for reservations, room cleanliness and waiting time for getting room services.

Fig 12: Pareto Chart

Flow Chart
A Flow chart shows flow of a process. It consists of various symbols which are used to
describe various stages in a process and it can easily determine the scope of a particular
action upon on-going process.

Fig 13: Shapes used in flow charts

42
Histogram
Histogram is a graphical representation of a frequency distribution which is a summary of
variation in a product or process

Fig 14: Histogram of results of an exam

Control Charts
It is a graphical representation of various parameters deciding Quality of a product. It consists
of a graph with a central line denoting the target value or standard and two limit lines on
either side of the central line called “Upper Control Limit” and “Lower Control Limit”. Quality
measured periodically is plotted on the chart and status of control assessed.

Fig 15: Control chart

43
 5S
"A place for everything, and everything in its place"

Pillar What does it mean? Why is it important? What problems are avoided?

 The factory becomes

increasingly crowded and hard
 Space, time, money, to work in. Storage of unneeded
energy, and other resources items gets in the way of
 Remove all items not can be managed and used communication.
needed for current most effectively. Reduces  Time wasted searching for
production operations. problems and annoyances parts/tools.
Sort  Leave only the bare in the work flow.  Unneeded inventory and
essentials: When in  Improves machinery are costly to
doubt, throw it out communication between maintain.
workers.  Excess stock hides production
 Increases product problems.
quality.  Unneeded items and
 Enhances productivity equipment make it harder to
improve the process flow

 Eliminates many kinds of

 Arrange needed items  Motion waste. Searching
waste, including:
so that they are easy to waste. Waste of human energy.
 Searching waste.
Set in order use.  Waste of excess inventory.
 Waste due to difficulty in
 Label items so that  Waste of defective products.
using items.
anyone can find them or Waste of unsafe conditions
 Waste due to difficulty in
put them away.
returning items

44
  Lack of sunlight can lead to
 Turn the workplace into a poor morale and inefficient
clean, bright place where work.
 Keep everything, everyone will enjoy  Defects are less obvious.
Shine every day, swept and working.  Puddles of oil and water cause
clean.  Keep things in a slipping and injuries.
condition so it is ready to  Machines that do not receive
be used when needed sufficient maintenance tend to
break down and cause defects.

 Conditions go back to their old

undesirable levels.
 Work areas are dirty and
 By ensuring conditions cluttered.
 Integrates Sort, Set in do not deteriorate to former  Tool storage sites become
Standardize Order, and Shine into a state, facilitates disorganized and time wasted
unified whole implementation of the first searching for tools.
three pillars  Clutter starts to accumulate
over time.
 Backsliding occurs

 Unneeded items begin piling

up.
 Tools and jigs do not get
returned to their designated
 Making a habit of places.
 Consequences of not
properly maintaining  No matter how dirty
keeping to the course of
Sustain correct procedures. equipment becomes, nothing is
action greater than
 Instill discipline done to clean it.
consequences of keeping to
necessary to avoid  Items are left in a hazardous
it
backsliding. orientation.
 Dark, dirty, disorganized
workplace results in lower
morale

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Types of Waste (TIMWOODS)
T – Transport – Moving people, products & information

I – Inventory – Storing parts, pieces, documentation ahead of requirements

M – Motion – Bending, turning, reaching, lifting

W – Waiting – For parts, information, instructions, equipment

O – Over production – Making more than is IMMEDIATELY required

O – Over processing – Tighter tolerances or higher grade materials than are necessary

D – Defects – Rework, scrap, incorrect documentation

S – Skills – Underutilizing capabilities, delegating tasks with inadequate training

Fig 16: Types of waste

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Statistical Process Control
Statistical Process Control (SPC) is an industry-standard methodology for measuring and
controlling quality during the manufacturing process. Quality data in the form of Product or
Process measurements are obtained in real-time during manufacturing. This data is then
plotted on a graph with pre-determined control limits. Control limits are determined by the
capability of the process, whereas specification limits are determined by the client's needs.
Data that falls within the control limits indicates that everything is operating as expected. Any
variation within the control limits is likely due to a common cause—the natural variation that
is expected as part of the process. If data falls outside of the control limits, this indicates that
an assignable cause is likely the source of the product variation, and something within the
process should be changed to fix the issue before defects occur.

Control Limits and Specification Limits

Control limits are determined by the capability of the process, whereas specification limits
are determined by the client's needs.
Specification limits are the targets set for the process/ product by customer or market
performance or internal target. In short it is the intended result on the metric that is
measured.
Control limits on the other hand are the indicators of the variation in the performance of the
process. It is the actual values that the process is operating on. It is the real time value.
For example, consider a process of filling chips into packets of 100gm. The process may have
control limits of 95 gm to 105 gm. This means the current process though ideally should fill
exactly 100 gms of chips in each packet, fills anywhere between 95 to 105 gm of chips.
On the other hand, the specification limits are those which are set by the processor/customer.
For example, in this case there may be a specification limit between 98 gm to 102 gms, i.e
customer will tolerate only if there is a +/- 2 gm of variations.
Hence generally, the specification limits should be greater than the control limits (measured
from the mean of the process). This ensures that client and other needs are satisfied.

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PDCA
Plan

Act Do

Check
PDCA is an iterative four-step management method used in business for the control and
continuous improvement of processes and products. It is also known as the Deming
circle/cycle/wheel, Shewhart cycle, control circle/cycle, or plan–do–study– act (PDSA).

The steps in each successive PDCA cycle are:

PLAN

Establish the objectives and processes necessary to deliver results in accordance with the
expected output (the target or goals).
DO

Implement the plan, execute the process, and make the product. Collect data for charting and
analysis in the following "CHECK" and "ACT" steps.
CHECK

Study the actual results (measured and collected in "DO" above) and compare against the
expected results (targets or goals from the "PLAN") to ascertain any differences.
ACT

Request corrective actions on significant differences between actual and planned results.
Analyze the differences to determine their root causes. Determine where to apply changes
that will include improvement of the process or product.

Six Sigma
Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects. To
achieve Six Sigma, a process must not produce more than 3.4 defects per million
opportunities.

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A Six Sigma defect is defined as anything outside of customer specifications. A Six Sigma
opportunity is then the total quantity of chances for a defect.

There are two Six Sigma sub-methodologies: - DMAIC and DMADV. The Six Sigma DMAIC
process (define, measure, analyze, improve, control) is an improvement system for existing
processes falling below specification and looking for incremental improvement. DMADV
process (define, measure, analyze, design and verify) is a Six Sigma framework that focuses
primarily on the development of a new service, product or process as opposed to improving
a previously existing one.

How are DMAIC and DMADV Different?

Despite the shared first three letters of their names, there are some notable differences
between them. The main difference exists in the way the final two steps of the process are
handled. With DMADV, the Design and Verify steps deal with redesigning a process to match
customer needs, as opposed to the Improve and Control steps that focus on determining ways
to readjust and control the process. DMAIC typically defines a business process and how
applicable it is; DMADV defines the needs of the customer as they relate to a service or
product.

With regards to measurement, DMAIC measures current performance of a process while

DMADV measures customer specifications and needs. Control systems are established with
DMAIC in order to keep check on the business’ future performance, while with DMADV, a
suggested business model must undergo simulation tests to verify efficacy.

DMAIC concentrates on making improvements to a business process in order to reduce or

eliminate defects; DMADV develops an appropriate business model destined to meet the
customers’ requirements.

The Six Sigma DMADV process (define, measure, analyze, design, verify) is an improvement
system used to develop new processes or products at Six Sigma quality levels.

49
Quality Function Deployment
QFD is a structured method that uses the seven management and planning tools to identify
and prioritize customers’ expectations quickly and effectively. Beginning with the initial
matrix, commonly termed the house of quality, the QFD methodology focuses on the most
once you have prioritized the attributes and qualities, QFD deploys them to the appropriate
organizational function for action important product or service attributes or qualities. Thus,
QFD is the deployment of customer-driven qualities to the responsible functions of an
organization.

Fig 17: House of Quality

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Zero Defects – The Theory and Implementation
Zero defects theory ensures that there is no waste existing in a project. Waste here refers to
all unproductive process, tools, employee etc. So, anything that is unproductive and does not
add value to a project should be eliminated from the project. By doing this, you reduce waste
and thus cut down the cost involved in the waste. Besides eliminating waste, there should be
a process of improvement. Any scope of improvement that is possible in a project should be
experimented. This ensures the movement towards perfection. Zero defects theory also
closely connects with “right first time” phrase. This means that every project should be
perfect at the very first time itself. Here, again perfect refers to zero defects. Zero defects
theory is based on four elements for implementation in real projects.

Quality is a state of assurance to requirements. Therefore, zero defects in project means

fulfilling requirement at that point of time. Quality should be taken care of at the very first go
rather than solving problems at a later stage.

Quality here is measured in financial terms. One needs to judge waste, production and
revenue in terms of money.

Performance should be judged as per zero defects theory, i.e. near to perfection. Just being
good is not good enough.
Pros and Cons
Zero defects ensure that all waste existing in a project is eliminated in the very first go itself
that leads to cost reduction. Thus, Zero defects leads to waste reduction along with cost
cutting. All these process improves services and therefore, there is improvement in quality
leading to happy customers. However, there are certain disadvantages of this theory as well.
As there is a quest for perfection and zero defects, more people and process might be
involved to find out the defects which will lead to extra cost. Also over strictness might
hamper the work culture and production in projects. To overcome the cons, along with
following zero defects theory, one needs to ensure continual service improvement as well.

International Organization for Standardization (ISO)

ISO 9000 is a set of international standards on quality management and quality assurance
developed to help companies effectively document the quality system elements to be
implemented to maintain an efficient quality system. They are not specific to any one industry
and can be applied to organizations of any size.

ISO 9000 can help a company satisfy its customers, meet regulatory requirements, and
achieve continual improvement. However, it should be considered to be a first step, the base
level of a quality system, not a complete guarantee of quality.

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ISO 9000 vs. 9001

ISO 9000 is a series, or family, of standards. ISO 9001 is a standard within the family. The ISO 9000
family of standards also contains an individual standard named ISO 9000. This standard lays out the
fundamentals and vocabulary of quality management systems (QMS).

ISO 9000 Series standards

The ISO 9000 family contains these standards:

 ISO 9001:2015: Quality management systems - Requirements

 ISO 9000:2015: Quality management systems - Fundamentals and vocabulary (definitions)
 ISO 9004:2009: Quality management systems – Managing for the sustained success of an
organization (continuous improvement)
 ISO 19011:2011: Guidelines for auditing management systems

The ISO 9001:2008 standard consists of eight sections, with the last five being specific to the
establishment of a quality management system that is sustainable and auditable.

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Supply Chain

There are three phases to the flow of materials. Raw materials flow into a manufacturing
company from a physical supply system, they are processed by manufacturing, and finally
finished goods are distributed to end consumers through a physical distribution system.
Companies currently adopting the supply chain concept view the entire set of activities from
raw material production to final customer purchase to final disposal as a linked chain of
activities. To result in optimal performance for customer service and cost, it is felt that the
supply chain of activities should be managed as an extension of the partnership. This implies
many issues, but three critical ones include:

 Flow of materials.
 Flow of information and sharing of information, mostly through the Internet.
 Fund transfers.

Fig 18: Supply chain for Beer

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Ex. A car manufacturer has a supply chain which begins from mining of the metals, the mined
metals are processed by the same or different company. Then the conversion of the metal to
usable form (sheet, rods) may be done by a third party. Later the sheet metal is consumed by
Car Company to build cars and purchased by common man. If we evaluate each step it will be
evident that there is a supplier, some sort of processing and a consumer, hence the definition.

Value Chain
A value chain is a set of activities that a firm operating in a specific industry performs in order
to deliver a valuable product or service for the market. The activity of a diamond cutter can
illustrate the difference between cost and the value chain. The cutting activity may have a
low cost, but the activity adds much of the value to the end product, since a rough diamond
is significantly less valuable than a cut diamond.

Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on
systems, and how inputs are changed into the outputs purchased by consumers. Using this
viewpoint, Porter described a chain of activities common to all businesses, and he divided
them into primary and support activities, as shown below.

Fig 19: Porter’s generic value chain

Primary activities

 Inbound Logistics: arranging the inbound movement of materials, parts, and/or finished
inventory from suppliers to manufacturing or assembly plants, warehouses, or retail
stores
 Operations: concerned with managing the process that converts inputs (in the forms of
raw materials, labor, and energy) into outputs (in the form of goods and/or services).

54
 Outbound Logistics: is the process related to the storage and movement of the final
product and the related information flows from the end of the production line to the end
user
 Marketing and Sales: selling a product or service and processes for creating,
communicating, delivering, and exchanging offerings that have value for customers,
clients, partners, and society at large.
 Service: includes all the activities required to keep the product/service working effectively
for the buyer after it is sold and delivered.

Support/Secondary activities

 Infrastructure: consists of activities such as accounting, legal, finance, control, public

relations, quality assurance and general (strategic) management.
 Technological Development: pertains to the equipment, hardware, software, procedures
and technical knowledge brought to bear in the firm's transformation of inputs into
outputs.
 Human Resources Management: consists of all activities involved in recruiting, hiring,
training, developing, compensating and (if necessary) dismissing or laying off personnel.
 Procurement: the acquisition of goods, services or works from an outside external source

Functional product
This type of product is very stable and does not have variety or undergoes changes with high
frequency. So it is of less variety (low customization) and has Stable demand and thus does
not undergo rapid changes.

The supply chain used for such products is an efficient supply chain, where demand
uncertainty is less and hence the corresponding supply uncertainty is also low.

Innovative Product
This type of product undergoes frequent changes and this leads to variation in demand
 High level of customization
 Demand in not stable
 Product undergoes rapid changes

For a functional product an efficient supply chain is the fit, where demand and supply
uncertainties are minimum. In an efficient supply chain, we maintain less or no inventory.

55
For an innovative product, responsive supply chain is the fit, where we maintain a large
inventory to tone down the sudden surge in the demand.

Fig 20: Physically efficient vs Market responsive supply chains

Bullwhip effect
The bullwhip effect on the supply chain occurs when changes in consumer demand causes
the companies in a supply chain to order more goods to meet the new demand. The effect
can be best explained as an extreme change is supply position that is generated by a small
change in demand downstream. Inventory can quickly move from being back ordered to
being in excess due to serial nature of communicating up the supply chain and the delays in
moving product down the supply chain.

1PL - First-Party Logistics

An enterprise that sends goods or products from one location to another is a 1PL. For
example, a local farm that transports eggs directly to a grocery store for sale is a 1PL.
2PL - Second-Party Logistics
An enterprise that owns assets such as vehicles or planes to transport products from one
location to another is a 2PL. That same local farm might hire a 2PL to transport their eggs
from the farm to the grocery store.
3PL - Third-Party Logistics
In a 3PL model, an enterprise maintains management oversight, but outsources operations
of transportation and logistics to a provider who may subcontract out some or all of the
56
execution. Additional services may be performed such as crating, boxing and packaging to
add value to the supply chain. In our farm-to-grocery store example, a 3PL may be
responsible for packing the eggs in cartons in addition to moving the eggs from the farm
to the grocery store.
4PL - Fourth-Party Logistics
In a 4PL model, an enterprise outsources management of logistics activities as well as the
execution across the supply chain. The 4PL provider typically offers more strategic insight
and management over the enterprise's supply chain. A manufacturer will use a 4PL to
essentially outsource its entire logistics operations. In this case, the 4PL may manage the
communication with the farmer to produce more eggs as the grocery store's inventory
decreases.
5PL - Fifth-Party Logistics
A 5PL provider supplies innovative logistics solutions and develops an optimum supply
chain network. 5PL providers seek to gain efficiencies and increased value from the
beginning of the supply chain to the end through the use of technology like blockchain,
robotics, automation, Bluetooth beacons and Radio Frequency Identification (RFID)
devices.

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 Fig 21: Types of Logistics Providers

Difference between 3PL and 4PL

 Typically, the 4PL does not own transportation or warehouse assets. Instead, it
coordinates those aspects of the supply chain with vendors.
 The 4PL may coordinate activities of other 3PLs that handle various aspects of the
supply chain. The 4PL functions at the integration and optimization level, while a
3PL may be more focused on day-to-day operations.
 The primary advantage of a 4PL relationship is that it is a strategic relationship
focused on providing the highest level of services for the best value, as opposed to
a 3PL that may be more transaction focused.
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  A 4PL provides a single point of contact for your supply chain. With a 3PL, there
may be some aspects that you still have to manage. The 4PL should take over those
processes for you, acting as the intermediary for 3PLs, carriers, warehouse vendors
and other participants in your supply chain.

Reverse Logistics
A complete supply chain dedicated to the reverse flow of products and materials for the
purpose of returns, repair, remanufacture and/or recycling. It is moving the items from
the consumer back to the producer for repair or disposal. There are two main categories
of reverse logistics: asset recovery, which is the return of actual products, and green
reverse logistics, which represents the responsibility of the supplier to dispose of
packaging materials or environmentally sensitive materials such as heavy metals and other
restricted materials.
Goods are returned for many reasons that can include:
 Quality demands by final customers (both real and perceived).
 Damaged or defective products.
 Inventories that result from over-forecast demand.
 Seasonal inventories.
 Out-of-date inventories.
 Remanufacturing and refurbishment of products.
Returned goods can be:
 Returned to inventory.
 Refurbished for resale.
 Sold into alternate markets.
 Broken down into reusable components.
 Sorted to recover valuable materials (further reducing disposal costs).
Example: recycling of used soft drink glass bottles, refurbishment of used Apple IPhone,
returnable packaging in automotive industry

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Project Management

A project is a temporary endeavor undertaken to create a unique product, service or result.

Temporary indicates that it has a definite beginning and end. Projects involve doing
something that has not been done before and is therefore unique. Outcome of the project
can be tangible or intangible.

Project Management is the application of Knowledge, Skills, Tools and Techniques to Project
activities to meet Project requirements.

Float/Slack
In project management, float or slack is the amount of time that a task in a project network
can be delayed without causing a delay to:

 Subsequent tasks (free float): Free Float is the amount of time that an activity can be
delayed without delaying the early start date of any successor activity.
 Project completion date (total float): Total Float is the amount of time that an activity can be
delayed from its early start date without delaying the project finish date.

A critical path may have 'unused time' expressed as total float. For example a project to
measure seasonal variation in sunrise would take a one minute measurement every day,
followed by 23 hours and 59 minutes of total float. Sunrise is on the critical path and there is
no way to schedule around it. Total float is associated with the path. If a project network
chart/diagram has 4 non-critical paths then that project would have 4 total float values. The
total float of a path is the combined free float values of all activities in a path.

What exactly is the “Successful” Project?

You would think it would be relatively straightforward to describe the attributes of a
successful project. Well, let’s just say this endeavor has kept more than a few “spin doctors,”
“politicians,” and “history revisionists” employed throughout organizations across our great
land.

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Why is this the case?
There are several reasons for this:
• There is a lack of universal harmony of what comprises project success metrics. It seems
that every project management educational source and organizational process maturity
standard has a slightly different definition of project success.

• For many projects, the acceptance and success criteria are never established or agreed to
by all key stakeholders

• In many cases, an organization might define a project as successful even when some of the
textbook criteria for project success (such as schedule, cost, and client expectations) are not
completely met. This is often the case if the project achieved strategic business or
organizational objectives.

• In other cases, a “cancelled” project might be a “successful” project if there was a plan for
one or more “go/no-go” decision points.
From a utopian, academic standpoint, the “ultimate” successful project would be defined as
a project that:
 Delivers as promised: Project produces all the stated deliverables
 Completes on-time: Project completes within the approved schedule
 Completes within budget: Project completes under the approved budget
 Delivers quality: Project deliverables meet all functional, performance, and quality
specifications
 Achieves original purpose: The project achieves its original goals, objectives, and purpose
 Meets all stakeholder expectations: The complete expectations of each key stakeholder
are met, including all client acceptance criteria, and each key stakeholder accepts the project
results without reservation
 Maintains “win-win” relationships: The needs of the project are met with a “people focus”
and do not require sacrificing the needs of individual team members or vendors. Participants
on successful projects should be enthusiastic when the project is complete and eager to
repeat a similar experience.

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Project Management Methodologies

Waterfall Model of Project Management

The original Waterfall method, as developed by Royce. The steps include Requirements
Determination, Design, Implementation, Verification, and Maintenance. Other models
change the Requirements phase into the Idea phase (or break the Requirements phase out
into Planning and Analysis. Furthermore, some models further break the Design phase out
into Logical and Physical Design sub-phase, however, the basic underlying principles remain
the same.

The Waterfall method makes the assumption that all requirements can be gathered up front
during the Requirements phase. Communication with the user is front-loaded into this
phase, as the Project Manager does his or her best to get a detailed understanding of the
user's requirements. Once this stage is complete, the process runs "downhill".

Fig 22: Waterfall Model

The Design phase is best described by breaking it up into Logical Design and Physical
Design sub-phases. During the Logical Design phase, the system's analysts makes use of the
information collected in the Requirements phase to design the system independently of any
hardware or software system. Once the higher-level Logical Design is complete, the systems
62
analyst then begins transforming it into a Physical Design dependent on the specifications of
specific hardware and software technologies.
The Implementation phase is when all of the actual code is written. Phase belongs to the
programmers in the Waterfall method, as they take the project requirements and
specifications, and code the applications.

The Verification phase was originally called for to ensure that the project is meeting customer
expectations. However, under real-world analysis and design, this stage is often ignored. The
project is rolled out to the customer, and the Maintenance phase begins.
During the Maintenance phase, the customer is using the developed application. As problems
are found due to improper requirements determination or other mistakes in the design
process, or due to changes in the users' requirements, changes are made to the system during
this phase.

The Waterfall method does have certain advantages, including:

 Design errors are captured before any software is written saving time during the
implementation phase.
 Excellent technical documentation is part of the deliverables and it is easier for new
programmers to get up to speed during the maintenance phase.
 The approach is very structured and it is easier to measure progress by reference to
clearly defined milestones.
 The total cost of the project can be accurately estimated after the requirements have
been defined (via the functional and user interface specifications).
 Testing is easier as it can be done by reference to the scenarios defined in the
functional specification.

Unfortunately, the Waterfall method carries with it quite a few disadvantages, such as:

 Clients will often find it difficult to state their requirements at the abstract level of a
functional specification and will only fully appreciate what is needed when the
application is delivered. It then becomes very difficult (and expensive) to re-engineer
the application.
 The model does not cater for the possibility of requirements changing during the
development cycle.
 A project can often take substantially longer to deliver than when developed with an
iterative methodology such as the agile development method. ("The Waterfall
Development Methodology", 2006).

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Agile Project Management
Agile Project Management is one of the revolutionary methods introduced for the practice of
project management. This is one of the latest project management strategies that is mainly
applied to project management practice in software development. Therefore, it is best to
relate agile project management to the software development process when understanding
it.
From the inception of software development as a business, there have been a number of
processes following, such as the waterfall model. With the advancement of software
development, technologies and business requirements, the traditional models are not robust
enough to cater the demands. Therefore, more flexible software development models were
required in order to address the agility of the requirements. As a result of this, the information
technology community developed agile software development models.
'Agile' is an umbrella term used for identifying various models used for agile development,
such as Scrum. Since agile development model is different from conventional models, agile
project management is a specialized area in project management.

The Agile Process

It is required for one to have a good understanding of the agile development process in order
to understand agile project management.

Fig 23: Agile Model

There are many differences in agile development model when compared to traditional
models:

64
  The agile model emphasizes on the fact that entire team should be a tightly integrated
unit. This includes the developers, quality assurance, project management, and the
customer.
 Frequent communication is one of the key factors that makes this integration possible.
Therefore, daily meetings are held in order to determine the day's work and
dependencies.
 Deliveries are short-term. Usually a delivery cycle ranges from one week to four
weeks. These are commonly known as sprints.
 Agile project teams follow open communication techniques and tools which enable
the team members (including the customer) to express their views and feedback
openly and quickly. These comments are then taken into consideration when shaping
the requirements and implementation of the software.

Scope of Agile Project Management

In an agile project, the entire team is responsible in managing the team and it is not just the
project manager's responsibility. When it comes to processes and procedures, the common
sense is used over the written policies.

This makes sure that there is no delay is management decision making and therefore things
can progress faster. In addition to being a manager, the agile project management function
should also demonstrate the leadership and skills in motivating others. This helps retaining
the spirit among the team members and gets the team to follow discipline.

Agile project manager is not the 'boss' of the software development team. Rather, this
function facilitates and coordinates the activities and resources required for quality and
speedy software development.

Responsibilities of an Agile Project Manager

The responsibilities of an agile project management function are given below. From one
project to another, these responsibilities can slightly change and are interpreted differently.

 Responsible for maintaining the agile values and practices in the project team.
 The agile project manager removes impediments as the core function of the role.
 Helps the project team members to turn the requirements backlog into working
software functionality.
 Facilitates and encourages effective and open communication within the team.

65
  Responsible for holding agile meetings that discusses the short-term plans and plans
to overcome obstacles.
 Enhances the tool and practices used in the development process.
 Agile project manager is the chief motivator of the team and plays the mentor role for
the team members as well.

Critical Chain Project Management

Critical Chain Project Management was developed and publicized by Dr. Eliyahu M. Goldratt
in 1997. Followers of this methodology of Project Management claim it to be an alternative
to the established standard of Project Management as advocated by PMBOK® and other
Standards of Project Management.

The Critical Chain Method has its roots in another one of Dr. Goldratt’s inventions,
namely, The Theory of Constraints (TOC). This Project Management Method comes into force
after the initial Project Schedule is prepared, which includes establishment of the task
dependencies. The evolved Critical path is reworked based on the Critical Chain Method. To
do so, the methodology assumes constraints related to each task.

A few of these constraints are listed out below:

 There is a certain amount of uncertainty in each task

 Task durations are often overestimated by the Team Members or Task Owners. This
is typically done to add a safety margin to the task so as to be certain of its completion
in the decided duration.
 In most cases, the tasks should not take the time estimated, which includes the safety
margin, and should be completed earlier.
 If the Safety Margin assumed is not needed, it is actually wasted. If the task is finished
sooner, it may not necessarily mean that the successor task can start earlier as the
resources required for the successor task may not be available until their scheduled
time. Hence, the saved time cannot be passed on to finish the Project early. On the
other hand, if there are delays over and above the estimated schedules, these delays
will most definitely get passed on, and, in most cases, will exponentially increase the
Project Schedule.

With the above assumptions, the Critical Path Methodology of Project Management
recommends pooling of the task buffers and adding them at the end of the Critical path

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 Fig 24: Pooled Buffer

The Critical Path Project Management defines three types of Buffers -

 Project Buffer - The total pooled buffer shown above, is referred to as the Project
Buffer.
 Feeding Buffer - In a Project Network, there are path/s which feed into the Critical
path. The pooled buffer on each such path represents the Feeding Buffer to the Critical
Path resulting in providing some slack to the critical Path.
 Resource Buffer- This is a virtual task inserted just before critical chain tasks that
require critical resources. This acts as a trigger point for the resource, indicating when
the critical path is about to begin.

Fig 25: Feeding Buffer

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As the Progress of the Project is reported, the Critical Chain is recalculated. In fact, monitoring
and controlling of the Project primarily focuses on utilization of the Buffers. Hence the Critical
Chain Method considers the basic Critical Path based Project Network and Schedule to derive
a completely new Schedule.

The Critical Path Project Management Methodology is very effective in organizations which
do not have evolved Project Management Practices. However, the methodology does not
advocate multi-tasking, and in Projects with complex Schedule Networks, the results of
implementing the Critical path Methodology have proven to be deterrent to the overall
Project Schedule. In addition, there is no standard method for calculating and optimizing the
Project Buffers. The Critical Path Project Management Methodology has had a fair amount of
success in manufacturing domains though it has not achieved any noteworthy success in the
IT Sector.

Triple Constraint
All projects are carried out under certain constraints:
 Cost

 Time

 Scope
These three factors (commonly called 'the triple constraint') are represented as a triangle.

Fig 26: Triple constraint model

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Each constraint forms the vertices, with quality as the central theme:

 Projects must be delivered within cost

 Projects must be delivered on time

 Projects must meet the agreed scope – no more, no less

 Projects must also meet customer quality requirements

Process Groups
Project Management Processes can be organized into 5 process groups (IPECC):

Initiating Process Group

The initiating process group involves the processes, activities, and skills needed to effectively
define the beginning of a project. Setting all permits, authorizations, and initial work orders
in place to secure an effective and logical progression of initial project activities sets the stage
for subsequent success throughout all project phases.

Planning Process Group

The Planning Process Group sets forth the processes needed to define the scope of the
project, set strategic plans in place to maximize workflow, and begin to assemble priority lists
and plan team needs. This process group also addresses a more narrow clarification of all
project goals and expectations and puts in place the project infrastructure necessary to
achieve those goals according to the timeline and budgetary constraints.

Executing Process Group

The executing process group involves managing teams effectively while orchestrating
timeline expectations and reaching benchmark goals.

Monitoring and Control Process Group

Processing change orders, addressing on-going budget considerations, and mitigating
unforeseen circumstances that may affect a team’s ability to meet initial project
expectations are all part of the Monitoring Process Group.

Closing Process Group

The Closing Process Group involves closing all aspects of the process and submitting
necessary paperwork on time.

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Knowledge Areas

Project Integration Management

Ensures that various elements of the project are properly coordinated and integrated. It
involves making tradeoffs among compering objectives and alternatives to meet or
exceed stakeholder needs and expectations. The major processes involved are Project
Plan Development, Project Plan Execution, and Overall Change Control

Project Scope Management

Ensure that the project includes all the work required, and only work required, to complete
the project successfully. The major processes involved are Initiation, Scope Planning, Scope
Definition, Scope Verification, and Scope Change Control.

Project scope - work that must be done to deliver a product with the specified features
and functions

Work Break down (WBS) Structure

A work Break down structure is a deliverable oriented grouping of project components that
organizes and defines the total scope of the project; work not in the WBS is outside the scope
of the project.

Fig 27: Work Breakdown Structure

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Project Time Management
Project Time Management includes the processes involved in timely completion of the
project. The major processes involved are Activity Definition, Activity Sequencing, Activity
Duration Estimating, Schedule Development, and Schedule Control.

Project Cost Management

Project Cost Management includes the processes required to ensure that the project is
complete within the approved budget. The major processes involved are Resource Planning,
Cost Estimating, Cost Budgeting, and Cost Control

Project Quality Management

Project Quality Management includes processes that ensures that the project will satisfy
the requirements. The major processes involved are Quality Planning, Quality Assurance,
and Quality Control

Project Communication Management

Project communication Management includes processes that ensures timely and
appropriate generation, collection, storage and ultimate disposition of project information.
The major processes involved are Communications Planning, Information Distribution,
Performance Reporting, and Administrative Closure.

Project Risk Management

Project risk Management includes processes that are concerned with identifying, analyzing,
and responding to project risk, maximizing the results of positive events minimizing the
consequences of negative events. The major processes involved are Risk Identification, Risk
Quantification, Risk Response Development, and Risk Response Control.

Project Procurement Management

Project Procurement Management includes processes that involve acquiring goods
and services from outside the performing organization. The major processes involved
are Procurement Planning, Solicitation Planning, Solicitation, Source Selection,
Contract Administration, and Contract Close-out.

Project Human Resources Management

Project Human Resource Management includes processes that involve the most effective
use of people involved with the project. The major processes involved are Organizational
Planning, Staff Acquisition, and Team Development.

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Inventory management

SKU
Stock keeping unit, it is a specific size (weight/volume/type) of product introduced to
the final customer.

Lot size
It is a term prevalent in manufacturing and procurement. Referring to the total number
of units of a product, produced or procured at a time.

Inventory review system

Inventory review system is of two type, periodic review and continuous review system, the
terms being self-explanatory. If we follow a periodic review system, we order in lots
containing variable number of units. Ex. In periodic order system the objective is to maintain
a particular level of inventory all the time, say 100 so we order the number of units needed
to maintain 100.

Continuous review system

As the term explains, the inventory level is continuously monitored, while ordering lot size is
kept constant. This practice is followed in many a manufacturing firms while procurement.
EOQ or economic order quantity is the lot size at which total cost pertaining inventory is
minimum. In continuous review system the ordering take place as EOQ.

Lead time
The time between in initiation and completion of a process.
Example: The lead time for placement of order by the customer for a piece of furniture
and the actual delivery to the customer can be 4 to 5 days.

Reorder point
The reorder point (ROP) is the level of inventory which triggers an action to replenish that
particular inventory stock. It is a minimum amount of an item which a firm holds in stock,
such that, when stock falls to this amount, the item must be reordered.

Safety Stock
Safety stock (also called buffer stock) is a term used by logisticians to describe a level of
extra stock that is maintained to mitigate risk of stock outs (shortfall in raw material or
packaging) due to uncertainties in supply and demand.

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E - Commerce

Market Place Model

Here, the company acts as a meeting ground or a facilitator through an Online IT platform for
buyers and sellers without storing goods. But they do offer shipping and payment assistance
by tying up with selected logistics players and financial partners. A pure ecommerce
marketplace follows a zero inventory model.
EBay and Naaptol are examples of ecommerce players that follow the marketplace model.

Inventory Model
Here, the company sources products directly from brands & sellers and stocks them. There
are no multiple sellers selling one product, unlike marketplaces where buyers get to choose
from several merchants. The seller is the ecommerce company and invoice is issued to the
customers on the company’s name.
Example: Jabong

Hybrid Model
A mix of marketplace and inventory is a hybrid ecommerce model. It’s also called a ‘managed
marketplace’ model. It is adopted by most Indian ecommerce players like Flipkart, Amazon
etc.

Under their marketplace fulfilment services like Fulfilment by Amazon (FBA) and Flipkart
Advantage, ecommerce players offer inventory storage, packaging & delivering services but a
seller is free to choose self-fulfillment or marketplace-fulfillment.

Drop shipment model

Drop shipping is both a sourcing a fulfilment business model where the retailer (you) never
actually owns the inventory you are selling. Instead, you are acting as a middle man that is
selling the goods on your own website and when you receive an order, you pass that order
onto the drop shipping company for them to pick, pack and fulfil. Your profit is the difference
between what you charge your customers on your website and what the drop shipping
company charges you.

There are, however, important differences between ecommerce marketplaces and drop
shipping:

Marketplaces take an additional step and produce ratings and reviews of the seller’s
performance. Many marketplaces also provide a seller storefront inside of the broader
ecommerce site so that you can see all of the products that seller has put into the

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marketplace. Drop shipping hides these facts. The consumer sees a brand, but cannot identify
that someone other than the retailer is fulfilling this product.

With marketplaces, sellers set the price to the consumer. With drop shipping, however, the
retailers control the prices.

With marketplaces, the seller typically specifies what shipping carriers and methods it will
support. In most cases, drop shipping retailers dictate those methods to their suppliers.

For a marketplace transaction, the customer contacts the seller directly. With drop shipping,
the customer contacts the retailer, who then coordinates with its up-stream suppliers.

Fig 28: Drop Shipping model

Distribution Strategies
Cross Docking

Fig 29: Cross docking

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Cross docking is a logistics procedure where products from a supplier or manufacturing plant
are distributed directly to a customer or retail chain without any inventory management
involved during the process. Once the goods are received, they are just sorted and shipped
to the required destination.

There are 2 types of cross docking:

 Basic Cross Dock – Products or Goods are moved from supplier origin vehicles directly to
customer bound vehicles without the need of a warehouse. A simple transfer point is
enough.
 Flow through Cross Dock – When Goods arrive and are in large packages, they are
opened, sorted and consolidated based on customer locations/ destinations and
transferred to vehicles bound for the same.

Benefits

 Cost of transportation is reduced since customer bound dedicated vehicles are not
required at the source/ supplier
 Inventory Cost is reduced since no storage takes place during the process

Constraints

 Requires High Level of Co-ordination along the supply chain

Milk Run

Fig 30: Milk run model

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Milk run distribution involves joint collection and delivery from multiple suppliers to a
common location/ Customer Location OR collection from one supplier to multiple customers

Benefits

 Reduction of Transportation Cost since few transportation vehicles are required

Constraints

 Applicable if suppliers/customers are located near to each other

Hub & Spoke Model

H&S distribution involves nodes/Central warehouses or storage (Hubs), connected by lines to
Customers/Suppliers (spokes) that represent viable transportation between them. Unlike
cross-docking, storage of goods might be considered at the node.

Fig 31: Hub and Spoke model

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Delivery Types
First Mile
First Mile refers to movement of goods from suppliers to distribution center/central
warehouse.
Last Mile
Last Mile refers to final movement of goods from distribution center/central warehouse to
doorstep of the customers.

Fig 32: Delivery model

IOT
The Internet of Things (IoT) is a network of 'smart' devices that connect and communicate via
the Internet. The key to the IoT is the interconnectivity of devices, which collect and exchange
information through embedded software, cameras and sensors which sense things like light,
sound, distance and movement. Smart devices operate automatically, or are controlled and
monitored remotely.

Which sectors use the IoT?

The Internet of Things is used in a variety of business sectors, from agriculture to healthcare
to manufacturing. Developments like automated checkout, connected, self-driving vehicles,
and asset management are helping to increase efficiency and productivity, and lower costs
across several industries. The consumer is seeing the benefits too, with advancements in
healthcare products and monitoring, and personal health and fitness products.

What are the risks?

 Information Security

Due to the interconnectivity of the IoT, a cyber incident could result in an information breach
which affects multiple levels of a business, from the head office, to the customers, and to the
supply chain in between.
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 Privacy

With every connected device comes some vulnerability. IoT-related cyber incidents can put
business, employee, and client information at risk of being destroyed, altered, stolen and
exposed, or even held for ransom. Another concern with IoT data collection is over the
confidentiality, privacy and integrity of business data.

 Safety

Consider the legal and financial impact of a device like a smart vehicle failing or being
manipulated. The malfunction or unauthorized control of an IoT device could cause damage
to data and equipment, or physical harm to customers or the public.

BlockChain
Blockchain is a distributed database that holds records of digital data or events in a way that
makes them tamper-resistant. While many users may access, inspect, or add to the data, they
can’t change or delete it. The original information stays put, leaving a permanent and public
information trail, or chain, of transactions.

Fig 33: Delivery model

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Supply Chain Possibilities of Blockchain:
Every time a product changes hands, the transaction could be documented, creating a
permanent history of a product, from manufacture to sale. This could dramatically reduce
time delays, added costs, and human error that plague transactions today.
Consider how this technology could improve the following tasks:

 Recording the quantity and transfer of assets - like pallets, trailers, containers, etc. - as
they move between supply chain nodes
 Tracking purchase orders, change orders, receipts, shipment notifications, or other trade-
related documents
 Linking physical goods to serial numbers, bar codes, digital tags like RFID, etc.
 Sharing information about manufacturing process, assembly, delivery, and maintenance
of products with suppliers and vendors

Benefits in a Nutshell
Regardless of the application, blockchain offers shippers the following advantages:
Enhanced Transparency: Documenting a product’s journey across the supply chain reveals its
true origin and touchpoints, which increases trust and helps eliminate the bias found in
today’s opaque supply chains. Manufacturers can also reduce recalls by sharing logs with
OEMs and regulators
Greater Scalability: Virtually any number of participants, accessing from any number of
touchpoints, is possible
Better Security: A shared, indelible ledger with codified rules could potentially eliminate the
audits required by internal systems and processes.

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