.

Chapter 4

OPERATIONS PLANNING AND CONTROLLING

4.1 What are different types of plans operations management?

Planning in operations management forms a hierarchy. The three layers in planning
includes general (or business or overall monetary plans), production (i.e., volume of
individual product/service) and constituent activities (or master production schedule).

4.2 What are the hierarchies in operations planning?

The two major types of hierarchies observed in operations planning are (i) major
hierarchy and (ii) sub-hierarchies. With some modifications these plans are
applicable for service operations also.

(i) Major hierarchy

(a) Business plan (establishes the monetary targets and percentage capacity
utilization). This plan depends on corporate strategy and policy, economic, political
and competitive conditions, and demand forecasts and finance available. (b)
Production plans – they are derived from business plans and deal with how much
quantity of each product “as a whole” and when they have to be produced. (c)
Master Production Schedule – it contains details about production of each
constituent part constituting a final “whole product”. Contains how much of each
part to be produced, and where and when it is to be produced. Master production
schedule includes production of spare parts and purchasing of parts from vendors
also.

(ii)Sub-hierarchies
They apply basically to business and production plans. In business plans the
hierarchy can be regional plans, zonal plans and district plans.. Whereas in
production plans there will be annual, quarterly, monthly and weekly plans.

4.3 What are different controlling techniques in operations management?

Budgeting, inventory control, daily reporting and monthly review meetings are the
generally employed controlling techniques in operations management.
4.4 How demand and supply would be matched in capacity requirement
planning?

“Capacity/Requirement Planning” is also known as “Aggregate Planning”. Demand

and supply may be matched in the short-term (i.e., up to one and half year) by (i)
overtime or (ii) outsourcing, (iii) Hiring or (iii) by producing more when demand is
less or (iv) by a combination of any of the four before mentioned measures. While
arriving at the optimal mix of before mentioned methods, operations research
techniques are employed.

4.5 Capacity Planning Vs Capacity / Requirement Planning.

Sl. No. Capacity Planning Capacity / Requirement Planning

1 It is planning the initial capacity of It is a planning processes to match

a facility and therefore, long-term the capacity with the demand
in nature. fluctuations once the business
operations have started. Therefore, it
is short-term in nature.

2 It is based on practical wisdom and It is mostly based on actual demand

available forecast data. pattern

3 Expansions and Acquisitions are Hiring, Overtime, Inventory and

the techniques employed. Outsourcing are the techniques
employed.

4.6 What do you mean by “aggregate planning”? What are its types? What is
the managerial importance of aggregate plans?
Aggregate Planning is also known as aggregate production planning or
capacity/requirement planning. The increasing competition and the resultant glut of
supply over the demand has forced the firms to segment their markets and
produce different products / services. As most firms produce multi-products, the
detailed production planning will not give a overall work load vis-à-vis the capacity
of the facility available. In this contest, the concept of “aggregation” is used.

2
 Aggregation provides a fair picture of the output In ONE equivalent unit. For
example, a steel producer can use tons of steel, an education institute the number
of student-faculty contact hours, a passenger airlines – the number of passenger
miles and the hospitals the number of patient visits. The following are the relevant
points:

 The aggregate planning (or aggregate production planning) is the planning

process that follows the long-term capacity planning. These plans do not
contain details such as sequencing, expediting, and dispatching. The
planning horizon ranges from three months to 18 months.
 The aim of aggregate planning is to find the best possible combination of
various available capacities to match with the demand requirements in a
given planning period at the most economical cost. The aggregate production
planning strategies are used to match the available resources with the
demand requirements for a short-period of time at least recurring cost. These
strategies are especially useful in case of seasonal demands wherein
sometimes demands are higher than the normal.

The following are the aggregate production planning strategies to meet the peak
demands (generally a mixture of strategies is preferred).

 Building and utilizing inventory through constant work force – also called the
“level production strategy”. Here inventory carrying cost and stock-out costs
are involved.
 Varying the size of the work force – this is also called the “chase strategy”.
Here, the hiring and firing costs are involved.
 Overtime utilization – here overtime payment costs are involved, and
 Sub-contracting – here the sub-contracting costs are involved.

In practice, the objective of aggregate production planning is to generate such

meaningful set of pure/mixed strategies (alternatives), evaluate them and select
the most economical alternative(s) for implementation.

4.7 What are BOM, MRP-I and MRP-II

The following is the brief description of the terms.

3
(a) Bill of Materials : It is list containing the name (or description) of the necessary
sub-parts, their quantity required and raw material type and size of the raw mateiial
that are necessary for making a main part. For example, “Bill of Materials of
Reynolds Pen”.
Part Name : 045 Reynold Pen (Blue)

Sl. No. Description Quantity Material Size

1 Bottom 1 IS 2018 Plastic 30 gms
2 Top 1 IS:2024 :Plastic 15 gms
3 Cap 1 IS: 1820 Plastic 15 gms
4 Refill Body 1 IS:1818 Plastic 15 gms
5 Refill Point 1 IS:12 Brass Dia 5 x 8
6 Refill Ink 10 cc IS:13 Ink Powder (Blue) 20 gms
7 Etching Ink 5 cc IS:12 Ink 8 gms
8 Blue Colour 10 cc IS: 132 Ink 12 cc

(b) MRP-I : Material Requirement Planning. This is a planning technique based on

simple calculations and is used for dependent demands. The demand
“dependency” is in the form of quantity and time. Because of simplicity in
calculations, the same are computerized and available in the form of a package.

For final products such as a passenger car wherein about 8,500 parts at different
quantities are involved, it is not economical for a manufacturing firm to produce
ALL the 8,500 parts all by itself. Therefore, it procures some of them from outside
vendors, get some of them made by small scale ancillary (or subsidiary) units, and
procure some from import sources. Each of these requires different time duration
to procure which is termed as “lead time”. In view of differences in lead times, it is
important to plan and place the orders in advance. Because of large number of
items with different lead times involved it is impossible to manually keep a track of
the same and computerized MRP-I package is of help. The input data for the
package are : (i) Bill of Materials, (ii) Inventory Status and (iii) Master Production
Schedule.

4
 (c) MRP-II : Manufacturing Resources Planning. This is an extension of MRP-I.
This is a planning technique based on simple calculations and is used for
dependent demands and is employed for such of those parts which are to be
manufactured “in-house” i.e., within the factory and require different manufacturing
resources such as equipments and workers. The demand “dependency” is in the
form of quantity and time. Because of simplicity in calculations, the same are
computerized and is available in the form of a package.

4.8 Aggregate Planning Vs Master Production Scheduling

Sl. No. Aggregate Planning Master Production Scheduling

1 It is a process of determining the It is week by week detailed production

overall output for 12 month period or operation plan for each type of
on a month to month basis. product/service detailing how many of
them need to be produced.

2 Driven by business plan which Driven by aggregate plan

inturn is driven by customer orders
and demand forecasts.

3 Do not contain detailed specific They contain detailed specific

instructions. They detail overall instructions such as inspection, loading,
business targets. sequencing and dispatching.

4.9 What do you mean by operations scheduling?

“Operations Scheduling” is the process of determination of sequence in which a
number of jobs has to be processed as per priority rules under different type of
operations systems. The operations scheduling aims at reducing the idle time or
waiting time and therefore the work-in-process inventory

 For mass production systems the “assembly-line” balancing techniques for

the “flow shop” are used wherein several successive tasks are combined into
groups called work-centres as per the priority rules viz., rank positional
weight, longest activity duration or largest number of successors. The time
taken in any work center to complete the group of tasks, should however, not

5
 to exceed the cycle time (i.e., total time between beginning and end of a task)
for the whole assembly-line.
 For scheduling the operations under “batch processing” run-out time rule is
used wherein the m/c idle time is considered.
 For scheduling the operations under job-shop – for single machines (or single
service provider). First Come First Serve, Shortest Processing Time, Early
Due Date, Minimum Slack Time, or Critical Ratio (i.e., time until due divided
by processing time) rules are used., However, the preference is for “shortest
processing time” rule due to minimum completion time and minimum
tardiness (i.e., degree of late delivery). For two machine problems wherein
the sequencing of first and second operation are fixed, the jobs are scheduled
as per Johnson’s rule.
 The operations scheduling helps in better production planning and control and
hence the optimum utilization of various resources available for operations.

4.10 What are different types of production? How they affect operations
scheduling?
The classification is based on three criteria of quantity required, variety involved
and repeatability. The three different types of production (applicable to service
operations also) are : (i) Job Production (or Customized Service Operations), (ii)
Batch Production (or Interactive Service Operations) and (iii) Continuous
Production (or Off-the-shelf Service Operations). The following table highlight the
relative values of these three criteria that are employed for the classification.

Sl. No. Type Quantity Variety Repeatability

1 Job (Customized) Few Large Low

2 Batch (Interactive) Moderate Moderate Regular

3 Continuous (Off-the-shelf) Large Low Continuous

Based on the type of production, the processes involved and the degree of human
activity and machine/equipment activity vary. This will affect the requirements for
resources such as men, machines. The type of production also affects idle time and
cycle time in operations. All these factors influence operations scheduling.

6
 Chapter 5
OPERATIONAL IMPERATIVES

5.1 What do you mean by “Operational Imperatives”?

“Operational Imperatives” are a broad set of concepts and techniques that any
organization has to follow necessarily in order to ensure its survival in today’s
competitive market. These are in addition to Function and Safety requirements.
Productivity, Quality and Timeliness are the three broad operational imperatives.
Materials Management, Application of Learning Curves, Maintenance Management
and Work Study are the supporting techniques to the three operational
imperatives.

The three imperatives (i.e., things that must be done) in operations management
are quality, productivity and timely delivery. The fourth imperative which is gaining
ground is “Sustainability”

5.2 What do you mean by “Productivity”? Why it is important in operations

management?
Productivity (P) is the ratio of output to input considered during the same period of
time. It is a function of the ratio of effectiveness to efficiency. In simple terms
“productivity” means getting more at less cost.

P = (Output / Input)Time = Fn (Effectiveness / Efficiency)Time

In the present market scenario, there is a need to increase productivity. However, it

is difficult to do so by increasing the output since the market is saturated with high
volumes of supply. Therefore, companies need to focus on methods of improving
the productivity by reducing the costs i.e., inputs.

5.3 What do you mean by (i) Time Study, (ii) Method Study, (iii) Human
Factors?

The following paragraphs provide the brief meaning of the terms.

7
 (i) Time Study : On-field and off-field estimation of average time required to
complete a task by a normal employee with average intelligence working at a at a
normal pace with requisite period(s) of rest. For example, estimating the average
time required to issue a draft in a bank.

(ii) Method Study : On-field study of various constituent activities to find the best
possible method of performing a task. For example, arriving at a best possible
sequence of activities which consume least resources while issuing a draft in a
bank.

(Note: Combination of “time study” and “method study” is known as “work study”)

(iii) Human Factors : The factors connected with physical and sense organs of a
human body that limits the working capability of an individual at workplace. For
example visual train, muscular fatigue, etc.

5.4 What do you mean by “Maintenance Management”? Describe the bath tub
curve?
“Maintenance” is the collection of activities that would enable a firm to keep its
plant, equipments and tools in good and working condition. “Maintenance
Management” is a continual process of identifying and reducing the imbalances in
the collection of activities connected with a purpose of keeping the plant,
equipments and tools in good and working condition. Practically, maintenance
management is a process of arriving at a judicious and economical mixture of
break-down and preventive maintenance approaches.

Break-down
Maintenance

Total Cost
Cost

Preventive
Maintenance

Level of Preventive Maintenance

8
Preventive Maintenance (PM) : It refer to those set of activities involved in
periodical inspection and servicing which are aimed to detect potential failures, and
to perform minor adjustments or repairs which will prevent major operating
problems in future. PM applies to equipments used in service operations as well.

Break-down Maintenance (BM) : The set of activities involved in repairing the

equipment after it has broken-down. Often BM is of emergency nature and involve
the speeding-up (expediting) cost and down-time cost. PM will reduce such costs
upto a point, beyond which PM cost will be more.

Bath Tub Curve :

Describes the span of useful life for a product or a service. It is a trend indicating
curve.

Increasing Worn-out
Failure Rate Portion
Decreasing Infant
Mortality Rate Portion
Failure Rate

Constant Failure
Rate Portion

Useful Life Portion

Time

Bathtub Curve is a graphical representation that describe the lifetime of a

population of products. The bathtub curve consists of three periods: an infant
mortality period with a decreasing failure rate followed by a normal life period (also

9
 known as "useful life") with a low, relatively constant failure rate and concluding
with a wear-out period that exhibits an increasing failure rate.
5.5 What is “learning curve”? What are its applications?
Learning Curve is a graphical representation of the learning taking place either as
a function of number of repetitions or as a function of time/efforts.
(i) Mechanical Learning Curve
The learning curve is a graphical representation of the time taken to produce an
unit as a function of number of repetitions carried out. As the number of repetitions
increase, the time required to complete the unit (performance time) drops rather
dramatically in the beginning and continues to fall at a reduced rate until a
performance plateau is reached. The following diagram highlight this fact :

The learning curve equation is ‘‘Yi = k.ib’’

Where, Yi = time taken to complete the ith unit.
K = time taken to complete the first unit
i = the ordinal number of unit (i.e., 1st, 2nd, 3rd, etc)
b = index of learning

The learning curve is conventionally indicated as a percentage. For example 90%

learning curve which means that as the number of repetitions double, the time
taken to complete the unit is 90% of the previous reference unit. For example if the
time taken to complete the first unit is 100 hours, then time taken to complete the
completing the unit job

2ne unit is 90% of 100 hours i.e., 90 hours, and for the 4 th unit it is 90% of 90 hours
Time taken for

i.e., 81 hours, and so on.

Number of Repetitions 10
  The learning curve is used to leverage the experience gained by the workers
while estimating the time required to complete a job, which have a bearing on
the calculation of the plant capacity.
 The learning curve effect also help to estimate the likely delivery times at the
time of finalizing a purchase order, a works contract or a project contract.

(ii) Psychology-Based Learning Curve

Experienced Outside

The learning happens in a “continual” manner since human mind works in a

Improvement (s)

continual fashion. The figure given below is self-explanatory.

Improvements experienced as
a function of efforts

No Improvements experienced only internal

learning hppens as a function of attitude

Time (Efforts)

PSYCHOLOGY- BASED LEARNING CURVE

5.6 Maintenance Policy

They are the broad guidelines issued by the company for the upkeep of company’s
equipments. Among other things they include,

 The classification of equipments into critical and non-critical. The

classification of an equipment is based on its importance in production, and
based on the capital cost of the equipments.

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  The periodicity of preventive maintenance for different classes of equipments,
this will in turn define the level of preventive maintenance activities.
 The guidelines for procuring and storing maintenance spares.
 The equipment replacement guidelines.
 Since electrical and electronic items such as transistors, resistors, tube lights
and bulbs fail suddenly there is need to specify either individual replacement
policy (i.e., replacing as and when they fail), and group replacement policy
(i.e., at what equal intervals of time all items need to be replaced with a
simultaneous provision for individual replacements).

5.7 Write briefly about (i) Quality Definition, (ii) Evolution of Quality Concept,
(iii) Quality Control, (iv) Acceptance Sampling, (v) ISO series of
management standards, (vi) Quality Circles, (vii) TQM, (viii) Six Sigma
Quality.

(i) Quality Definition

Quality is the sum total of characteristics and features of a product or a service
that has a bearing upon its ability to satisfy the stated and unstated needs of a
customer – as per ISO 9000.

Quality is that outcome of simultaneous combination of effort and

concentration – (Arun, 2003).

(ii) Evolution of Quality Concept

Sl. No. Stage in Evolution Period Field of Focus

1 Inspection 1890-1930 Final Product
2 Quality Control 1930-1960 Production or Operations
3 Quality Assurance 1960-1975 Connected Operations
4 Quality Management 1975-1990 Connected and dependent
internal imbalances
5 Total Quality Management 1990 to date Both external and internal
imbalances and the time
dimension .

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 Driven by the force of necessity to continually reduce the costs and thereby remain
in the market, the quality function over the years has evolved from inspection to
quality control to quality assurance to quality management to total quality
management. The above table summarizes this evolution.

(iii) Quality Control

Quality Control is a set of regulatory activities, taking place during the process, and
designed to ensured that a product / service meets its specifications relative to
material, performance, reliability, time or any quantifiable (i.e., attribute of
measurements) characteristic.

For “improving” anything, “controlling” is required. For “controlling”,

“measurements” are essential. The measurement of a “Quality” characteristic is
carried out in terms of “attributes” or “measurements”.

(Quality Control charts help in the control of quality related characteristics by

segregating the assignable causes from the random causes by using the statistical
tools known as “Control Charts”).

(iv) Acceptance Sampling

Acceptance Sampling is a type quality control technique that is applied to lots or
batches in a high volume production system either after or before a process,
instead of during the process. In majority of cases, the lots represent incoming
purchased items or final products awaiting shipments to warehouses or customers.

The acceptance sampling deals with accept or reject situation and hence follow a
binomial distribution (however, when the lot size is small and finite, then hyper-
geometric distribution is employed). The purpose of acceptance sampling is to
decide whether the sample drawn (N) from a lot contains more or less number of
defective parts when compared to a pre-determined standard called the “sample
number” (n). If the sample contains more number of defective parts than the
sample number, the whole lot is rejected, and if, number of defective parts is less
than or equal to the sample number, then the whole lot is accepted. The rejected
lots may be subjected to 100% inspection, or if they are purchased items they may

13
 be returned back to the supplier for credit or for replacements as per the purchase
order conditions.

In the process of acceptance sampling one will commit two types of errors. Based
on the sample inferences, the whole lot may be rejected (this is called the type I
error or producer’s risk) when the lot is really good, and the whole kit may be
accepted when the lot is really bad (this is called the type II error or consumer’s
risk).

When the lot sizes are smaller, sample sizes are also relatively smaller (<15). In
such cases there will be “two sample numbers” – one specifying the higher and the
other lower limits. In such cases it is advisable to adopt double of multiple
acceptance sample plans.

The acceptance sampling procedures are most useful when one or more of the
following conditions exist :

 A large number of items must be processed in a short-time.

 The cost consequences of passing the defective parts are low.

Meaning of AQL and LTPD in a hypothetical OC curve

Probability of Acceptance

Producer’s Risk “α”

Operating Characteristic Curve

1.0 For a Sampling Plan of
N, n, and α

Consumer’s Risk “β”

 14
0 Percent Defectives
AQL LTPD in the lot
 Acceptance Quality Level (AQL) is the best possible quality achieved by a
producer and is expressed in terms of percentage of defectives in the lot.
Whereas, Lot Tolerance Percentage Defective (LTPD) is the worst possible quality
expressed in terms of percentage of defectives in a lot that a consumer would
tolerate. The range between LTPD and AQL is the “acceptance range”.

The producer sends a lot at Acceptance Quality Level (AQL)., given in percentage
defectives) which can get rejected due to sampling errors, the chance or probability
of this is “producer’s risk”. The manufacturing plant faces the risk of accepting lots
as bad as the “Lot Tolerance Percent Defectives (LTPD), the probability of
acceptance of such lots being termed as “consumer’s risk”. The “producer’s risk”
and “consumer’s risk” are denoted by α, and β, respectively, as a convention.
(Please refer the operating characteristic (OC) curve figure given).

(v) ISO Series of Management Standards

ISO means International Standards Organization with headquarters at Geneva. A
standard is a document that provides requirements, specifications, guidelines or
characteristics that can be used consistently to ensure that materials, products,
processes and services are fit for their purpose.

The main ISO series of management standards are ISO 9000 (about QMS =
Quality Management Systems); ISO 14000 (about EMS = Environment
Management Systems), ISO 18000 (about OHSAS = Occupational Health and
Safety Assessment Management Systems); ISO 22000 (about Food Safety
Management Systems) and ISO 27000 (ISMS = Information Security Management
Systems).

All of the above mentioned standards pertain to a organization and are in the form
of certification valid for a period of three years with surveillance audit every six
months. The QMS i.e., ISO 9000 series of standards are particularly applicable to
quality management issues. Certification is given by certifying bodies such as

15
 BVQI, TUV, NQA, DNV and BIS. The certification would be as per the generic
requirements specified in ISO 9001 which can be tailor-made to suit the operations
of an organization. By following its own commitment an organization would achieve
the requisite quality levels. The Clauses involved in ISO 9001 depend on the
principles of Customer Focus, Leadership, People Involvement, Process
Approach, Systems Approach to Management, Facts Based Approach, Mutually
Beneficial Supplier Relationships and Continual Improvement. The latest version of
ISO 9000 is 2008. Thus, an organization would specify itself as a “ISO 9001-2008”
certified company.
(vi) Quality Circles
The following are the relevant points regarding “Quality Circles”“
 Quality Circles” consist of a group of seven to ten employees from a work unit
(or across work units) who have volunteered to meet together regularly, during
the working hours, to analyze and make proposals about the solution of product
quality / service quality and other problems. These proposals would be
analyzed by a coordinating committee. Each quality circle will have a leader.
 Prior to the formation of quality circles, some identified supervisors will be
trained in such matters as quality control concepts, including statistical tools,
group dynamics, and communication skills. In turn, these supervisors with the
help of a higher level facilitator, train those subordinates who volunteered to
become members of a quality circle. The facilitator will head the coordinating
committee that coordinate the quality circles.
 Thus, quality circles help in the solution of quality related problems and the
improvement of personality (in the form of better communication and leadership
skills) of the members.
 Quality Circles help to improve the quality consciousness.

(Vii) TQM
TQM is continual process of identifying and reducing the quality related imbalances
with respect to space and time (Arun, 2006). Indian Statistical Institute defines
TQM as an integrated organizational approach for delighting customers (both
internal and external) by meeting their expectations on a continuous basis through

16
 every member of an organization working on continuous improvement of all
products, services and processes along with proper methodology of problem-
solving.

(Vii) Six Sigma Quality

It is an approach to minimize the quality defects. The mathematical translation of
six-sigma concept, by Walter Shewart, states that a process that operates at six-
sigma allows only 3.40 defects per million parts of output. The Six, of course, is the
culmination of a progression that starts, for all practical purposes, at Three Sigma
(66,807 defects per million), and traverses Four Sigma (6,210) and Five Sigma
(233).

The six-sigma level of quality can be approached by modifying the design of a

product or a service so that it can accommodate some of the variations without
malfunctioning or by improving the process itself so that the chances of defects are
lowered by the reduction of process variability. For better results both approaches
need to be used.

The advantage of six-sigma is it can be used to both manufacturing and non-

manufacturing areas as a reference for quality improvement initiatives.

5.8 What is Materials Management? What is its role in operations

management?
Materials Management : A collection of related processes that continuously identify
and reduce the imbalance of materials in terms of availability, cost, quality,
wastage and other related matters (Note that in a ‘Material System’ there are only
overall expected outputs or objectives which are fixed and widely accepted)..

The materials management function has assumed significance in operations

management due to following facts

 Materials contribute significant portion of the total expenditure in manufacturing

organizations. Further, several service organizations depend on manufacturing
organizations for their survival. Therefore managing the materials related
expenses is a must for the survival of Indian business organizations.

17
  In view of the rapidly depleting natural resources due to increased rate of
consumption, conserving the material resources is essential.
 Increasing transportation costs, calls for constant watch on the input material
costs..
 Increasing environmental awareness has created an imperative need to reduce
wastages and scrap
 Increasing environmental concerns further call for usage of improved materials
so as to enable the biodegradable property and material recycling.
 Increased rate of product obsolescence especially in the process industry calls
for judicious application of inventory control techniques.
 Increased cost of keeping the men, equipments and money idle, therefore there
is a need for proper supply of materials.
 Improved communication systems have enhanced the quality awareness of the
customers and therefore there is constant need for better and better quality
control at the material input stages.
 Widening of product range by organizations as a strategy for survival. This has
necessitated more variety to be held in the inventory.
 Increasing processing costs calls for constant application of value analyses
concepts in practice.
 Increasing uncertainties due to economic, social and political forces.
 Increasing influence of human psychological factors and the need to take
decisions in the absence of complete data.

5.9 What do you mean by “inventory” and “inventory management”?

The stock kept in the stores along with associated documents is termed as
“inventory”. The continual process of identifying and reducing imbalances with
respect to inventory is termed as “inventory management”.
Inventory management is very important because :
 Inventory affects the smooth flow of operations.
 Inventory guards against price fluctuations.
 Inventory protects against unexpected scarcities of materials.

18
  Inventory ensures the asset against which working capital loans can be
availed.
 Inventory is an insurance against errors in demand forecast.
 Inventories provide a cushion to prevent stock-outs.
 Inventories help to activate the marketing department.

Thus, inventory management is an area which requires constant monitoring and

sufficient deployment of time and manpower for reducing the multi-dimensional
imbalances involved.

The scope of inventory management involves the following areas :

 To protect against demand, supply and lead time uncertainties by providing the
required levels of safety stocks of raw material, in-process and finished goods
stages..
 To allow for economic production and purchase by taking into account
production costs, set-up costs, ordering costs, inventory costs and quantity
discounts.
 Determination of limits of inventory to be held especially for high cost items.
 Coordinating with purchase, stores, production and distribution for effective
achievement of organizational objectives.

5.10 What do you mean by (i) Lead time, (ii) Re-order Point, (iii) Safety Stocks.
The following is a brief explanation of the terms
(i) Lead time : The time interval between the commencement of an input related
activity and the completion of that activity. For example, purchase lead time refers
to the time interval between initiation of purchasing action and the completion of
the same.

(ii) Re-order Point : The point in time when the next order for procurement of an
item is to be initiated.

(iii) Safety Stock : Stock kept to guard against uncertainties in lead time.

5.11 What do you mean by “Selective Inventory Control”? What are the
different techniques available for selective inventory control?

19
Sl. No. Methods Criteria Application

1 ABC analysis Annual usage value Materials that get

(consumption rate X price/unit) into regular
production

2 VED analysis Criticality or resultant loss of Maintenance

(Vital, essential, desirable) production spares for
manufacturing
machines

3 XYZ analysis for two Annual usage value and closing A category status,
dimensional study (X= stock value at the time of annual A category in X -
whose inventory value is stock verifications need to monitor.
high, Z = whose inventory C category in X –
value is low) reduce inventory.

4 GOLF analysis Government usually lengthy Government

(Govt,, Ordinary, Local, procedures and for Foreign supplies need
Foreign) procurements lead times are patience, Foreign
more procurements
needs planning

5 FSN analysis The frequency of issues from Fast moving items

(Fast moving, slow stores. need more efforts
moving, non-moving) to monitor

6 SOS analysis Seasonality of items resulting in Agro-products and

(Seasonal off-seasonal) procurement price fluctuations. agro-raw materials

7 SDE analysis (Scarce, Degree of procurement Essential raw

Difficult, Easy) difficulty. materials for
production

Sl. No. Methods Criteria Application

8 MUSIC-3D analysis The three dimensions for control Can be used for all
(Multi-Unit Selective are – finance, operations and variety of materials.

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 Inventory Control on three materials. It is a combination
dimensions) of all the above
analyses.

Accommodating the variations in the material and purchase characteristics while

carrying out the inventory control exercise is called “selective inventory control”.
The above table which is self-explanatory describes different techniques of
selective inventory control.

5.12 Relationship among Productivity, Quality, Costs, Cycle Time and Value.
With increasing quality, the rejection rate and therefore costs will come down. This
would reduce the overall input costs and therefore the productivity (which is the
ratio of output to input in specified period of time) would improve.

“Cycle Time” is the total time taken between the beginning of an operation and its
end i.e., delivering a product or a service. When there is a more focus on the
“value” (i.e., usefulness from end-user point of view) of product or a service,
unnecessary features are eliminated and thereby icycle time and costs of a product
or a service are reduced.

5.13 What is QFD

Integration of “Customer Voice” into the product development process is termed as
Quality Function Deployment (QFD).

Chapter 6
EMERGING TRENDS IN OPERATIONS MANAGEMENT

6.1 India Vs USA in terms of Operations Capability.

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 India and the United States of America differ in terms of operations capability in
five major ways and the same are depicted in the table given below:

Sl. No. Criteria India USA

1 Major thrust area Price Innovation

2 Mode of operations More stress on More stress on

human skills sophisticated
equipments

3 Degree of outsourcing Mostly limited Global outsourcing

within the country

4 Width of business operations Mostly domestic Global outlook

5 Mode of expansion Start small expand Start large and expand

later internationally

6.2 How does “Business Process Reengineering” and “Theory of Constraints”

concepts affect operations management?

Business Process Reengineering (BPR) is a process that aims at re-establishing

the ‘process to purpose’ correlation which would have got diluted due to business
and organizational dynamics (Arun, 2001). Hammer and Champy, (1993) defines
BPR - Business Process Reengineering (BPR) is defined as “fundamental
rethinking and radical redesign of business processes which would result in
dramatic improvements in cotemporary measures of performance such as quality,
service, delivery and time..

A thumb rule states that due to application of BPR in an organization, 33 percent of

jobs would become redundant. Thus, duplication and redundancy of activities
come down and activities consume less resources and become more directed.
Therefore, cost of producing a product or a service decreases.

Theory of Constraints

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 A constraint (or a limitation) is a factor that prevents the system from achieving its
goal(s). Theory of Constraints states that there are few internal or external
constraints that would be affecting the operations of an organization. The
underlying premise of theory of constraints is that organizations can be measured
and controlled by variations on three measures: throughput, operational expense,
and inventory. Throughput is the rate at which the system generates money
through sales. Inventory is all the money that the system has invested in
purchasing things which it intends to sell. Operational expense is all the money the
system spends in order to turn inventory into throughput. Theory of Constraints
aims at identifying the constraints and gradually releasing these limitations to
improve the operational capabilities.

Application of Theory of Constraints helps an organization to achieve its goals by

means of products or services through timely delivery of quality outputs in the
requisite quantity.

6.3 How the concepts of Just in Time (JIT) and Supply Chain Management
affect operations management?

Just in Time
Just in Time (JIT) aims at procuring only when it is needed. It is a philosophy
embodying various concepts that result in a different way of doing business for
most organizations. The basic tenets of this philosophy include zero inventory,
reduction of waste (anything that does not add value to the product or service,
should be eliminated Value is anything that increases the usefulness of the product
or service to the customer or reduces the cost to the customer) and operational
flexibility. The application of JIT in operational management helps a firm to become
competitive in terms of price, quality and delivery. However, application of JIT
principles require the co-operation of all suppliers and therefore it is product.
Supply Chain Management
“Supply Chain” is a system of organizations, people, technology, activities,
information and resources involved in moving a product or service from supplier to
customer. Therefore, Supply Chain Management is a continual process of

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 identifying and reducing the imbalances with respect to a supply chain or supply
chains (Arun, 2006). Thus, application of supply chain management concepts calls
for operational transparency and shared purpose amongst the firm, its suppliers
and its distributors.

6.4 How customer requirements and new technologies may be incorporated

in new product and service development process?
The following are the methods through which customer requirements and new
technologies may be incorporated in product/service development process.
(i) Through extensive interaction with customers, distributors, wholesalers and
retailers.
(ii) Encouraging companywide employee participation in the form of attractive
suggestion schemes.
(iii) By developing “industry intelligence” through primary and secondary sources.
(iv) Following the best practices prescribed by practicing managers of reputed
companies belonging to the similar industry.

6.5 What are different trends in plant location?

The following are the major observed with respect to the location of a facility.

(i) Phase-wise implementation: Since both the cost patterns and demand
patterns are changing flexibility in terms of resource commitment is necessary.
Therefore, location decisions are taken and implemented in phases and not in one
go as it use to happen earlier.

(ii) Facilitating project-based working: Due to emergence of service

organizations there is a shift in emphasis from product-based approach to project-
based approach. Because of this trend, in service facility location decisions, the
criteria pertaining to “customer contact costs”, “recruitment costs” and
“communication costs” dominate. Further, because of low initial capital investments
involved, the emphasis is on maximizing revenues rather than minimizing costs.

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 (iii) Land costs going up: In India because of increase in population, land is
becoming a scarce commodity land its costs are going up. Therefore it is becoming
difficult to locate an integrated plant in a single location.

(iv) Stress on outsourcing: Because of fluctuation in demand patterns there is

more focus on outsourcing and possibility to do so is becoming one of the
important criteria for a locating a plant.

(v) Effect on interrelated decisions: In view of changes in business scenario and

constraints associated with locational decisions, more flexibility in interrelated
decisions such as layout and distribution channels is assuming increasing
importance.

6.6 Trace the major trends in operations management?

The following are the major trends observed in operations management.
(i) Production Focus : Here, the main focus is on the quantity of production. With
less focus on quality aspects.
(ii) Mean Manufacturing: Focus on cost reduction while manufacturing.
(iii) Mean Operations:: Focus on cost reduction of all output related activities.
(iv) Lean Operations:: Simultaneous efforts to minimize cost and improve quality.
(v) Green Operations – lean operations environment-oriented components of
Refuse, Reduce, Reuse, Recycle

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BEST OF LUCK

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