CHINHOYI UNIVERSITY OF TECHNOLOGY

COURSE OUTLINE

School: Entrepreneurship & Business Sciences

Department: Graduate Business School
Programme: MSc. Strategic Management
Course title [Course code]: Production and Operations Management [MSCSM6-13]
Course level: Year1, Semester 1
Date course outline last updated: 14 February 2021
Name of lecturer: Manyadze T Mr. [PhD Entrepreneurship Candidate]
Office hours: Any time as long as it is worthy
Office No: Block 12 Office Number 8
E-mail address: [email protected] / [email protected]
Mobile number: +263712 328 600 / +263776 616 358
Module credits [hours]: 15 credits [150 notional learning hours]
Lectures: 18 hours
Tutorials: 9 hours
Library/Direct learning: 9 hours
Continuous/formative assessment: 15 hours
Examination/summative assessment: 3 hours
Self-directed learning hours: 96 hours
Preamble
Production and Operations Management is critically important in today’s world as it is
concerned with creating products and services that society depends on. It is the nerve centre
of all activities to do business. There has been increased global competition for the past few
decades. As such, firms find it challenging to survive under such conditions. In order to
survive and grow their businesses, firms resort to various production and operations
strategies. Winning strategies are hinged on a sound understanding of target markets and
the production and operations capabilities. Likewise, the need to understand the production
and operations is a key strategy consideration for successful businesses in the 21st century
and beyond. Whatever product or service you see or enjoy, production and operations
management makes it happen.
Module description
This course deals with the management of operations and productions processes and
systems in organisations to satisfy customer needs and wants through the provision of
goods and services. It focuses on how operations managers make decisions before, during
and after operational activities that produce products (goods and services). The course
introduces the production functions and operations decisions relating to corporate strategy in
order to achieve the goals of the organisation. Major areas include the intersection of
operations, finance and marketing, as well as all facets that lead to the transformation of
inputs into output.
Prerequisites
To undertake this module, a student should have completed and passed all modules in Year
1, Semester 1 and Semester 2.
Module objectives

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 To provide students with an understanding of operations management
concepts/theories.
 To provide students with an understanding of the strategies and techniques of production
and operations management that are critical for creating all the products and services
that we depend on.
 To enable students have an appreciation and understanding of basic concepts and tools
employed by production and operations managers to provide their organizations with
competitive advantages in their operations.

Student learning outcomes

The learning outcomes are:

 Managing competently production and operations activities for the success of their
organisations.
 Improving the performance and coordination of operations in their organisations
 Justifying and adopting appropriate facilities designs for effective operations
 Implement appropriate production and operations planning and control within their
businesses.
 Apply modern operations management systems and socially responsible methods for the
benefit of society and their organizations.
 Designing efficient and effective operations management programmes.
 Demonstrating critical thinking and problem solving skills.

Methods of instruction
 Lectures
 Dramatization
 Videos
 Group discussions
 Individual and group presentations
 Case study analysis
Language of instruction
The medium of instruction is English. However, the use of vernacular during classroom
participation may be used subject to approval by the lecturer.
Schedule of lectures, tutorials and library/direct learning
Day Topic Content Duration
1 Introduction  Definitions 4 hours
to Production  The production function.
and  Production Process
Operations  Operations Management
Management  Process of Production and Operation
 Manufacturing and Service Operations
 Challenges shaping POM
 POM Framework
2 Operations  Systems View of Operations 4 hours
Systems and  Framework for managing Operations
Strategies  Operation Strategies
 Types of Operations

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  Role of Operations
 Strategic and Tactical decisions
 Strategy Framework
3 Production  Definitions of Production Planning and 3 hours
Planning And Controlling
Controlling  Purpose/ Importance of Production Planning
and Control
 Components of Production Planning Control
 Production Planning and Control Elements/
Techniques
4 Product And  Customer Requirements 4 hours
Service  Aims of Design
Design  Product Design Chart
 The Design Process
 Service design
 The service- product bundle
 Service Matrix
5 Productivity  Measuring Productivity 4 hours
 Improving productivity
 Management productive efficiency
improvement variables
 Obstacles to industrial productivity
 Industry/ Government action to increase
productive efficiency
6 Inventory  Roles of Inventory 3 hours
Management  Types of Inventory
 Inventory Costs
 E O Q Model
 Capacity Planning
 C R P and M R P
7 Plant  Supply Distribution System 4 hours
Locations  Factors influencing the choice of location
and Layout  Strategic Issues of Layout
Facilities  Types of Layouts
 Criteria for a good layout
8 Forecasting  Importance of Forecasts 2
 Steps in the Forecasting Process
 Elements of a Good Forecast
 Types of Forecasts
9 Modern  World Class Manufacturing 4 hours
Management  Six Sigma
Systems  TQM
 Supply Chain Management
 Disruptive Technology
 E R P - Enterprise Resource Planning
 Industrie 4.0 Manufacturing
10 Quality  Quality Management 4 hours
 Total Quality Management – T Q M
 ISO 9000
11 Health and  Accidents 4 hours
Safety  Causes and Effects of Accidents

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 Management  Responsibilities and Organisation for Safety
and Culture  Accident Risk Control Measures
 Process Safety Management
 Framework for Safety System of Work
 Waste Management
Assessment Method
Continuous Assessment [40%]
o Individual Assignments
o Group Assignments
o Presentations Group
Issues pertaining to continuous assessment include:
o Assignments should be typed and submitted electronically, unless instructed otherwise.
o Presentation of assignments is based on the following: 1 inch margin on all sides; Arial
11 pt.; 1½ spacing; justified; an assignment cover showing the name of student and
registration number, emails, title of assignment, course and its code, due date, name of
institution and its logo, school/faculty, lecturer, department and programme; and at least
5 scholarly references.
o The APA referencing system is preferred.
o It is the responsibility of the student to verify and ensure that assignments have been
submitted and received.
o The assessment of presentations will be based on: content, clarity, comprehensiveness,
creativity, evidence of research, appropriateness of referencing and general
presentation.
Final Examination [60%]
The exam is a 3-hour paper marked out of 100. The exam EITHER comprises 6 questions
each carrying 25 marks i.e. only 4 questions out of 6 must be chosen and answered; OR it
consists of Section A: a compulsory case study marked out of 40, and Section B: 4
questions each carrying 20 marks i.e. only 3 questions out of 4 must be chosen and
answered.
Grading system

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Major sources
Slack, N., Brandon-Jones, A. and Johnston, R. 2013. Operations Management, 7th Edition
Pearson. Harlow, London.
Madan, P., 2010. Production and Operations Management 1st Edition, Global Vision
Publishing House
Additional sources
Gupta, S. and Starr, M 2014. Production and Operations Management Systems, First edition,
Taylor and Francis Group (e-book). New York.

Herman, Mario, Pentek, Tobias Ono 2015. Design Principles of Industrie 4.0 Scenarios.
A Literature Review, Business Engineering Institute, Technical University Dortmund.

Peter Wiegandt (2015) CEO TEC 360: The Cloud for Business

Page 5 of 5
Graduate Business School
 Introduction
MANYADZE T MR
PhD (Entrepreneurship
Candidate)
M.Comm (Strategic Management
and Corporate Governance)
B.Tech (Hons in Entrepreneurship
& Business Management)
Diploma in Education
Contacts

[email protected]
[email protected]

Cell: +263 776 616 358

+263 737 427 377
+263 712 328 600
 CONTINUOUS ASSESSMENT
In class tests
Individual
Group
Assignments
 Individual
Group
Group presentations
ASSESSMENT METHODS
 Continuous Assessment 40%
 Final Examination 60%

TOTAL 100%
 Introduction
to
Production
and
Operations Management
 Learning Objectives
 Define and explain OM
 Explain the role of OM in business
 Describe the decisions that operations
managers make
 Describe the differences between service
and manufacturing operations
 Identify major historical developments in
OM
 Explain the Production Operations
Framework
 POM
 What is Production?
 What are Operations?
 What is Management?
 What is Production and Operations
Management?
 What is the essence of Operations
Management?
Production Defined
 The processes and methods used to
transform tangible inputs (raw
materials, semi-finished goods,
subassemblies) and intangible inputs
(ideas, information, knowledge) into
goods or services. Resources are used in
this process to create an output that is
suitable for use or has exchange value.
Production Defined
Production means application of
processes to the raw materials to add
the use and economic values to arrive
at desired product by the best
method, without sacrificing the
desired quality.
Operations Defined
Operations are activities,
decisions, functions and processes
that help change raw materials into
outputs.
Management Defined
Management is the process of
planning, organizing, leading
and controlling in an
organization.
 Operations Management
 O M is defined as the design, operation
and improvement of the systems that
create and deliver the firm’s primary
products and services,(Chase, Jacobs,
Aquilano and Agarwal, 2006).
 It is a functional field of business
concerned with the effective management
of the entire system that produces a good
or delivers a service.
Operations Management is:

The business function responsible for

planning, coordinating, and
controlling the resources needed to
produce products and services for a
company
Operations Management is:
A management function

An organization’s core function

In every organization whether Service

or Manufacturing, profit or Not for
profit
OM’s Transformation Process
OM’s Transformation Role
 To add value

 Increase product value at each stage

 Value added is the net increase between

output product value and input material value

 Provide an efficient transformation

 Efficiency – means performing activities well

for least possible cost

 Production Management
 Operations system of an organisation is
therefore that part of an organisation that
produces the organisation’s product.
 These products can be physical goods or
services.
 Organisation have some elements in common
i.e. they have the conversion process, some
resource inputs into that process, the outputs
resulting from the conversion of the inputs and
the information feedback about the activities in
the operations system.
 P O M Defined
Production and Operations
Management is defined as the design,
operations, and improvements of the
transformation process, which
converts the various inputs into the
desired outputs of goods and services
The management of systems or
processes that create goods and/or
provide services
 POM
Modern production management is now
multi disciplinary integrating science,
technology, engineering and
management
Organization

Finance Operations Marketing

Organization Chart - POM Perspective
 POM
Traditionally men, materials and
machinery were the most considered
resources.
However present trends show that
technology is the most important
resource to production and its
advancement/breakthroughs control
both capital and labour.
POM
 Empirical evidence on the American
economy by Solow cited by Lee (1988) and
Skinner (1995) indicated the growth in the
American economy from 1906-1949 was
attributed to 12.5% capital and Labour
whereas technological breakthroughs
contributed 87.5%.
POM
 In addition time factor is also important
in production i.e. the cost escalation of
capital as a result of a delay in
implementing projects.
 Thus technology, capital and time are
important input resources for production
in addition to men, materials and
machinery
 POM
• POM involves inputs, processing desired
outputs.
• Inputs are the primary resources which are
needed to add value to end products.
• Value is added through transformation.
• The transformation is arrived at through
human resources and capital.
• For every end product there is more than
one input.
 POM
The process of transformation is a
cost, but the value added to the
resources should be more than the
value of the cost on production and
cost on inputs.
The process of production and
operation determines the end
products
It also determines the price of the
product.
Production and Operations Processes
Value Addition/ Transformation
This is the process of changing inputs
of labour, capital, land and
management into outputs of goods
and services.
Once the goods and services are
produced, they are converted into cash
to acquire more resources to keep the
conversion process alive.
VALUE ADDITION = The difference between the
cost of inputs and the value or price of outputs.

Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback

Control
Feedback Feedback
Value Addition Process

random
Inputs
fluctuations
• Land Outputs
• Labour Adjustment Conversion Monitor o
• Goods
needed output
• Capital process • Services
• management

Comparison:
Actual vs Desired
FEEDBACK
 Value Addition Process
Random fluctuations are unplanned
or uncontrollable influences that
cause planned and actual output to
differ.
These can emanate from internal or
external sources.
The main responsibility of the
Operations Manager is to minimize
the impact of these fluctuations.
Value Addition Process
Feedback information allows
management to decide on whether
organisational activities require
adjustment or not.
Generally the goal of all operating
systems is to create some value-
addition so that outputs are worth
more to consumers than the inputs.
Value Addition/ Transformation
 To ensure that the desired outputs are
obtained, an organization takes
measurements at various stages in the
transformation processes i.e. feed
back.
 It compares them with the previously
established standards to determine
whether corrective action is needed. i.e.
control.
 Value Addition/ Transformation
 There is need for feedback always.
Feedback helps to improve the product
and raw material quality
 Improvement shows that there is no
perfect production.
 There is need to be on the outlook to put
the best product on the hands of the
customer.
Value Addition/ Transformation
 When an organization has to operate
as a unit it should observe the
following:
Market place
Corporate strategy
The finance operations and the
marketing strategies
The inputs or customer materials
Market
 Identify who the business' customers are
and also that are they willing to have what
we are producing.
 Creating strategies on how to satisfy the
needs of the customers.
 Organizations pursue their strategy to
gain a competitive advantage.
Corporate Strategy
 The operation strategy should spell out
how the organization will employ its
production capabilities and competences
to support corporate strategy.
The Operations Strategy
 It can be divided into three:
a) The long term decision / strategic
decision
 There is need to focus ahead e.g. buying
equipment or machinery
b). The production to be made
 The product should be profit oriented at
the end of the day.
The Operation Strategy
c. The capacity
There is need to know the quantity
that can be housed at the firm

N.B Production should increase

as one company grows.
Manufacturing vs. Service Operations
 A conversion process that includes
manufacturing yields a tangible output
(product) whereas a conversion process
that include a service yields an intangible
output e.g. a certain performance or
effort.
Production of Goods vs. Delivery of Services
 Production of goods – tangible output
 Delivery of services – an act
 Service job categories
 Government
 Wholesale/retail
 Financial services
 Healthcare
 Personal services
 Business services
 Education
 Food Processor

Inputs Processing Outputs

Raw Vegetables Cleaning Canned
Metal Sheets Making cans vegetables
Water Cutting
Energy Cooking
Labor Packing
Building Labeling
Equipment
 Hospital Process
Inputs Processing Outputs

Doctors, nurses Examination Healthy

patients
Hospital Surgery

Medical Supplies Monitoring

Equipment Medication

Laboratories Therapy
Similarities for Service/Manufacturers
 Both use technology
 Both have quality, productivity, & response
issues
 Both must forecast demand
 Both can have capacity, layout, and
location issues
 Both have customers, suppliers,
scheduling and staffing issues
Service vs Manufacturing
 Manufacturing often provides goods
 Services often provides intangible goods
 Some organizations are a blend of
service/manufacturing/quasi-
manufacturing Quasi-Manufacturing
(QM) organizations
 QM characteristics include
 Low customer contact & Capital
Intensive
Manufacturing vs. Service Operations
Key Differences
1. Customer contact
2. Uniformity of input
3. Labor content of jobs
4. Uniformity of output
5. Measurement of productivity
6. Production and delivery
7. Quality assurance
8. Amount of inventory
 Manufacturing vs. Service
Characteristic Manufacturing Service
Output Tangible Intangible
Customer contact Low High
Uniformity of input High Low
Labor content Low High
Uniformity of output High Low
Measurement of productivity Easy Difficult
Opportunity to correct High Low
quality problems
High
 POM Decisions
All organizations make decisions and
follow a similar path
First decisions very broad – Strategic
decisions
 Strategic Decisions – set the direction
for the entire company; they are broad
in scope and long-term in nature
Role of Production and Operations
Manager
The primary roles:
• To meet the production target and delivery
schedule of goods and services planned.
• To optimise the utilisation of resources in
the process of converting them into products or
services.
• The survival of any organisation depends
on the ability of the Manager to make a
profit in the process of converting inputs
into outputs
Key Decisions of Operations Managers
What - What resources/what
amounts
When - Needed/ scheduled/
ordered
Where - Work to be done
How - Designed
Who - To do the work
 Decision Making
System Design System Operation
 Capacity  Personnel
 Location  Inventory
 Arrangement of  Scheduling
departments
 Project
 Product and service management
planning
 Quality
 Acquisition and Assurance
placement of
equipment
 OM Decisions
Following decisions focus on specifics
- Tactical decision
 Tactical decisions: focus on specific day-
to-day issues like resource needs,
schedules, & quantities to produce
 are frequent
Strategic decisions less frequent
Tactical and Strategic decisions must
align
POM Decisions
Operations Manager’s view point of
PO Process
Entrepreneurship represents the
thrust of management principles
and practices.
An entrepreneur has to first decide
about the product or service s/he
would provide to customers.
 S/He then decides on the most
suitable process to be used.
Operations Manager’s view point of
PO Process
S/He then decides on:
 The most suitable process to be used.
 The location of the facility and
 The planning of the facility layout
 The planning of the capacity facility are
done almost at the same time.
 From the planning to the
commissioning of the plant, the
project is handled by the entrepreneur.
 Operations Manager’s view point
of PO Process
The inventory management and the
materials required have to be
budgeted and planned so that
operations can start.
 The output generated by the
production process has to be
monitored during the process to
ensure that desired standards are met.
 The Production Operations
Framework

The P.O.F is divided into 5 Ps to

produce a useful conceptual
framework of the production
operations manager.
 Product
It is the most obvious embodiment of
the interface between marketing and
production.
It is not sufficient that the customer
requires the product; the organization
must be capable of producing it.
 Product
 Agreement therefore must be reached
between all the business functions on such
matters as performance, quality,
reliability, quantity, selling price and
delivery dates.
 External factors need also be taken into
considerations such as the needs of the
market, existing culture and the legal
constraints.
 Product
Also internal factors must be
examined such as the compatibility
of a new product or service with
existing systems and whether a new
enterprise will excessively increase the
variety of activities being undertaken
within the organization.
 Plant
 To make a product, the plant is the core
area where the product is manufactured
 It includes both the buildings and the
equipment/ machinery
 Must match the needs of the product, of
the market, of the operator and the
organizations.
 Process
The decision on the product (good or
service) creation is made by bringing
together within the organization:
the technical issues
original needs of the product
organization and
the people
 Process
In deciding upon a process it is
necessary to examine such factors as:
a. Available capacity
b. Available skills
c. Type of production/ operation
d. Layout of the plant and equipment
e. Safety
f. Maintenance requirements
g. Costs to be achieved
 Programs
Timetable setting down dates/
times of all planned activities of
the production/ marketing
interface.
Programs effectively determine
cash-flows and viability of the
project .
 Programs
If programs are not appropriately
agreed then programming becomes
the art of reconciling irresponsible
promises with inadequate resources.
Timetables need to be generated for
purchasing, transforming,
maintenance, storage and transport.
 People
 Production from the first to the last
depends upon people.
 Humans are variable i.e. intellect in skills
and expectations
 The production or operations manager
should be involved in decisions on safety
condition of work, motivation, education
and training and wages
Today’s OM Environment
 Customers demand better quality, greater
speed, and lower costs
 Companies implementing lean system
concepts – a total systems approach to
efficient operations
 Recognized need to better manage
information using ERP and CRM systems
 Increased cross-functional decision
making
 POM in Practice
 OM has the most diverse organizational
function
 Manages the transformation process
 OM has many faces and names such as;
 V. P. operations, Director of supply chains,
Manufacturing manager
 Plant manger, Quality specialists, etc.
 All business functions need information
from OM in order to perform their tasks
Business Information Flow
POM Across the Organization
Most businesses are supported by
the functions of operations,
marketing, and finance
The major functional areas must
interact to achieve the organization
goals
POM Across the Organization – con’t
 Marketing is not fully able to meet customer needs if
they do not understand what operations can produce
 Finance cannot judge the need for capital
investments if they do not understand operations
concepts and needs
 Information systems enables the information flow
throughout the organization
 Human resources must understand job requirements
and worker skills
 Accounting needs to consider inventory
management, capacity information, and labor
standards
Scope of Operations Management
Operations Management includes:
 Forecasting
 Capacity planning
 Scheduling
 Managing inventories
 Assuring quality
 Motivating employees
 Deciding where to locate facilities
 And more . . .
 Operations Interfaces
Industrial
Engineering
Maintenance
Distribution

Purchasing Public
Operations Relations

Legal
Personnel

Accounting MIS
 Highlights
 OM is the business function that is responsible
for managing and coordinating the resources
needed to produce a company’s products and
services.
 The role of OM is to transform organizational
inputs into company’s products or services
outputs
 OM is responsible for a wide range of decisions,
ranging from strategic to tactical.
 Organizations can be divided into
manufacturing and service organizations, which
differ in the tangibility of the product or service
 Conclusion

Production Operations
Management is an amalgam on
all the 5Ps aspects of work.
The 5Ps overlap
Operations systems
A systems view of Operations
 A system is a collection of objects related by
regular interaction and interdependence.
 Systems vary from large to small
organisations.
 The systems model of an organisation
identifies the subsystems or sub-components
that make up an organisation e.g. Finance,
Marketing, Personnel, Engineering,
Purchasing and Physical Distribution systems
in addition to the operations system.
A systems view of Operations

These systems are not independent of

each other but are interrelated to one
another in many vital ways.
Decisions made in the Production/
Operations subsystem affect the
behaviour and performance of other
subsystems.
Operations Management elements
from various schools of thought
 Managers use various approaches from
different schools to view operations
management.
The schools are categorized into the
following taxonomies.
 Classical School of thought
 Behavioural school of thought
 Modelling school of thought.
Classical School of Thought
 Contributed Scientific Management and
process orientation theories.
 Economic efficiency was the hallmark of
scientific management, which is simply a
ratio between outputs and inputs of the
organisation.
 Thus organisational efficiency relates
output to land, capital and Labour.
𝑶𝒖𝒕𝒑𝒖𝒕
 𝑬𝒇𝒇𝒊𝒄𝒊𝒆𝒏𝒄𝒚 = . 𝟏𝟎𝟎%
𝑰𝒏𝒑𝒖𝒕
Classical School of Thought
 In most cases management is concerned
with the efficiency of labour and always
sets an individual standard which is the
average output per unit of time under
normal working conditions
Also referred to as the administrative
or functional approach views
management as a continuous process
of planning, organising and
controlling.
Classical-Process Management
 Planning-activities that establish the
course of action and guide future
decision making.
 Organising-activities establishing the
structure of tasks and authority.
 Controlling-activities that ensure that
actual performance is in accordance with
standard performance.
 Behavioural Management
 Began in the 1920s with the emergence of
human relations movement after the
shortcomings of Scientific Management.
 The school of thought emphasised on how
changes in work environment affect
output.
 Social scientists who also carried out the
study observed that workers respond
favourably when given attention.
 Modelling Management
 The school of modelling management
is concerned with decision making and
systems theory and the mathematical
modeling of these theories.
 Systems theorists advocate the
importance of studying and identifying
subsystem relationships, predicting of
changes in the system.
 Modelling Management
Mathematical modelling focuses on
creating mathematical
representations of management
problems and organisations, for
instance the model can be used to
demonstrate different outcomes that
would result from various possible
managerial choices.
Mathematical models in Production and
Operations Management.
 The models are classified into two:
 Optimisation models
 These help managers analyse problems
and suggest solutions.
 They use a step by step procedure of
attaining a goal known as optimisation
algorithm.
 This step by step approach can be used by
managers to find the best solution or goal.
Mathematical models in Production and
Operations Management.
 Heuristics approach
 This is a strategy of using the rule of thumb
or use of defined decision procedures to
attack a problem.
 In using the approach, we do not expect to
get the best possible solution but a
satisfactory solution quickly.
 When the procedures are developed
formally they are called heuristic
 Interdependence among decisions
 This is when a number of decision stages have to be
considered.
 Decisions can be single stage or multistage.
 Multistage decisions entail several sequential
decisions related to one another.
 Outcome of the first decision affects the
attractiveness of the choices at the next decision
stage.
 Sequential problems are commonly encountered by
the Operations Manager in project management,
capacity planning and aggregate scheduling.
Framework for managing operations
Operations management should be understood in
terms of the following frameworks:
1. Planning
 Operations Managers define the objectives for the
operations of the subsystems of the organisation
and the policies, programs and procedures for
achieving the objectives.
 This involves the clarification of role and focus of
operations within the context of the overall
organisational strategy and involves product
planning, facilities designing and the usage of the
conversion process.
Framework for managing operations
2. Organising-
Operations managers establish
structures and flow of information
within the operational subsystems.
Activities required by the operation’s
subsystems to achieve goals are
determined as well as assigning
authority and responsibility for
carrying them out.
Framework for managing operations
3. Controlling

This ensures that plans for operations

subsystems are accomplished by
measuring actual outputs and
comparing them with planned
outputs.
This helps control costs, quality and
schedules.
Framework for managing operations
4. Behaviour
Operations Managers are
concerned with how their efforts
to plan, organise and control affect
human behaviour and also how
subordinates’ behaviour affect
management.
Framework for managing operations
5. Models
As Operations managers plan,
organise and control the conversion
process, they encounter problems and
have to make decisions.
The problems are simplified by
models
6. The 5Ps
Trends in Production and Operations
Management
 An analysis of the overall trend in
economic activities has changed
significantly the demands and job
specifications of Operations Managers.
 There are two key trends in operations
Management:
 i) Shift in economic activity
 ii) Globalisation of economic
activities.
 Shift in economic activities
 Jobs have significantly changed and there has
been a massive shift in employment from
agriculture and other extractive industries to
the service sector.
 Agriculture employment has decreased while
service employment has increased
 The fast increasing has been the government
with services with repair services second.
 This trend seem to be continuing for the
future.
Globalisation of economic activities

This is the interconnectivity of

economic activities across boundaries
and the formation of regional and
international trading block.
This has made operations managers to
have a global view of their activities.
Conclusion
3 schools of thought
Framework for managing
operations
Trends in POM
CHAPTER 3
Competitiveness
 Is the ability of a firm to produce goods
and services that successfully match the
market's needs
 Ability of a firm to offer products and
services that meet the quality standards of
the markets at prices that are competitive
and provide adequate returns on the
resources employed or consumed in
producing them.
Competitiveness
is the ability to provide products and
services as or more effectively and
efficiently than the relevant
competitors.
How effectively an organization meets
the wants and needs of customers
relative to others that offer similar
goods or services
 Businesses Compete Using
Marketing Mix
Identifying consumer wants and
needs
Pricing
Advertising and promotion
Businesses Compete Using Operations
 Product and service design
 Cost
 Location
 Quality
 Quick response
 Flexibility
 Inventory management
 Supply chain management
 Service
Competitive Priorities- The Edge
Four Key Operations Issues:
Will you compete on –
Cost?
Quality?
Time?
Flexibility?
All of the above? Some? Tradeoffs?
 Competing on Cost
 Offering product at a low price relative to
competition.
 Typically high volume products
 Often limit product range & offer little
customization
 May invest in automation to reduce unit costs
 Can use lower skill labor
 Probably uses product focused layouts
 Low cost does not mean low quality
 Competing on Quality
 Quality is often subjective and is defined
differently depending on who is defining it.
 Two major quality dimensions include
 High performance design:
 Superior features, high durability, & excellent
customer service
 Product & service consistency:
 Meets design specifications
 Close tolerances
 Error free delivery
 Quality needs to address
 Product design quality – product/service meets
requirements
 Process quality – error free products
 Competing on Time
 Time/speed one of most important competition
priorities
 The First that can deliver often wins the race
 Time related issues involve
 Rapid delivery:

 Focused on shorter time between order placement

and delivery
 On-time delivery:

 Deliver product exactly when needed every time

 Competing on Flexibility
 Business environment changes rapidly
 Companies must accommodate change by
being flexible
 Product flexibility:
 Easily switch production from one item to
another
 Easily customize product/service to meet
specific requirements of a customer
 Volume flexibility:
 Ability to ramp production up and down to
match market demands
 The Need for Trade-offs
 Decisions must emphasize priorities that
support business strategy
 Decisions often required trade offs
 Decisions must focus on order qualifiers and
order winners
 Which priorities are “Order Qualifiers”?
Must have excellent quality since everyone
expects it
 Which priorities are “Order Winners”?
All four priorities OR any of the
priorities which give the business a
competitive edge
 Order qualifiers
 Characteristics that customers perceive
as minimum standards of acceptability
to be considered as a potential purchase
 Order winners
 Characteristics of an organization’s
goods or services that cause it to be
perceived as better than the competition
Translating to Production Requirements
 Specific Operation requirements
include two general categories
 Structure – decisions related to the
production process, such as
characteristics of facilities used,
selection of appropriate technology, and
the flow of goods and services
 Infrastructure – decisions related to
planning and control systems of
operations
 Why Some Organizations Fail
 Too much emphasis on short-term financial
performance
 Failing to take advantage of strengths and
opportunities
 Failing to recognize competitive threats
 Neglecting operations strategy
 Too much emphasis in product and service design and
not enough on improvement
 Neglecting investments in capital and human resources
 Failing to establish good internal communications
 Failing to consider customer wants and needs
STRATEGY
Business/Functional Strategy
 Mission/Strategy/Tactics

Mission Strategy Tactics

How does mission, strategies and tactics

relate to decision making
and distinctive competencies?
 Strategy
 Strategies
Plans for achieving organizational goals
 Mission
 The reason for existence for an organization
 Mission Statement
 Answers the question “What business are we in?”
 Goals
 Provide detail and scope of mission
 Tactics
 The methods and actions taken to accomplish
strategies
 Strategic Planning
 S P is the process of thinking through the
organisation’s current mission and
environment and setting a guide for
tomorrow’s decisions and results.
 It is premised on the fact that current
decisions are based on future conditions
and results.
 S P is a process, embodies a philosophy and
provides a linkage within the organisation.
 Operations Strategy Across the
Organization
Business strategy defines long-
term plan
Operations strategy support the
business strategy
Marketing strategy needs to fully
understand operations capability
Financial plans in effect support
operations activities.
 Operations Strategy
 Essential differences between operational
efficiency and strategy:
Operational efficiency is performing
tasks well, even better than
competitors
Strategy is a plan for competing in
the marketplace
Operations strategy ensures all
tasks performed are the right tasks
To Develop a Business Strategy
 Consider these factors and strategic
decisions:
 What business in the company in
(mission)
 Analyze and understand the market
(environmental scanning)
 Identify the company strengths (core
competencies)
Three Inputs to a Business Strategy
 Key Examples
 Mission: Dell Computer- “to be the most
successful computer company in the world”
 Environmental Scanning: political
trends, social trends, economic trends,
market place trends, global trends
 Core Competencies: strength of workers,
modern facilities, market understanding,
best technologies, financial know-how,
logistics
Developing an Operations Strategy
Operations Strategy: a plan for the design
and management of operations functions
 is developed after the business strategy
 focuses on specific capabilities which
give it a competitive edge – competitive
priorities
 An Operations Strategy
Operations Strategy: a plan for the
design and management of operations
functions
is developed after the business
strategy
focuses on specific capabilities which
give it a competitive edge –
competitive priorities
Operations Strategy – Designing the
Operations Function
Types of operations
 1. Volume Dimension
 These are operations driven by high volumes
e.g. Chibuku depend on high volumes not
differention therefore it needs to be repetitive
and produce standard type of products.
 Operations are repeatable.
 There is also specialization and
systematization.
 As a result of these processes there is
economies of scale which result in relatively
lower unit cost.
2. Variety Dimension
 Greater variety of product or service is
emphasized so that people choose what
they want when variety is introduced.
 It therefore bring in flexibility in
production processes e.g. Zimglass when
changing the glass from one colour it
must be done quickly so that wastage is
avoided.
3. Variation Dimension
 Different patterns e.g. Automobile
industry – variation of the same make but
different in patterns.
 It is difficult to predict demand because
demand follows peak.
 The enables to meet demand because
demand is guided by the pattern of
demand of related products
4. Customer Contact Dimension

All business should have contact

with their customers.
Some have high contacts with their
customers especially the service
business e.g. banks.
Role of Operations
i) Supporting business strategy
ii)Have capacity and capabilities that
will enable an organization to
achieve its goals thru operations
iii) To provide competitive
advantages
iv) Drives the business for continuity
Strategic Planning for Production and
Operations
 In a Production or Operations function,
strategic planning is the broad, overall
planning that precedes the more detailed
operational planning. It essentially involves:
 i) Planning for operations- establishing a
programme for action for converting resources
into goods or services.
 ii) Planning for the conversion system-
establishing a programme of action for
acquiring the necessary physical facilities to be
used in the conversion process
 Strategic Planning approaches for
Production/Operations
 Three models can be identified:
 Entrepreneurial model
 A strong, bold leader takes planning action on behalf of
the production/operations function.
 Adaptive model
 A manager’s plan is formulated in a series of small
disjointed steps in reaction to the disjointed
environment.
 Planning model
 Manager uses planning essentials and combines these
with the logical analysis of management science.
Although there are many strategies,
whatever operations strategy
formulated must be consistent with
the overall strategies of the
organisation.
Operations strategy utilizes the
overall corporate approach planning
with special modifications resulting
from operations issues and
opportunities.
A strategic Planning model
 This is a general approach to strategic
planning where analysts assess the
environmental considerations together
with the organisation’s current production
and operations position.
 Environmental assessment forces
management to develop strategic options
for operations.
Strategic and Tactical decisions
for POM
1. Quality Strategy
Organization emphasizes on
quality as its marketing
positioning e.g. Pick and Pay.
Organizations must be able to
identify policies and procedures
that will enable them to achieve
the desired quality.
2. Product strategy
 Actual transformation to come up with
the production - What should be done
to come up with the actual production
 Productions should meet the needs of
the customers
 The HR should be able to deliver/
produce the product
 There is need to emphasize the role of
designing.
3. Process Strategy - Many processes are
available but an organization should choose
the process that best serves the achievement
of the originals goals.
 There is commitment of the organizations
resources which are long term and if one
chooses the wrong processes the
organizations will live to regret.
 Considered the following when choosing a
process- technology quality, people,
expense (running cost utilization of
equipment and maintenance).
4. Location Strategy
Before setting up a firm there is
need to deliberately think of the
location because this will
determine the successes of the
organization.
There is need to choose the
location which care otherwise
operations will be ineffective e.g.
Lupane University.
5. Layout Strategy
Physical placement of machinery in
relation to other e.g. processes –
finishing cannot be at the beginning
but should be deliberately be placed at
the end. Layout is also influenced by
capacity.
There is need to acquire machinery
with capacity of growth so that you do
not frustrate customers.
6. Human Resources Strategy
 These are integral part of all operations. It is
the most expensive of the design layout hence
the need to put the right people at the right
place.
 Consider the quality of working life i.e. people
need to be looked after as they spent more
time in the organization.
 There is need to identify talents and skills to
put in the organization
 Determine the cost to be incurred to have
quality personnel as they do not come out
cheaply.
7.Technology
Equipment required for operations
need to be updated.
There is need to form linkages i.e.
the ability to get technology from
others and establish relations with
other organizations which produce
what your organization makes.
8.Organisational Structure
There is need to have there right
and correct structure which is not
rigid so that it enhances strategy
execution.
There should be control and
coordination with HR department.
The rewarding system of the
organization should be favorable.
9. Cost
There are people who buy on the
basis of the cost of the product.
The lower the cost the more
conducive.
The organization should adopt a low
cost strategy in the market you want
to serve.
The cost of production should be
equivalent to the value of the
product.
10. Speed of Delivery
Those who deliver early will be
the first on the market “The
earliest bird catches the fattest
worm”.
There is need to reduce the
designing time so that the
organization delivers early.
11.Flexibility
Ability of a company to produce
variety- people do not want
uniform.
The operations should be
flexible to move from station to
another without wasting
company’s resources
A strategic Planning operations model
 The model was set out by Professor Chris in 1986 and forms the
basis /framework for strategy and policy development of
manufacturing operations. It can be modified for service
operations as well.
 According to the model, manufacturing strategy should link
policy decisions associated with operations to the market place,
the environment and the company’s overall goals.
 One critical component to the model is the market based view of
strategic planning, a component crucial to the competitiveness
of the firm.
 Thus any strategic business unit (SBU) of an organisation should
operate in the context of :
i) corporate resources
ii) competitive industry environment
iii) specific corporate goals of the company.
Market based criteria for success
 This is an area in which the company chooses to compete and is
measured in terms of:
 Efficiency is a prime criterion for success as it makes low price,
low cost and high productivity operation possible. Productivity
can also be manifested through the minimum use of scarce
resources i.e. labour, management, materials,
equipment/facilities and energy, at the same time sustaining
high outputs.
 Effectiveness is how well a company is able to meet specific
criteria like delivery schedules.
 Quality is the degree to which a product/service meet the
customer and organisation specifications and conforms to
standard. Therefore quality has two aspects i.e. fit purpose and
conformance to standards.
 Flexibility is the ability to change as business conditions
change.
Operations strategy –cont-
 In Operations strategic planning, organisations will have a
strategic operations mission established from market based
criteria for success. With that operations managers will then
have to make choices which include:
 Facilities- the scale of operations, location and focus of
facilities.
 Aggregate capacity- the policy governing the management of
the sum capacity of all SBUs i.e. the maximum production
available.
 Choice of process -the type of technology and the kinds of
products/services to produce.
 Vertical integration -degree of control of resources
(suppliers) or market (customers)
 Operations integration - labour policy, payment method,
production systems and inventory control.
 Operations interface - the mechanisms for communicating
with other functions of the organisation.
Productivity
and
Quality
 Productivity
 A measure of the effective use of resources,
usually expressed as the ratio of output to
input.
 It is a scorecard on effective resource use
 It can be expressed in terms of total factor
basis or on partial basis.
 Productivity ratios are used for
 Planning workforce requirements
 Scheduling equipment
 Financial analysis
Productivity and Quality
 There is a difference between efficiency,
productivity and performance.
𝒐𝒖𝒕𝒑𝒖𝒕𝒔
 𝒕𝒐𝒕𝒂𝒍 𝒇𝒂𝒄𝒕𝒐𝒓 𝒑𝒓𝒐𝒅𝒗𝒊𝒕𝒚 =
𝑳𝒂𝒃+𝐾+𝑴𝒂𝒕𝒆𝒓+𝑬𝒏𝒆𝒓𝒈
 Partial measures of productivity are in terms of the
individual inputs.
 Actual productivity is compared with the standard
productivity.
 Efficiency measures how well the inputs have been
converted into output while performance is a broad
term incorporating productivity and efficiency.
 Productivity
 Partial measures
 output/(single input)
 Multi-factor measures
 output/(multiple inputs)
 Total measure
 output/(total inputs)

Outputs
Productivity=
Inputs
 Measures of Productivity

Partial Output Output Output Output

measures Labor Machine Capital Energy

Multifactor Output Output

measures Labor + Machine Labor + Capital +
Energy

Total Goods or Services Produced

measure All inputs used to produce them
Examples of Partial Productivity Measures
Labor Units of output per labor hour
Productivity Units of output per shift
Value-added per labor hour
Machine Units of output per machine hour
Productivity machine hour

Capital Units of output per dollar input

Productivity Dollar value of output per dollar input

Energy Units of output per kilowatt-hour

Productivity Dollar value of output per kilowatt-hour
 Productivity Growth

Productivity Growth =
Current Period Productivity – Previous Period Productivity

Previous Period Productivity

 Example: Productivity
10,000 Units i. What is the
Produced labor productivity?

Sold for $10/unit ii. Calculate the

500 labor hours Multi-factor
productivity.
Labor rate: $9/hr
Cost of raw material: iii. Compute the
All Factor
$30,000
productivity?
Overhead: $15,500
 Example: i. Labor Productivity

 10,000 units / 500hrs = 20 units/hr

 (10,000 units * $10/unit) / 500hrs =

$200/hr

 10,000 units / (500hrs * $9/hr) = 2.2 unit/$

 (10,000 units * $10/unit) / (500hrs * $9/hr)

= 22.22

The last one is unit-less 61

Example : All-Factor Productivity
Output
AFP = Labor + Materials + Overhead

AFP = (10,000 units)

(500)*($9) + ($30,000) + ($15,500)

AFP = 0.2 units/$ of inputs

62
Example : All-Factor Productivity
Output
AFP = Labor + Materials + Overhead

(10,000 units) * ($10)

AFP =
(500)*($9) + ($30,000) + ($15,500)

AFP = 2.0

63
Interpreting Productivity Measures
 Productivity measures must be compared to
something, i.e. another year, a different company
 Raw productivity calculations do not tell the
complete story unless there are no major
structure differences.
 In a business e.g., it is obvious that some major
changes were taking place to yield productivity
rates year-to-year output/employee productivity
improvements. What changes could improve
sales per employee? Automation? Out sourcing?
Major re-design?
Interpreting Productivity Measures
 Other productivity measure questions:
 Is this partial productivity measurement
enough to make an investment decision?
 Is the Total Cost Productivity measure a
better reflection of year to year productivity.
Why?
 Should you also look at productivity
measures for the two major competitors for
comparison?
 Productivity measure provides
information on how the firm is doing
relative to what is critical to the firm
Productivity and the Service Sector
Measuring service sector
productivity is a unique challenge
Traditional measures focus on
tangible outcomes
Service industries primarily produce
intangible outcomes
Measuring intangibles is challenging
 Practice Question 1
1. A company that makes shopping carts for supermarkets recently
purchased new equipment, which reduced the labor content needed to
produce the carts. Information concerning the old system (before adding
the new equipment) and the new system (after adding the new machines)
includes:
Old System New System
Output/hr 80 84
Workers 5 4
Wage $/hr 10 10
Machine $/hr 40 50

a) Compute labor productivity for both the Old System and the New System.
b) Compute AFP productivity for both the Old System and the New System.
c) Suppose production with old equipment was 30 units of cart A at a price of
$100 per cart, and 50 units of cart B at a price of $120. Also suppose that
production with new equipment is 50 units of cart A, at a price of $100 per
cart, and 30 units of cart B at a price of $120. Compare all-factor
productivity for the old and the new systems.
 Practice Question 2
A company has introduced a process improvement that reduces the
processing time for each unit and increases output by 25% with less material
but one additional worker.
Under the old process, five workers could produce 60 units per hour.
Labor costs are $12/hour, and material input was $16/unit.
For the new process, material input is now $10/unit and overhead is
charged at 1.6 times direct labor cost. Finished units sell for $31 each.
a) Compute single factor productivity of labor in the old system.
(Compute it in four possible ways.)
b) Compute all factor productivity for both old and new systems.

Factor Old System New System

Output 60 60(1.25) = 75
# of workers 5 6
Worker cost $12/hr $12/hr
Material $16/unit $10/unit
Overhead 1.6(labor cost) 1.6(labor cost)
Price 31 31
 Practice Question 3
A milk factory seeks advice from an external consulting company concerning its
business and production processes. The final consulting report describes several
steps to increase productivity including implementation of cutting-edge processing
techniques through more powerful filtering systems.

Existing System Proposed System

Workers 12 9
Milk Output/hour 1,000 gallons 1,400 gallons
Wage Rate/hour $12 $12
Filtration Cost/hour $120 $170

a) Calculate the labor productivity for the existing and the proposed system.
b) Find the All-Factor Productivity for both systems.
c) Assume that current processing includes 700 gallons of Grade-A milk sold at
$2.40/gallon and 300 gallons of Grade-B milk at $1.90/gallon. Furthermore,
assume that under the proposed system, processing will include 600 gallons
of Grade-A milk at $2.40/gallon and 400 gallons of Grade-B milk at
$1.90/gallon. Compare all-factor productivity for both the existing and the new
system.
 Practice Question 4
 An insurance company has a group standard
in the claims department to process 1250
claims per day when fully staffed with 52
employees. Consider the following data and
compute labour productivity for each of the
last four weeks. What do the results suggest.
Week(5dys) Average Claims
employees processed
35 50 6250
36 51 6200
37 51 5850
38 51 5950
Levels of productivity and trends
Productivity can be viewed from the
level of the entire nation, individual,
industry or a unit of a business.
Operations managers should always
be aware of the productivity trends
and invest in activities that enhance
productivity in their operations.
 Quality and productivity
 Quality is the degree to which the design
specifications of the product /service are
appropriate to its function and use and the
degree to which a product or service conforms to
design specifications.
 Quality can affect the competitive position of an
organisation when products/services do not
meet customer specifications.
 There is a strong link between quality and
productivity. When quality increases so does
productivity.
A quality productivity strategy
Quality improvement is one way of
improving a firm’s competitive
position.
It should be promoted to customers
and employees.
Customers always want quality
products/services while employees
want to be associated with a quality
producing firm.
A quality productivity strategy
 When quality is emphasised, economic
benefits accrue to the organisation in terms of
decreased waste, reworked products,
improved material usage and reduced
operations costs.
 Customers can also benefit in terms of reduced
prices which can increase market share.
 To employees this can result in increased job
security.
 Shareholders can benefit in terms of higher
profits and improved asset utilisation.
 Technology and mechanisation
The conversion process is the central
element of the production and
operations function.
It is present in most organisations and
varies across businesses.
Mechanisation is the process of
bringing about the use of equipment
and machinery in production and
operations.
 Technology and mechanisation
Most organisations today face the
decisions about the technology to use
and the degree of mechanisation.
Productivity and quality can improve
through the adoption of modern
technologies and increased
mechanisation.
Factors Affecting Productivity
 Capital
 Quality
 Technology
 Management
 Standardization
 Quality
 Infrastructural Obstacles
 Legal Obstacles
 Use of Internet
Other Factors Affecting Productivity
 Safety
 Shortage of skilled workers
 Layoffs
 Labor turnover
 Design of the workspace
 Incentive plans that reward productivity
 Computer viruses
 Searching for lost or misplaced items
 Scrap rates
 New workers
Improving Productivity
 Develop productivity measures
 Determine critical (bottleneck)
operations
 Develop methods for productivity
improvements
 Establish reasonable goals
 Get management support
 Measure and publicize improvements
 Don’t confuse productivity with efficiency
Industry actions to increase Productive efficiency
 Technology transfer- adoption and adaptation of
production systems to more modern technological systems
and processes.
 Research and development across various sectors of the
economy.
 Value addition and beneficiation of minerals and
agricultural resources to increase quality raw materials.
 Increase industry capacity utilisation.
 Develop human capital and the necessary incentives to cope
with the new challenges and technology.
 Collaboration of Industries with universities to develop
appropriate skills.
 Collaboration of local industrial sectors with international
organisations.
 Conclusion
 Operation managers should play a key role
in strategy formulation.
 The vision and mission can formulate the
best strategy for use in the organization.
 There should be collaboration between
Marketing, Finance and Production.
 Production comes with quality which helps
the company to gain competitive
advantages
 Highlights
 Business Strategy is a long range plan and vision.
Each individual business function develop needs to
support the business strategy
 An organization develops its business strategy by
doing environmental scanning and considering its
mission and its core competencies.
 The role of operations strategy is to provide a long-
range plan for the use of the company’s resources
in producing the company’s primary goods and
services.
 The role of business strategy is to serve as an
overall guide for the development of the
organization’s operations strategy.
 Highlights cont’…
 The operations strategy focuses on developing
specific capabilities called competitive
priorities.
 There are four categories of competitive
priorities: cost, quality, time, and flexibility
 Technology can be sued by companies to gain a
competitive advantage and should be acquired
to support the company’s chosen competitive
priorities
 Productivity is a measure that indicates how
efficiently an organization is using its resources
 Productivity is computed as the ratio or
 Questions for discussion
 Examine the four types of operations
citing practical example on situations
they are implemented.
 Evaluate the Strategic and Tactical
decisions for POM in a manufacturing
entity of your choice.
 Examine the strategies that can be
employed to improve productivity of firm
of your choice.
CHAPTER 4
Production Planning and Controlling
What is Production Planning?
Why embarking on Production
Planning?

What is Production Controlling?

Why Production Controlling?
 Production Planning
 PP involves management decisions on the
resources the firm will require for its
manufacturing operations and the selection
of these resources to produce the desired
goods at the appropriate time and at the
least possible cost.
 The planning of industrial operations
involves four considerations, namely, what
work shall be done, how the work shall be
done, when the work shall be done and lastly
who shall be doing what.
OBJECTIVES OF PRODUCTION PLANNING
1.To determine the requirements of men, material and
equipment.
2. To arrange production schedules according to the needs of
marketing demand.
3. To arrange various inputs at a right time and in right quantity.
4. To achieve coordination among various departments relating
to production.
5. To make all arrangements to remove possible obstacles in the
way of smooth production.
6. To achieve economy in production cost and time.
7. To operate plant at planned level of capacity and efficiency.
8. To make efforts to achieve production targets in time.
9. Providing for adequate stocks for meeting contingencies.
10. To make most economical use of various inputs.
 PRODUCTION CONTROL
 Production control guides and directs flow of
production so that products are
manufactured in a best way and conform to a
planned schedule and are of the right quality.
 Control facilitates the task of manufacturing
and see that every theme goes as per the plan.
 Production control refers to ensuring that all
which occurs is in accordance with the rules
established and instructions issued.
OBJECTIVES OF PRODUCTION CONTROL
1.To implement production plans by issuing orders to
those who are supposed to implement them.
2.To ensure that various inputs like men, machine,
materials etc. are available in the required quantity
and quality.
3.To make efforts to adhere to the production schedules.
4.To ensure that goods are produced according to the
prescribed standards and quality norms.
5.To undertake the best and most economic production
policies.
6.To introduce a proper system of quality control.
7.To ensure rapid turnover of production and minimizing
of inventories of raw materials and finished products.
Importance of Production Control
1. Activities of various departments
are coordinated with the help of
feed back taken from them.
2. Quality products are produced
3. It is possible to complete orders
within required time and also with
less wastages.
Importance of Production Control
4. Accountability and responsibility
become more or less fixed.
5. It is possible to meet specifications.
6. Minimum investment in inventory
7.Cost production can be reduced.
8. Elimination of risky areas.
PRODUCTION PLANNING AND CONTROL
 Production planning and control is concerned
with directing production along the lines set.
 Production planning and control is the co-
ordination of series of functions according to
a plan which will economically utilize the
plant facilities and regulate the orderly
movement of goods through the entire
manufacturing cycle from the procurement of
all materials to the shipping of finished goods
at a predetermined rate.
PRODUCTION PLANNING AND CONTROL
1. Is the planning and control of manufacturing
processes in an enterprise.
2.Answers Questions like-what is to be manufactured?
when it is to be manufactured? etc.
3.All types of inputs are efficiently used for
maintaining efficiency of manufacturing process.
4.Various factors of production are integrated to use
them efficiently and economically.
5.The manufacturing process is organised in such a
way that none of the work centres is either
overworked or under worked.
6.The work is regulated from the first stage of
procuring raw materials to the stage of finished
goods.
Need/Importance of Production
Planning and Control
For Increasing Production
Main purpose is to arrange various
inputs like and integrating them for
making their best use.
When various factors of production
are economically used then production
will certainly go up.
Efforts are made to avoid production
stoppages for want of various inputs.
A production control programme will
minimize the idleness of men and
machines.
For Co-coordinating Plant Activity
Helps in controlling plant activities.
Production targets are set on the basis
of sales forecasts.
Resources and equipment are arranged
by keeping in view production plans.
Different production activities are
adjusted as per the plans.
If production is carried out in a
number of processes then their
activities are synchronized for smooth
working.
For Cost Control
 It helps in controlling various costs.
 In the absence of a proper production plan,
the idleness of men, material and
equipment may not be noticed.
 Whenever performance is below standards
then corrective measures are taken to
rectify it.
 A properly planned system of production
will help in controlling costs by not only
making full utilization of various inputs
but also by increasing output and lowering
overhead expenses per unit.
For Rationalisation of Production
Activities
 An important objective of production planning
and control is also to regulate the flow of various
inputs into the production system for running it
smoothly.
 The system is planned in such a way that
everything is done automatically.
 The supply of materials and men follows the
demand for goods.
 The quality standards are followed in routine
and sub-standard products are discarded in the
processes.
 The process of entering of raw materials and
converting them into finished
Meeting Customer needs
 The consumer is ensured good quality goods.
 The process will help in raising quality
standards of products.
 The supply of goods is also prompt and
consumer has not to wait for them.
 Production schedules are prepared by keeping
in mind the requirements of consumers.
 The supplies are regulated for meeting the
demand for goods.
 The increase in production also helps the
consumer in getting sufficient supply of goods.
Components of Production
Control
1. Control of activities
 Production Activity Control is concerned
with converting plans into action,
reporting the results achieved and revising
plans and actions in order to achieve
desired results.
 Thus PAC converts plans into action by
providing the required direction.
 This requires the appropriate prior master
planning of orders, work of personnel,
materials and capacity requirements.
2.Control of inventories

Control the wastage of

inventories and movement of
inventories at shop flow.
3. Control of resources
Optimal use of resources
For the maximum utilization
of equipment/ machinery,
tools, materials and manpower.
4.Control of management
information system
Channeling the information through
proper channels.
It is the responsibility of the control
department to collect the information
about deviation of actual from
standards and provide this
information to the management for
taking corrective action.
Instruments for the Control System
Stock Order
Shop Order
Requisition form
Payment voucher
Job cards
Stock sheets
Sales Order
Techniques or Elements of
Production Planning and Control
 The following are the techniques of
production planning and control:
1. Planning
2. Routing/ Loading
3. Scheduling
4. Dispatching
5. Follow-up and Expediting
6. Inspection
 Planning
 Is the first element of production planning and
control.
 It is given an important role in every business.
 It is deciding in advance what is to done in
future.
 Control devices are also decided in advance so
that all activities are carried on properly.
 An organizational set up is created to prepare
plans and policies.
 Various charts, manuals and production
budgets are also prepared.
 If PP is defective then PC will also be defective.
 Planning provides a sound base for control.
 Routing
 It is determining the exact path which will be
followed in production.
 The stages from which goods are to pass are
decided after a proper thought/ Planning.
 Routing is more like journey for reaching a
particular destination.
 The question is – which route will be
economical in time and money?
 It is the selection of the path from where each
unit has to pass before reaching the final
stage.
 The path must have the best and cheapest
sequence of operations
 Routing Procedure
Deciding what part to be made or purchased
 The product is thoroughly analyzed to find out which
parts are required for it.
 A decision is taken regarding the production or
purchase of various components.
 Some components may be made by the firm and others
may be procured from the market.
 During slack periods most of the components may be
manufactured by the firm but when industrial activity
is at its peak then supplies from outside may be
contracted.
Determining Materials Required
 The analysis of the product will enable us to know the
type of materials required for producing various
components.
 The right type of quality, quantity, and time when
needed should also be decided in advance.
 Routing Procedure
Determining Manufacturing Operations and
Sequences
 The manufacturing operations and their sequences
can be determined from technical experience and
layout of machines.
 A sound and economical operation is selected for
manufacturing various components.
Determining of Lot Sizes
 A decision has to be taken about the number of units
to be produced in one lot.
 If production is carried on the basis of orders then size
of the lot depends upon the quantity ordered plus
some units for possible rejections during the process.
 Routing Procedure
Determining of Scrap Factors
 There may be some scrap during the course of
manufacture.
 The finished products are generally less then
the units introduced at the beginning.
 The scrap during manufacturing should be
anticipated so that routing is facilitated.
 If products pass through three processes and a
normal scrap is 5% of input at every stage then
it will be easy to anticipate the units entering
various processes and arrange equipment and
manpower
 Routing Procedure
Analysis of Cost of the Product
 The determination of cost of products may be the
duty of department but still production
department makes records of direct materials,
labour, direct and indirect expenses.
 These estimates are greatly useful to costing
department also.
Preparation of Production Control Forms
 The carrying out of routing will be facilitated if
forms are prepared to collect information for
control purpose.
 The requirements are: job cards, inspection cards,
move tickets, labour cards, tool tickets, etc
 SCHEDULING
 It is the determining of time and date when
each operation is to be commenced and
completed.
 It includes the scheduling of materials,
machines and all other requisites of
production.
 Scheduling means" fitting specific jobs into
a general time table so that order may be
manufactured in accordance with
contracted liability or in mass production,
so that each component may arrive at and
enter into assembly in the order and as is
required."
 Types of schedules
Master scheduling
 Scheduling starts with the master schedule.
 This schedule is prepared by keeping in view
the order or likely sales order in near future.
 Master scheduling is the break up of
production requirements.
 This may be prepared for a week, a fortnight,
a month etc.
 No definite pattern may be suggested for
master schedules because these may differ
from industry to industry.
 Types of schedules
Operation scheduling
 Manufacturing or operation scheduling is used
where production process is continuous.
 When same product is produced repeatedly or
comparatively small number of products are
required then operation schedules are useful.
 The name and number of the product and the
quantity to be produced in a given time are
required to prepare a manufacturing schedule.
Detail operation scheduling
 It indicates the time required to perform each
and every detailed operations of a given
machine or process.
 DESPATCHING
 Authorizing the start of an operation on the
shop floor is the function of dispatching
 The term dispatching refers to the process of
actually ordering the work to be done.
 It involves putting the plan into effect by issuing
orders. It is concerned with starting the process
and operation on the basis of route sheets and
schedule charts.
 "Dispatches put production in effect by releasing
and guiding manufacturing order in the
sequence previously determined by route sheets
and schedules.”
 Dispatching Procedure
1.Moving of materials from process to
process.
2.Assigning of work to machines.
3.Issuing of tools to production
departments.
4.Issuing of job orders.
5.Recording of time taken.
6.Ensuring necessary changes.
7.Having proper liaison with routing
Important Documents in Dispatching
1. Material requisitions
2. Work order
3. Control sheet
4. Internal delivery note
5. Tool and gauge ticket
Follow Up And Expediting
 Follow up or expediting is that branch of
production control procedure which
regulates the progress of materials and parts
through the production process".
PROCEDURE
1. Progress should be checked
2. Causes of differences should be ascertained
3. Helping in removing the deviations
4.Report with departments supplying
materials.
INSPECTION
 Inspection is also an important function of
control.
 The purpose of inspection is to see whether
the products manufactured are of requisite
quality or not.
 It is carried on at various levels of
production process so that pre-determined
standards of quality are achieved.
 Inspection is undertaken both of products
and inputs.
 Factors affecting PPC
Capacity
Type of products produced
Skilled Labor
Availability of resources
Legislation
External forces
 Techniques of Production
Control

In order to continually monitor the

progress of implantation, many
control techniques are applied.
 Gantt Charts
 The chart is used to organize and clarify
actual or intended use of resources within
a time framework.
 It portrays planned production and control
variables that require planning and
control.
 It is a rectangle chart divided by horizontal
and vertical lines generally time is
represented horizontally with scheduled
resources listed vertically.
 Gantt Charts
 There is a load chart and a schedule chart.
 A load chart displays the loading and idle times
for machines or departments.
 This shows when certain jobs are scheduled to
start and finish and where idle time can be
expected.
 Whereas a schedule chart is used to monitor job
progress.
 Gantt chart offers the advantage of ease and
clarity in communicating important
information.
 Gantt Charts
Gantt chart often shows who is
responsible for what task.
It helps monitor progress as the
production will be going on.
It gives a clear illustration of the
production status.
 Gantt Charts
However
 The Gantt chart does not account for the
vagaries of equipment including
breakdowns and human performance.
 Its emphasis is on time rather than task
relationships.
 It does not indicate task dependencies i.e.
one can not tell how one task is falling
behind schedule affects other tasks.
What other techniques can be
used in production control?
1
 2

Inventory Management

 Definition of Inventory
 Roles of Inventory
 Types of Inventory
 Inventory Costs
 3

Inventory Management

The objective of inventory

management is to strike a
balance between inventory
investment and customer service
 4

Inventory Models seek to find the best

balance between these goals.
 Balancing conflicting goals of Finance,
Production and Marketing
 Finance: keep stocks low to free up investment
capital
 Purchasing: order large batches to get volume
discounts
 Production: long production runs to avoid time-
consuming setups and have a large raw material
inventory to avoid production stoppages
 Marketing: have high stock of finished goods to
avoid stock-outs
 5

Inventory/Stock Control
 This is a quantitative control technique
with strong financial implications.
 Two important decisions are generally
taken by managers in relation to inventory
namely:
 1. When to replenish the inventory of an
item.
 2. How much of an item to order when the
inventory of that item is to be replenished.
 6

Inventory Defined
Inventory is the stock of any item or
resource held to meet future demand
and can include:
raw materials,
finished products,
component parts,
supplies, and
work-in-process
 7

Types of Inventories (1 of 2)
•Raw materials & purchased parts
•Partially completed goods called
work in progress
•Finished-goods inventories
(manufacturing firms)
or merchandise
(retail stores)
 8

Types of Inventories (2 of 2)
• Replacement parts, tools, &
supplies
• Goods-in-transit to warehouses or
customers
 9

Independent and Dependent Demand

Inventory Management Systems
Independent demand - the
demand for an item is
independent of the demand for
any other item in inventory
Dependent demand - the demand
for an item is dependent upon
the demand for some other item
in the inventory
 10

Independent vs. Dependent Demand

Independent Demand (Demand for the final end-
product or demand not related to other items;
demand created by external customers)

Independent demand is uncertain Dependent

demand is certain
Dependent Demand
(Derived demand for component parts,
subassemblies,
raw materials, etc- used to produce final
products)
 11

Examples for Independent Versus

Dependent Demand
Independent demand –
finished goods, items that are
ready to be sold such as
computers, cars.
Forecasts are used to develop
production and purchase
schedules for finished goods.
11
 12

Examples for Independent Versus

Dependent Demand
Dependent demand – components of
finished products such as chips, tires
and engine that make up these
finished goods
 Dependent demand inventory control
techniques utilize material requirements
planning (MRP) logic to develop
production and purchase schedules
12
 13

Inventory Models
• Independent demand –
finished goods, items that are
ready to be sold
–E.g. a computer
• Dependent demand –
components of finished
products. E.g. parts that make up
the computer
 14

Independent Demand Inventory

Models to Answer These Questions
1) Single-Period Inventory Model:
One time ordering decision such as
selling t-shirts at a football game,
newspapers, fresh bakery products.
Objective is to balance the impact of
running out of stock with the impact
of being left with stock that does not
sell.
 15

Independent Demand Inventory

Models to Answer These Questions
2. Multi-Period Inventory Models
 Fixed-Order Quantity Models: Each time
a fixed amount of order is placed.
 Economic Order Quantity (EOQ) Model
 Production Order Quantity (POQ) Model
 Quantity Discount Models
 Fixed-Time Period Models : Orders are
placed at specific times intervals.
 16

Key Inventory Terms

Holding (carrying) costs: cost to
carry an item in inventory for a
length of time, usually a year
(heat, light, rent, security,
deterioration, spoilage, breakage,
depreciation, opportunity cost, etc
 17

Key Inventory Terms

 Ordering costs: costs of ordering and
receiving inventory (shipping cost,
preparing invoices, cost of inspecting
goods upon arrival for quality and quantity,
moving the goods to temporary storage)
 Set-up Cost: cost to prepare a machine or
process for manufacturing an order
 Shortage costs: costs when demand
exceeds supply, the opportunity cost of not
making a sale
 18

Key Inventory Terms

 1. Lead time/procurement time- : time interval
expressed in days, weeks or months between
ordering either externally or internally and
receiving the order/ replenishment.
 2.Demand- amount required for sales /production. It is
usually expressed as a rate of demand per week, month
or year. Estimates for the rate of demand during the
lead time are very important in inventory control
systems.
 3. Economic order quantity(EOQ) or Economic
batch Quantity (EBQ)- this the calculated ordering
quantity which minimizes the balance of costs between
inventory holding costs and re-order costs. It is the
order size at which total costs of stock are minimized.
 19

Key Inventory Terms

 Physical stock- number of items physically in stock at a given
time.
 Free stock – Physical stock + outstanding replenishments –
unfulfilled requirements.
 Buffer Stock or minimum stock – stock allowance to cover
errors in forecasting the lead time or demand during the lead
time.
 Maximum stock- a stock level selected as a maximum
desirable which is used as an indicator to show when stocks
have risen too high.
 Reorder Level – level of stock at which a further
replenishment order should be placed. It depends upon the
lead time and the demand during the lead time.
 Reorder quantity- this is the size of the replacement order. In
some types of inventory systems it is the EOQ.
 20

Functions of Inventory (1 of 3)
1. To “decouple” or separate various parts
of the production process, ie. to maintain
independence of operations
2. To meet unexpected demand & to
provide high levels of customer service
3. To smooth production requirements by
meeting seasonal or cyclical variations in
demand
4. To protect against stock-outs
 21

Functions of Inventory (2 of 3)
5. To provide a safeguard for variation
in raw material delivery time
6. To provide a stock of goods that will
provide a “selection” for customers
7. To take advantage of economic
purchase-order size
8. To take advantage of quantity
discounts
 22

Functions of Inventory (3 of 3)
9. To hedge against inflation/ price
increases
10. To protect the company against
fluctuations in demand
11. Huge potential for improvement
to cut cost, to gain competitive
advantage
 23

Disadvantages of Inventory
• Higher costs
–Item cost (if purchased)
–Ordering (or setup) cost
–Holding (or carrying) cost
• Difficult to control
• Hides production problems
• May decrease flexibility
 24

Problems Caused by Inventory

Inventory ties up working
capital
Inventory takes up space
Inventory is prone to:
Damage, Pilferage and
Obsolescence
Inventory hides problems
 25

Problems Caused by Inventory

Supply Chain Management:
 control of the material flow
from supplier to customers is a
crucial problem
Total investment in
inventories is ENORMOUS
 26

Inventory Costs
Holding (or carrying) costs
 Costs for storage, handling,
insurance, etc
Setup (or production change) costs
 Costs to prepare a machine or
process for manufacturing an order,
eg. arranging specific equipment
setups, etc
 27

Inventory Costs
Ordering costs (costs of replenishing
inventory)
 Costs of placing an order and
receiving goods
Shortage costs
 Costs incurred when demand
exceeds supply
 28

Holding (Carrying) Costs

• Obsolescence
• Insurance
• Extra staffing
• Interest
• Pilferage
• Damage
• Warehousing.
 29
Inventory Holding Costs
(Approximate Ranges)
Category Cost as a
% of Inventory Value
Housing costs (building rent,
depreciation, operating cost, taxes, 6%
insurance) (3 - 10%)
3%
Material handling costs (equipment,
(1 - 3.5%)
lease or depreciation, power,
operating cost) 3%
(3 - 5%)
Labor cost from extra handling
Investment costs (borrowing costs, 11%
taxes, and insurance on inventory) (6 - 24%)
3%
Pilferage, scrap, and obsolescence
(2 - 5%)
Overall carrying cost 26%
 30

Ordering Costs

• Supplies
• Forms
• Order processing
• Clerical support
 31

Setup Costs

• Clean-up costs
• Re-tooling costs
• Adjustment costs
 32

Shortage Costs
Backordering cost
Cost of lost sales
 33

Inventory Control System Defined

An inventory system is the set of policies
and controls that monitor levels of
inventory and determine what levels
should be maintained, when stock should
be replenished and how large orders
should be
Answers questions as:
 When to order?
 How much to order?
 34

Objective of Inventory Control

• To achieve satisfactory levels of
customer service while keeping
inventory costs within reasonable
bounds
Level of customer service
Costs of ordering and carrying
inventory
 35

Requirements of an Effective Inventory

Management
A system to keep track of inventory
A reliable forecast of demand
Knowledge of lead times
Reasonable estimates of
 Holding costs
 Ordering costs
 Shortage costs
A classification system
 36
Basic Fixed-Order Quantity (EOQ)
Model Formula TC=Total annual
cost
D =Annual demand
Total Annual Annual Annual C =Cost per unit
Annual = Purchase + Ordering + Holding Q =Order quantity
Cost Cost Cost Cost S =Cost of placing
an order or setup
cost
R =Reorder point
L =Lead time
H=Annual holding

D Q and storage cost per

unit of inventory

TC = DC + S + H
Q 2
 37

Determinants of the Reorder Point

• The rate of demand
• The lead time
• Demand and/or lead time variability
• Stockout risk (safety stock)
 38

Operations Strategy
Too much inventory
Tends to hide problems
Easier to live with problems than to
eliminate them
Costly to maintain
Wise strategy
Reduce lot sizes
Reduce safety stock
 39

Inventory control model

The model assumes orders of equal
size are placed at periodical intervals.
Items against an order are replenished
instantaneously and
Items are consumed at a constant rate.
The purchase price is the same
irrespective of the order size.
 40

The model components can be computed as follows:

 1. No. of orders per year = D/Q*, where D – annual
demand, and Q* - order size.
 2. Average inventory = Q/2
 3. Cost of order per year D/Q X Co, where Co is the
ordering cost per order.
 4. carrying costs per year Q/2 x Cc, where Cc is the
carrying costs.
 5. Purchase cost per year D x p, where p is the price, D-
demand.
 6. Total inventory cost = D/Q .Co + Q/2 . Cc + D.p
 7. Optimal order size = √2CoD/Cc
 8. Time between the orders= Q/D.
 41

Economic Order Quantity

 This is the ordering quantity which minimizes
the balance of costs between the inventory
holding costs and reorder costs.
 The computation of the EOQ has the
following assumptions.
 1. There is a known constant stockholding costs
 2. There is known constant ordering costs
 3. Rates of demand are known and constant
 4. There is a known constant price per unit
 5. Replenishment is made instantaneously.
 42

Example
 Beta industry estimates that it will sell 24 000 units of
its product for the coming year. The ordering cost is
$150 per order and the carrying cost per unit per year is
20% of the purchase price per unit. The purchase price
is $50.
 Compute the following:
 1.Economic order quantity (EOQ).
 2. Average stock
 3. The number of orders per annum
 4. The time (in days) between successive orders.
 5. The total cost of stock per annum including the cost
of purchase.
 43

Quantity discounts
 One of the unrealistic assumption of the
EOQ model is that the price per item
remains constant. Usually some form of
discount can be obtained by ordering
increased quantities.
 A simple approach is used to consider the
costs associated with the normal EOQ and
compare these costs with the costs at each
succeeding discount point and so ascertain
the best quantity to order.
 44

Financial impact of discounts

 Price discounts for quantity purchases have two
financial effects. Some of the beneficial effects
include:
 1. Savings from lower price per item.
 2. The larger order quantity means that fewer
orders need to be placed hence ordering costs are
also reduced.
 However price discounts result in increased costs
arising from the extra stockholding costs caused
by the average stock level being higher due to the
larger order quantity.
 45

Example 1
 A company uses a special bracket in the manufacture of its
product which it orders from outside suppliers. The appropriate
data is as follows:
 Annual demand = 2000 units
 Ordering costs =$20 per order
 Carrying cost = 20% 0f item price
 Basic item price = $10 per bracket.
 The company is offered the following discounts on the basic
price:
 For order sizes: 400 – 799 less 2%
 800 – 1599 less 4%
 1600-and over less 5%
 Required: Establish the most economical quantity to order.
 46

Example 2
 A company currently purchases one of its items for $2
per unit without quantity discount. The ordering cost is
$20 per order and the carrying costs is 20% of its
purchase price per unit per year. The annual demand is
2500 units. A new vendor offers quantity discount for
the same item as per the following quantity discount
scheme. Find the best order quantity.
 Quantity Price($) per unit
 0≤Q1 <1500 $2
 1500≤Q2<2500 97% of price
 2500≤Q3 95% 0f price
 47

The EOQ Model Computations

NARRATION EOQ 2% 4% 5%
($9.80) ($9.60) ($9.50)
Quantity
No. of Orders
No. of Orders Saved
Ordering Costs Saved
Purchases Costs Saved
TOTAL GAIN
Holding Costs / CC
Additional Holding Costs
NET GAIN / LOSS
 48

THANK YOU!!!!
 49

The Material Flow Cycle (2 of 2)

Wait Move Queue Setup Run
Time Time Time Time Time
Input Output

Cycle Time
Run time: Job is at machine and being worked on
Setup time: Job is at the work station, and the work station is
being "setup."
Queue time: Job is where it should be, but is not being
processed because other work precedes it.
Move time: The time a job spends in transit
Wait time: When one process is finished, but the job is waiting
to be moved to the next work area.
Other: "Just-in-case" inventory.
Capacity Requirements Planning
 Capacity Requirements Planning is a
computerized technique for projecting
resource requirements for critical work
stations.
 Inputs:
 Planned order releases
 Routing file
 Open orders file

 Outputs:
 Load Profile for each work center
 Definitions
 Planned Order Releases: Information from
the Material Requirements Planning which tells
when you should start the order so it can be
completed on time.
 Routing Files: Information that details the
requirements of equipment and labor to
complete the order as needed in the required
time frame.
 Open Orders Files: Information regarding the
orders that are currently started and need to be
completed.
Capacity Requirements Planning
 A tool for:
 determining capacity that is available and
required.
 Alleviating bottleneck work centers.
 Helping planners make the right decisions
on scheduling before problems develop.
 Verifies that you have sufficient capacity
available to meet the capacity requirements
for MRP plans.
 What is Capacity?
The work that the system is capable of
doing in a period of time.
It must be determined at different
levels:
 plant
 department
 work center.
It is normally stated in standard hours
of work.
 What is Capacity?
Capacity = (no. of machines or
workers) x (no. shifts) x (utilization) x
(efficiency)

Best operating level is the percent of

capacity utilization that minimizes
average unit cost.
Usually 80% with a 20% cushion
 Utilization and Efficiency
Utilization is the percent of
available time spent working.
Efficiency is how well a machine
or worker performs compared to a
standard output level.
 Utilization and Efficiency

Actual Hours Charged

Utilization =
Scheduled Available Hours

Standard Hours Earned

Efficiency =
Actual Hours Charged
 Reason to use CPR
Bottleneck Management -
 The throughput of all products
processed is controlled by bottlenecks.
 Work centers need to be scheduled at a
rate to prevent bottlenecks.
 To eliminate bottlenecks, a time buffer
inventory should be established.
 Adjustments to Capacity
Increase capacity by:
 Adding extra shifts
 Scheduling overtime or weekends
 Adding equipment and/or personnel
Reduce load by:
 Reducing lot sizes
 Holding work in production control
 Subcontracting work to outside suppliers
 Adjustments to Capacity
Reduce capacity by:
 Temporarily reassigning staff
 Reducing the length of shifts
 Eliminating shifts
Increase load by:
 Releasing orders early
 Increasing lot sizes
 Making items normally outsourced
 Economies of Scale
 Economies of scale is the best operating
level.
 Economies of scale is the point where it
costs less per unit to produce high levels of
output.
 Occurs when fixed costs are spread over
large number of units
Diseconomies of Scale
Occurs at a certain level of output.
When fixed costs increase with
number of units being produced,
examples:
 Higher rework

 More equipment breakdown

 What is CRP Used For?
 To determine the capability of a system or
resource to produce a quantity of output in a
particular time period. For example:
 Should the hospital hire more registered
nurses to care for the projected patient
load?
 Should the hospital build more rooms for
patients?
 What is the projected finish time for the
current projects?
 Summary
 To operate at maximum capacity, companies
must use the resources available.
 If resources under underutilized, the profit
margin will not be maximum.
 Using capacity requirements planning helps a
company identify potential problems, such as
eliminating the possibility of overworking the
current staff, overloading machines, losing
customers because the work could not be
completed as scheduled, paying penalties for late
delivery.
 MRP
Material Resource Planning
 What is MRP?
 Material requirements planning (MRP) is a
dependent demand production planning
and inventory control system.
 MRP integrates data from Master
Production Schedules (MPS) with
inventory records, scheduled receipts and
the Bill of Materials (BOM) to determine
purchasing and production schedules for
the components required to build a
product.
 Material Requirements Planning (MRP)
 Computer-based information system that
schedules and orders dependent-demand
inventory components;
 Uses the master production schedule, bills
of materials, and inventory records as
inputs;
 Outputs recommendations:
 When to release new orders.
 When to reschedule open orders.
 MRP
A computer-based information
system that translates Master
Production Schedule (MPS)
requirements for end items into
time-phased requirements for
subassemblies, components, and
raw materials.
 MRP
The MRP is designed to
answer three questions:
What is needed?

How much is needed?

When is it needed?
 Inputs to MRP
 MRP is a dependent demand technique
that uses
 Bill-of-Material (BOM)
 On-hand inventory data
 Expected receipts (outstanding purchase
orders)
 Master Production Schedule (MPS)
 Lead Time information
to determine material requirements.
Input / Output - MRP Process
 Types of Demand
 There are two types of demand.
 Independent Demand
 Is the demand for finished products
 Does not depend on the demand of other products
 Needs to be forecasted
 Dependent Demand
 Is the demand derived from finished products
 Is the demand for component parts based on the
number of end items being produced and is managed
by the MRP system
 MRP
 Responds to the fundamental
manufacturing equation:
 What are we going to make?
 Master production schedule.
 What does it take to make it?
 Bill of materials.
 What have we got?
 Inventory records.
 What do we have to get?
 Material Requirements plan: planned orders.
MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
 MRP Inputs: 1 MPS
 Master Production Schedule: MPS
 Time-phased plan specifying timing and quantity of
production for each end item.
 MPS comes from sales and marketing
 MPS covers about 1-3 months into the future
 Must cover cumulative lead time
Cumulative lead time: The sum of the lead times that
sequential phases of a process require, from ordering of
parts or raw materials to completion of final assembly.
 From Now until Cumulative lead time plans are
generally frozen
 Sometimes MPS is capacity filtered
 MRP inputs: 2 BOM
Bill of materials (BOM): A listing of all of the
raw materials, parts, subassemblies, and
assemblies needed to produce one unit of a
product.
Product structure tree: Visual depiction of the
requirements in a bill of materials, where all
components are listed by levels.
Most often people do not use the term product
structure tree. Instead use BOM to mean the
product structure tree.
 MRP input: 3. Inventory levels

Beginning inventory on hand

Scheduled receipts
Pipeline inventory not received yet
but it is in the process of coming to
the inventory. We know when this
will be available for use.
 MRP Processing
 Gross requirements: (Forecasted)Demand period
by period
 Net requirements(t)
=Gross requirements(t)-Projected inventory(t-1)
-Scheduled receipt(t)
 If Net requirement(t) > 0
set Planned order receipts(t)>=Net
requirement(t)
 Planned-order receipts is the production planned
 Projected inventory(t)
=Projected inventory(t-1)+Scheduled receipt(t)
+Planned order receipts(t)-Gross requirements(t)
 Planned order release(t-LT)=Planned-order
receipts(t)
 MRP Processing
MRP processing takes the end item
requirements specified by the
Master Production Schedule (MPS)
and “explodes” them into time-
phased requirements for assemblies,
parts, and raw materials offset by
lead times
 MRP: Processing
 The MRP is based on the product structure tree
diagram
 Requirements are determined level by level,
beginning with the end item and working down
the tree
 The timing and quantity of each “parent”
becomes the basis for determining the timing
and quantity of the “children” items directly
below it.
 The “children” items then become the “parent”
items for the next level, and so on
MRP Outputs: Primary
Planned orders
A schedule indicating the
amount and timing of future
production and/or

purchasing orders
 MRP Outputs: Secondary
 Secondary Outputs
 Performance-control reports
 e.g.,
missed deliveries and stockouts
 Planning reports
 Data useful for assessing future material
requirements
 e.g.,
purchase commitments
 Exception reports
 excessive scrap rates,
 Objectives of MRP
 Determines the quantity and timing of
material requirements
 Determines what to order (checks BOM), how
much to order (lot size rules), when to place
the order (needed date minus lead time), and
when to schedule delivery (on date needed)
 Maintain priorities
 In a changing environment, MRP reorganizes
priorities to keep plans current and viable
 Benefits of MRP
 Low levels of in-process inventories
 Ability to track material requirements
 Ability to evaluate capacity requirements
 Means of allocating production time
 Ability to easily determine inventory usage by
backflushing
 Backflushing: Exploding an end item’s bill of
materials to determine the quantities of the
components that were used to make the item.
 Benefits of MRP
1. Better response to customer orders
2. Faster response to market changes
3. Improved utilization of facilities
and labor
4. Reduced inventory levels
 Requirements of MRP
Computers and necessary software
Accurate and up-to-date
 Master schedules
 Bills of materials
 Inventory records
Integrity of data
 MRP II
 Expanded MRP is emphasising on
integration of:
 Financial planning
 Marketing

 Engineering

 Purchasing

 Manufacturing
 MRP II
Market Master
Finance Demand
Manufacturing
production schedule

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity
capacity planning planning
Adjust
production plan
No Requirements No Yes
Yes Problems? schedules Problems?
 Capacity Planning
Capacity requirements planning: The process
of determining short-range capacity
requirements.
Load reports: Department or work center
reports that compare known and expected
future capacity requirements with
projected capacity availability.
Time fences: Series of time intervals during
which order changes are allowed or
restricted.
 Capacity Planning
Develop a tentative Use MRP to
master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No changed to meet
adequate? requirements

Yes Yes

Firm up a portion Change

of the MPS capacity
 Questions
 Examine the benefits of MRP in
organisations in the 21st Century.
 Detail the MRP inputs and their
significance in the Business Systems.
 Examine the CRP and its relevance in
manufacturing entities.
Product and
Service Design
 Product/Service Design Process
 A process that defines the
 Appearance and features,
 Quality characteristics,
 Spec limits and target levels
 Inputs (labor, capital, materials)
 Transformation process
 Supply chain – suppliers, channels of distribution

of a product/service that a company is

planning to produce.
 Stages of NPD Process
1 Idea generation – is it worth
considering ,is the idea compatible
with the company objectives.
2 Screening - strategies and resources
3 Concept development and testing
4 Marketing strategy – can we find a
cost effective affordable marketing
strategy.
 Stages of NPD Process
5 Business analysis- will this business
meet our profit
6 Product development – have we
developed a technically commercially
sound product.
7 Market Testing- Comments from the
Market.
8 Commercialization – are product
sales meeting expectations?
Understanding and Meeting
Customer requirements
The foundations for long term
success in any type of operation can
be established on the basis of a
synergistic relationship between
marketing, design and operations of
an organization.
Good integration between these
groups is important
Product development should be an
interactive process whereby the
customer and marketing & sales,
product service designers, purchasing
suppliers and production team work
together to develop a product that
meets customer expectations and can
be generated or produced
economically.
Product and Service Design
 Major factors in design strategy
 Cost
 Quality
 Time-to-market
 Customer satisfaction
 Competitive advantage

Product and service design – or redesign – should be

closely tied to an organization’s strategy
Product or Service Design Activities
Translate customer wants and needs
into product and service requirements
Refine existing products and services
Develop new products and services
Formulate quality goals
Formulate cost targets
Construct and test prototypes
Document specifications
Reasons for Product or Service
Design
Economic
Social and demographic
Political, liability, or legal
Competitive
Technological
Objectives of Product and Service
Design
 Main focus
 Customer satisfaction
 Secondary focus
 Function of product/service
 Cost/profit
 Quality
 Appearance
 Ease of production/assembly
 Ease of maintenance/service
AIMS OF DESIGNS
1 To have an idea to the materials
required.
2 To analyze compatibility
3 To reduce complexity of the product
4 To improve on the maintainability /
serviceability of product
5 To improve job safety
6 To have standardization of
components
Product Design
 Product Development
 Products can be developed in an
organization using one of the following
ways:
1. Traditional Sequential
Product Development
 It is a sequential process.
 Each member believes the other is
incompetent
 It is divided separate functions whereby:
 Traditional Sequential Product Development
 In this approach, products are designed and
manufactured following the sequential business
procedures, where people from different departments
work one after the other on successive phases of growth
(Majaro, 2011)
It is a formalized step by step approach to product design
and development in which each team member performs
his or her tasks and then passes that collateral on to the
next team member.
It approach focuses more on the “how” and “what,” rather
than the “why” – why does a customer need a product?
Traditional Sequential Product Development
It is also referred to as “Over the Wall” approach. The term
“over the wall approach” came about because each person’s
work is handed over the hypothetical (or actual) cubicle
wall to the next person/ department.
This methodology relies on tasks being performed
sequentially and with very little need for communication,
coordination or collaboration.
Traditional Sequential Product Development
1.Marketing passes the requirement
of the product.
2. The designers believe the
requirements are unrealistic with
regard to available technology or
resource, alter the requirement
and design a product to meet the
corrected market analysis.
Traditional Sequential Product Development
3. The designers pass the new
product to the process designers
and purchasing.
4. The process designers believe the
product designers do not
understand the real world.
They try to correct the product
design so that they it can be
produced.
Traditional Sequential Product Development
5. Purchasing interacts with
suppliers who indicate problems
with the design and they work
with the suppliers to correct it.
6.The suppliers are contracted to
produced what will meet the
needs of the new designs
economically.
Traditional Sequential Product Development
7. Operations receive the process design
and the purchased materials which all
have to rush into production whilst
designing the product.
8. Operations change the market
analysis and product.
9. In a manufacturing company
production pass the first few products
to sales.
Traditional Sequential Product Development
10. Sales receive with the product a
suggested selling price and a forecast
from marketing.
 Investigations then bounce from one
barrier to another with responsibility
and accountability for the product
service being denied, unrealistic goals
being claimed and little or no
feedback being given and nothing
being generated
Traditional Sequential Product Development

In theory this approach should

have led to an understanding of
the customer requirements
through the market analysis but
the customer is not really part
of the traditional product
development process.
Traditional Sequential Product Development
The length of time from the initial
market analysis to the first sales is too
long such that the analysis is often
invalid therefore it will not surprise
that the product does not meet the
requirements.
The entire product development
process is re-started at each phase
consuming time and resources hence
expensive duplication.
 Friction between departments will not be
avoided.
2. The Modern
Approach
 Modern Product Design Approach
• Product design and development teams clearly understand
what the product requires in terms of mission performance,
environmental conditions during operation, budget, and
scheduling.
 In this approach, teams work simultaneously to develop
new products and this therefore allows a more streamlined
approach.
 Full team participation and involvementin decision
making.
 All elements of the product design including quality, cost,
schedule and customer requirements are considered from
the onset
 There is very high level of customer involvement
throughout product design.
 Modern Product Design Approach
 It is also referred to as the concurrent engineering
approach. In this approach, team members from
different job functions collaborate early and more
often. No “walls,” team work is the order.
 The Modern Approach
Each element is carried out in the
context of other and there are
excellent communications.
Representatives of the customer,
marketing, product design,
purchasing, suppliers and operations
need to work as a cohesive, flexible,
supportive product development
team.
The Modern Approach
Many organization have found
efficiency , simplification, faster
response time, less politics, more
forecast expertise and lower costs by
adopting this approach.
The team should be broad based and
true customer requirements known to
the entire team from the start to the
end of operations / production .
The Modern Approach
All the customer requirements,
product assumptions and production
requirements must be documented.
Specific product goals must be
established, accepted and embraced
by entire team.
There must be commitment by the top
management.
 Distinction between Traditional and
Modern approaches to product design
Factor Traditional Modern Comments
approach to approach to
product design product design

Customer Requires Customer is Customer

availability customer involved involvement
involvement only throughout the reduces risk in
at milestones product design either model
stage

Scope/features Works well when Welcome Adaptability is

scope is known changes, works preferred and
in advance or well when scope contract terms
when contract is not known in sometimes
terms limit advance restrict it
changes
Distinction between Traditional and Modern
product design approaches
Factor Traditional Modern approach Comments
approach to to product design
product design
Feature/Prior “Do everything we Prioritization by Contract terms
itization agreed on” value ensures the may not permit
approach best product partial success
Ensures the outcome and and may
customer gets decreases the risk require “do
everything they of complete everything”
asked for. failure by allowing
“All or nothing partial success
approach increases
risk of failure”
Teamwork Team coordination Dedicated teams Teams work
and with a high degree better together.
synchronization is of coordination
limited to hands off
points
Turning Requirements into designs
It involves some research
development and design activities:
1. Research - the discovery of novel/
new products, techniques ideas
systems.
2. Development - the improvement of
existing products techniques systems
or ideas.
.
-
DESIGN PROCESS AND SYSTEMS
In every project the design
program will pass through the
five stages given below.
 1. Conception
 It is when a draft specification for the
product/ service is laid down
incorporating the user requirements.
 It is the most important in providing the
basis for control of all subsequent design
activity.
 A specification must be drawn up in as
much detail as possible by marketing in
discussion with the customer and the
design group.
The minimum information that should be
given on a design specification
1. The technical or performance
requirements including explicit statements
on quality and reliability.
2. Any appearance or styling requirements
3. The intended selling price or operational
cost
4. The date when product must be available.
5. The probable quantity or service usage
that will be required.
The minimum information that should
be given on a design specification
6. The max cost of designing which
can be accepted since the final
products must bear the cost of the
design.
7. Information concerning any
special safety, legal or quality
features required by current
legislation
2) ACCEPTANCE
 Is where specification is shown to be achievable
 It is here that tradeoffs between requirements and
achievability are made explicit and resolved
 It is usually the 1st stage where costs for the design
work will be assigned directly to the project.
 The draft specification is tested for acceptance/
rejection or impracticable, or modified in
conjunction with marketing.
 It is important for the designer to know the
capability of the operating unit which will carry out
the final design.
3. EXECUTION
 Is where a number of models or pilot runs
are prepared from the work at stage 2.
 The models should conform to the
specification
 Costs consideration should not be
overlook.
 The technical appearance or service
performance requirements are most
important at this stage.
 4. Translation
 Is where the project is put into such a term that
it can be operated within the origin and to the
specification laid in stage 2
 The appropriate operations and after sales
service groups must be involved in the design
work.
 It is common practice that the teams responsible
for the original work and for the model on trials
to hand over the task to a development which,
while appreciating the originality of design, can
also appreciate the problems involved in
 4. Translation
This development team should discuss
at all the stages the operating
problems with the appropriate groups
or departments.
Detailed estimates will begin to be
formed and it will be possible to assign
maximum acceptable costs to the
various aspects of the service or
product.
 4. Translation
 Lack of cooperation at this time between
designers and operational people will prove
very costly.
 The design finally placed upon the operating
unit will be difficult to operate or produce and
emergency re-designs carried out will result in
a debasing of the product or service.
 Work at this stage will also be proceeding to
preparing the final operating information
summarizing all the design and development
effort.
 4. Translation
Control of the amount of work put
into obtaining this information is both
important and difficult and must be
remembered that the information is
both important and difficult, and
must be remembered that the
information is intended to aid
operation and not to be an end in
itself.
 5) Pre-operation
 Is where quantities are produced or
services provided in numbers sufficient to
check the design personnel, equipment
and specifications.
 It is not until this stage that the
specifications can be frozen i.e.
considered to be final and liable to
change without authorization.
 It is the pilot stage.
5) Pre-operation
The pre-operational stage will
look at the following:
Operational information
Operational resources
Operational techniques and
estimates
Specifications
In the design process the following
points are worth considering:
 No design will ever be complete in the
sense that some modifications can always
be made.
 Few designs are entirely novel.
 An examination of any new product/
service will almost certainly show that it
largely employs existing techniques,
components or systems which have been
added a comparatively small novel
element.
SERVICE PROCESS DESIGN
 Product/Service Design Process
 A process that defines the
 Appearance and features,
 Quality characteristics,
 Spec limits and target levels
 Inputs (labor, capital, materials)
 Transformation process
 Supply chain – suppliers, channels of distribution

of a product/service that a company is

planning to produce.
Design of services and service
processes
The service sector constitute the
largest sector in the world economy in
terms of employment contribution
and gross domestic product.
It is a fact that majority of businesses
offer a combination of products and
services judging from the fact that
everything sold falls in the continuum
of service/product dominance.
Service Design
Service is an act
Service delivery system
Facilities
Processes
Skills
Many services are bundled with
products
 Service Design
 Service
 Something that is done to or for a customer
 Service delivery system
 The facilities, processes, and skills needed to
provide a service
 Product bundle
 The combination of goods and services
provided to a customer
 Service package
 The physical resources needed to perform the
service
 Design of services
 The design of a service involves the same
stages as those of the design of the product.
 It begins with identifying a customer need
and developing a service concept that
fulfils the need.
 The identification of the concept lead to
detailed design of the service and the
unique processing activities that include
equipment, human resources and
procedures.
 Design of services
 However services differ from products in
that services that do not include physical
components do not require engineering,
testing, components analyses and
prototype building of product design.
 Furthermore in service design, process
technology require some consideration as
the clients are present in the conversion
process.
 Service process technologies
Process technologies for services
are more diverse compared to
product process technologies.
Service technologies vary
according to the amount of
customer contact and the intensity
of labour in relation to capital.
 Service process technologies
The automation of services offers
potential for greater efficiencies.
When services are viewed in more
technical rather than humanistic
terms, automation and
standardization become possible.
 Customer contact
This occurs in two ways.
 Customer’s involvement in designing
where the customer is intensively involved
in the designing of the service or
customising the service e.g. a customer
working closely with the architect.
 A customer creating a service – this is a
high contact process as the customer
participates in the creation of the service
e.g. hair styling.
 Customer contact
This occurs in two ways.
 The degree of customer contact can be used to
understand how an organisation operates and
organisations can be classified between low
contact to high contact.
 The categorisation can also help appreciate the
trade off between efficiency and flexibility of
operations.
 When flexibility is high, efficiency is often low
because conversion process is not standardized.
Labour intensiveness
Some services are labour intensive like
teaching while others are capital
intensive like ATMs.
Labour intensive service providers are
characterised by employee scheduling
and training, while capital intensive
are characterised by technological
advancement and investments.
 Service automation
 Office automation are computer based
systems for managing information
resources.
 One important feature of office
automation is integrated automation i.e.
connecting every piece of office
equipment, not only in one location but in
company branches as well as in the
suppliers’ and customers’ offices
throughout the world.
The service–product bundle
Consists of three elements;
1) The tangible service (explicit
service)
2) The psychological benefits of
service (implicit service)
3) The physical goods (facilitating
goods)
 The service–product bundle
 Most services can be bundled with tangible
services, psychological benefits and facilitating
goods.
 For example when customers go to a fast food
restaurant, they receive both a tangible explicit
service which they hope is fast and accurate, and
a facilitating good, the food.
 The psychological benefits implicit services are
the customer’s feelings about the interaction
and the pleasantness of the surroundings.
 The service–product bundle
 An example is of a taxi cab ride the explicit
service is the transportation from one
place to another, and includes customer
perceptions and experiences like the
sound, sight and feel of the ride.
 The implicit service is the sense of well
being and security which the cab provides
and hopefully provides and finally the taxi
cab is the facilitating good.
 The service–product bundle
It is important in the design of the
service not to over emphasize one
piece of the service–product
bundle while neglecting the other
elements.
Another for example, to illustrate
the service–product bundle is the
Pizza/ food delivery service.
 The service–product bundle
 The explicit service is the availability of
delivery service and the time it takes for
delivery.
 The implicit service relates to the clean–
cut appearance and courtesy provided by
the delivery agent.
 These implicit services contribute to a
sense of professionalism and security for
the customer.
The service–product bundle
The facilitating good is the
pizza/food itself that should be
delivered hot to the customer.
Operations management task,
before delivering any services to
the customers is to design the
service system.
 The service–product bundle
The service system include
designing the process that will be
used to deliver services, and it
includes details such as the
technology used in the process
design, the types of employees
needed and even the appearance of
employees and facilities.
 The service – product bundle
 While operations management can fairly
tightly control both the explicit service
and facilitating goods implicit (the
feelings customer get from a service) are a
bit hard to control therefore it is
important that management use the
means it has available for example
technology or employees to do its best to
design the intended feeling into the
service system.
 KEY ISSUES TO NOTE
 The key to service profitability has been
linked to focusing on customers and
employees as paramount in importance.
 Managers should focus in particular on
front line employees who deliver the
service, technology that supports them,
training and customer satisfaction.
 Customer loyalty is the key to revenue
growth and profitability.
 The service-profit chain shows that
customer loyalty is driven by satisfied
customers.
 The service – profit also includes external
service value, which leads directly satisfied
customers.
 External service value is the benefit
customers receive less the cost incurred in
obtaining the service, which includes not
only the price but the costs of finding the
service, travelling to the service location,
waiting for the service and correcting any
service problems encountered.
On the part of the service–profit chain
- Productive employees are essential in
delivering value to the customer.
Productive employees lower the costs
of operations and ensure satisfied
customers when supported by
management and appropriate
technology and systems
 Employee retention and low employee
turnover help to drive productivity and
customer value.
 Employee retention and productivity can
be assured by satisfied customers.
 Process design should reflect this direct
contact service employees and customers.
 This can be done by providing real-time
(during service delivery) tools such as
computer access to customer information
to help service employees perform their
jobs.
 Questions

Examine the significance of the stages

in product design.
Designing services is a stroll in the
park. Comment.
Compare and contrast the two
approaches to product development
and design.
3-1 Forecasting
3-2 Forecasting

Forecasting
Involves using several different
methods of estimating to
determine possible future
outcomes for the business.
It is the process of making
predictions of the future based on
past and present data and most
commonly by analysis of trends.
3-3 Forecasting

Forecasting
It is a decision-making tool used by
many businesses to help in budgeting,
planning, and estimating future
growth.
In the simplest terms, it is the attempt
to predict future outcomes based on
past events and management insight.
A statement about the future value of a
variable of interest such as demand.
3-4 Forecasting

FORECAST
Forecasts affect decisions and
activities throughout an organization
 Accounting, finance
 Human resources/Personnel
 Marketing
 MIS
 Operations
 Product / service design
 Production
 Inventory
 Facilities
3-5 Forecasting

The Importance of Forecasting

 Forecasts determine:
 Master schedules

 Economic order quantities

 Safety stocks

 JIT requirements to both internal

and external suppliers
3-6 Forecasting

Why is forecasting important?

Demand for products and services is usually
uncertain.
Forecasting can be used for…
• Strategic planning (long range planning)
• Finance and accounting (budgets and cost
controls)
• Marketing (future sales, new products)
• Production and operations
3-7 Forecasting

Forecasting Across the Organization

 Forecasting is critical to management
of all organizational functional areas
 Marketing relies on forecasting to predict
demand and future sales
 Finance forecasts stock prices, financial
performance, capital investment needs..
 Information systems provides ability to share
databases and information
 Human resources forecasts future hiring
requirements
3-8 Forecasting

Uses of Forecasts
Accounting Cost/profit estimates

Finance Cash flow and funding

Human Resources Hiring/recruiting/training

Marketing Pricing, promotion, strategy

MIS IT/IS systems, services

Operations Schedules, MRP, workloads

Product/service design New products and services

3-9 Forecasting

Elements of a Good Forecast

Timely
Reliable
Accurate
Meaningful
Written
Easy to use
3-10 Forecasting
Steps in the Forecasting Process

“The forecast”

Step 6 Monitor the forecast

Step 5 Prepare the forecast
Step 4 Gather and analyze data
Step 3 Select a forecasting technique
Step 2 Establish a time horizon
Step 1 Determine purpose of forecast
3-11 Forecasting

Types of Forecasting Methods

 Forecasting methods are classified into
two groups:

© Wiley 2010 11
3-12 Forecasting

Forecasting Approaches
Qualitative Methods Quantitative Methods
¨ Used when ¨ Used when situation
situation is vague & is ‘stable’ & historical
little data exist data exist
¨ Existing products
¨ New products
¨ Current technology
¨ New technology
¨ Involves
¨ Involves intuition, mathematical
experience techniques

12
Types of Forecasts
3-13 Forecasting

Judgmental - uses subjective

inputs
Time series - uses historical
data assuming the future will be
like the past
Associative models - uses
explanatory variables to predict
the future
3-14 Forecasting
Judgmental Forecasts
Executive opinions
Sales force opinions
Consumer surveys
Outside opinion
 Delphi method
Opinions of managers and staff
Achieves a consensus forecast
3-15 Forecasting

Qualitative Methods
Type Characteristics Strengths Weaknesses
Executive A group of managers Good for strategic or One person's opinion
opinion meet & come up with new-product can dominate the
a forecast forecasting forecast

Market Uses surveys & Good determinant of It can be difficult to

research interviews to identify customer preferences develop a good
customer preferences questionnaire

Delphi Seeks to develop a Excellent for Time consuming to

method consensus among a forecasting long-term develop
group of experts product demand,
technological
changes, and
3-16 Forecasting
Time Series Forecasts
Trend - long-term movement in data
Seasonality - short-term regular
variations in data
Cycle – wavelike variations of more
than one year’s duration
Irregular variations - caused by
unusual circumstances
Random variations - caused by
chance
3-17 Forecasting

Time Series Models

 Forecaster looks for data patterns as
 Data = historic pattern + random variation
 Historic pattern to be forecasted:
 Level (long-term average) – data fluctuates around a
constant mean
 Trend – data exhibits an increasing or decreasing pattern
 Seasonality – any pattern that regularly repeats itself and
is of a constant length
 Cycle – patterns created by economic fluctuations
 Random Variation cannot be predicted
3-18 Forecasting

Time Series Models

Ft 1  At
 Naive:
 The forecast is equal to the actual value observed
during the last period – good for level patterns
 Simple Mean: Ft 1   A t / n
 The average of all available data - good for level
patterns
 Moving Average: Ft 1   A t / n
 The average value over a set time period
(e.g.: the last four weeks)
 Each new forecast drops the oldest data point &
adds a new observation
 More responsive to a trend but still lags behind
actual data
3-19 Forecasting

Naive Forecasts
Uh, give me a minute....
We sold 250 wheels last
week.... Now, next week
we should sell....

The forecast for any

period equals the previous
period’s actual value.
 Naïve Forecasts
3-20 Forecasting

Simple to use
Virtually no cost
Quick and easy to prepare
Data analysis is nonexistent
Easily understandable
Cannot provide high accuracy
Can be a standard for accuracy
3-21 Forecasting

Techniques for Averaging

Moving average
Weighted moving
average
Exponential smoothing
3-22 Forecasting

Moving Averages
 Moving average – A technique that
averages a number of recent actual values,
updated as new values become available.
n


i=1
Ai
MAn =
n
Weighted moving average – More
recent values in a series are given
more weight in computing the
forecast.
3-23 Forecasting

Weighted Moving Average:

Ft 1   C t A t
 All weights must add to 100% or 1.00
e.g. Ct .5, Ct-1 .3, Ct-2 .2 (weights add to 1.0)
 Allows emphasizing one period over others;
above indicates more weight on recent data
(Ct=.5)
 Differs from the simple moving average that
weighs all periods equally - more responsive to
trends
3-24 Forecasting

Exponential Smoothing
Ft = Ft-1 + (At-1 - Ft-1)
• Premise--The most recent
observations might have the highest
predictive value.
 Therefore, we should give more
weight to the more recent time
periods when forecasting.
3-25 Forecasting

Exponential Smoothing:
Most frequently used time series method because of ease
of use and minimal amount of data needed
 Need just three pieces of data to start:
 Last period’s forecast (Ft)
 Last periods actual value (At)
 
Ft 1  αAt  1  α Ft
 Select value of smoothing coefficient,  ,between 0
and 1.0
 If no last period forecast is available, average the last
few periods or use naive method
 Higher  values (e.g. .7 or .8) may place too much
weight on last period’s random variation
3-26 Forecasting

Exponential Smoothing

Ft = Ft-1 + (At-1 - Ft-1)

Weighted averaging method based
on previous forecast plus a
percentage of the forecast error
A-F is the error term,  is the %
feedback
3-27 Forecasting

Time Series Problem

 Determine forecast for
Period Actual
periods 7 & 8
1 300
 2-period moving average
2 315
 4-period moving average
3 290
 2-period weighted moving
4 345
average with t-1 weighted 0.6
5 320
and t-2 weighted 0.4
6 360
 Exponential smoothing with
7 375
alpha=0.2 and the period 6
8
forecast being 375
3-28 Forecasting

Time Series Problem Solution

Expon.
Period Actual 2-Period 4-Period 2-Per.Wgted. Smooth.

1 300

2 315

3 290

4 345

5 320

6 360

7 375 340.0 328.8 344.0 372.0

8 367.5 350.0 369.0 372.6

 Linear Trend Equation
3-29 Forecasting

Ft

Ft = a + bt

0 1 2 3 4 5 t

 Ft = Forecast for period t

 t = Specified number of time periods
 a = Value of Ft at t = 0
 b = Slope of the line
3-30 Forecasting

Calculating a and b
n  (ty) -  t y
b =
n t 2 - (  t) 2

 y - b t
a =
n
3-31 Forecasting
Linear Trend Equation Example
t y
2
Week t Sales ty
1 1 150 150
2 4 157 314
3 9 162 486
4 16 166 664
5 25 177 885

 t = 15 t2 = 55  y = 812  ty = 2499

2
(t) = 225
3-32 Forecasting
Linear Trend Calculation

5 (2499) - 15(812) 12495-12180

b = = = 6.3
5(55) - 225 275 -225

812 - 6.3(15)
a = = 143.5
5

y = 143.5 + 6.3t
3-33 Forecasting
Associative Forecasting
Predictor variables - used to
predict values of variable interest
Regression - technique for fitting
a line to a set of points
Least squares line - minimizes
sum of squared deviations around
the line
3-34 Forecasting

Linear Model Seems Reasonable

X Y Computed
7 15 relationship
2 10
6 13 50
4 15
40
14 25
15 27 30

16 24 20
12 20
10
14 27
20 44 0
0 5 10 15 20 25
15 34
7 17

A straight line is fitted to a set of sample points

3-35 Forecasting

Influence of Product Life Cycle

Introduction – Growth – Maturity –
Decline
 Introduction and growth require longer
forecasts than maturity and decline
 As product passes through life cycle,
forecasts are useful in projecting
 Staffing levels
 Inventory levels
 Factory capacity
3-36 Forecasting

Product Life Cycle

Introduction Growth Maturity Decline
Product design Forecasting Standardizatio Little product
and development critical n differentiation
critical Product and Fewer product Cost
Frequent product process changes, more minimization
and process reliability minor changes Overcapacity in
design changes Competitive Optimum the industry
Short production product capacity Prune line to
runs improvements Increasing eliminate items
High production and options stability of not returning
OM Strategy/Issues

costs Increase process good margin

Limited models capacity Long Reduce capacity
Attention to Shift toward production
quality product focus runs
Enhance Product
distribution improvement
and cost
cutting
3-37 Forecasting

Sources of Forecast errors

Inadequacy of Model
Irregular variations
Incorrect use of
forecasting technique
3-38 Forecasting

Selecting the Right Forecasting Model

1. The amount & type of available data
 Some methods require more data than others
2. Degree of accuracy required
 Increasing accuracy means more data
3. Length of forecast horizon
 Different models for 3 month vs. 10 years
4. Presence of data patterns
 Lagging will occur when a forecasting model
meant for a level pattern is applied with a trend
3-39 Forecasting

Forecasting Software
 Spreadsheets
 Microsoft Excel, Quattro Pro, Lotus 1-2-3
 Limited statistical analysis of forecast data
 Statistical packages
 SPSS, SAS, NCSS, Minitab
 Forecasting plus statistical and graphics
 Specialty forecasting packages
 Forecast Master, Forecast Pro, Autobox, SCA
3-40 Forecasting

Guidelines for Selecting Software

 Does the package have the features you
want?
 What platform is the package available for?
 How easy is the package to learn and use?
 Is it possible to implement new methods?
 Do you require interactive or repetitive
forecasting?
 Do you have any large data sets?
 Is there local support and training available?
 Does the package give the right answers?
3-41 Forecasting

Choosing a Forecasting Technique

 No single technique works in every situation
 Two most important factors
 Cost
 Accuracy
 Other factors include the availability of:
 Historical data
 Computers
 Time needed to gather and analyze the data
 Forecast horizon
3-42 Forecasting
Chapter Highlights
 Three basic principles of forecasting are: forecasts are
rarely perfect, are more accurate for groups than
individual items, and are more accurate in the shorter
term than longer time horizons.
 The forecasting process involves five steps: decide
what to forecast, evaluate and analyze appropriate data,
select and test model, generate forecast, and monitor
accuracy.
 Forecasting methods can be classified into two
groups: Qualitative and Quantitative. Qualitative
methods are based on the subjective opinions of the
forecaster and quantitative methods are based on
mathematical modeling.
3-43 Forecasting

Key issues in forecasting

1.A forecast is only as good as the

information included in the
forecast (past data)
2.History is not a perfect predictor of
the future (i.e.: there is no such
thing as a perfect forecast)
3-44 Forecasting

Key issues in forecasting

REMEMBER: Forecasting is
based on the assumption that
the past predicts the future!
When forecasting, think
carefully whether or not the past
is strongly related to what you
expect to see in the future…
CHAPTER
Concepts on Quality
 Meaning of Quality
 Total Quality Management
 Quality Improvement Strategic
Implications of TQM
 Six Sigma

3-2
 An operations manager’s
objective is to build a total
quality management system
that identifies and satisfies
customer needs
Two Ways Quality Improves Profitability

Sales Gains via

• Improved response
• Flexible pricing
• Improved reputation

Improved Increased
Quality Profits
Reduced Costs via
• Increased productivity
• Lower rework and scrap costs
• Lower warranty costs
 The Flow of Activities
Organizational Practices
Leadership, Mission statement, Effective operating
procedures, Staff support, Training
Yields: What is important and what is to be
accomplished
Quality Principles
Customer focus, Continuous improvement, Benchmarking,
Just-in-time, Tools of TQM
Yields: How to do what is important and to be
accomplished
Employee Fulfillment
Empowerment, Organizational commitment
Yields: Employee attitudes that can accomplish
what is important
Customer Satisfaction
Winning orders, Repeat customers
Yields: An effective organization with
a competitive advantage
Defining Quality
The totality of features and
characteristics of a product or
service that bears on its ability
to satisfy stated or implied
needs

American Society for Quality

 Quality - Definitions
 Quality is excellence that is better than a
minimum standard.
It is conformance to standards and
‘fitness of purpose’
 ISO 9000:2000 definition of quality-
It is the degree to which a set of
inherent characteristics fulfills
requirements.
 Quality is ‘ fitness for use ‘ of the
product –Joseph Juran.
 Different Views
► User-based: better
performance, more features
► Manufacturing-based:
conformance to standards,
making it right the first time
► Product-based: specific and
measurable attributes of the
product
Meaning of Quality: Consumer’s
Perspective
 Fitness for use
 how well product or service
does what it is supposed to
 Quality of design
 designing quality
characteristics into a
product or service
 A Mercedes and a Ford are
equally “fit for use,” but with
different design dimensions

3-9
Dimensions of Quality: Manufactured Products
 Performance
 basic operating characteristics of a product;
how well a car is handled or its gas mileage
 Features
 “extra” items added to basic features, such as
a stereo CD or a leather interior in a car
 Reliability
 probability that a product will operate
properly within an expected time frame; that
is, a TV will work without repair for about
seven year
Dimensions of Quality: Manufactured Products
(cont.)
 Conformance
 degree to which a product meets pre–
established standards
 Durability
 how long product lasts before
replacement
 Serviceability
 ease of getting repairs, speed of repairs,
courtesy and competence of repair
person
Dimensions of Quality:
Manufactured Products (cont.)
 Aesthetics
 how a product looks, feels, sounds, smells, or
tastes
 Safety
 assurance that customer will not suffer
injury or harm from a product; an especially
important consideration for automobiles
 Perceptions
 subjective perceptions based on brand name,
advertising, and the like
Dimensions of Quality: Service
 Time and Timeliness
 How long must a customer wait for service,
and is it completed on time?
 Is an overnight package delivered overnight?
 Completeness:
 Is everything customer asked for provided?
 Is a mail order from a catalogue company
complete when delivered?
Dimensions of Quality: Service (cont.)
 Courtesy:
 How are customers treated by employees?
 Are catalogue phone operators nice and are
their voices pleasant?
 Consistency
 Is the same level of service provided to each
customer each time?
 Is your newspaper delivered on time every
morning?
Dimensions of Quality: Service (cont.)
 Accessibility and convenience
 How easy is it to obtain service?
 Does a service representative answer you calls
quickly?
 Accuracy
 Is the service performed right every time?
 Is your bank or credit card statement correct every
month?
 Responsiveness
 How well does the company react to unusual
situations?
 How well is a telephone operator able to respond to a
customer’s questions?
 Meaning of Quality
Meaning of Quality

Producer’s Perspective Consumer’s Perspective

Quality of Conformance Quality of Design

Production • Conformance to • Quality characteristics Marketing

specifications • Price
• Cost

Fitness for
Consumer Use
Benefits of Quality
 Higher customer satisfaction
 Reliable products/services
 Better efficiency of operations
 More productivity & profit
 Better morale of work force
 Less wastage costs
 Less Inspection costs
 Improved process
 More market share
 Spread of happiness & prosperity
 Better quality of life for all.
Why Quality? Reasons for quality becoming a
priority for business:
 Competition – Today’s market demand high quality
products at low cost. Having `high quality’
reputation is not enough! Internal cost of
maintaining the reputation should be less.
 Higher levels of customer satisfaction – Higher
customers expectations are getting spawned by
increasing competition.
 Changing product mix – The shift from low
volume, high price to high volume, low price have
resulted in a need to reduce the internal cost of poor
quality.
Total Quality Management
TQM
 Total Quality Management
 T Q M is continuous customer-centred,
employee driven improvement of / on all
operations in organisations.
 Key Issues to Note in T Q M
Do It Right First Time to eliminate costly rework.
Listen to and Learn from Customers and
Employees.
Make continuous improvement a daily bread.
Build Team work, Trust and Respect
 Total Quality Management
 Is a bundle of techniques and values associated with a
radical business philosophy which emphasises the
importance of quality through all activities in an
organisation
 It is the continual process of detecting and reducing or
eliminating errors in manufacturing
 Every member of staff must be committed to
maintaining high standards of work in every aspect of
the company’s operations
 One of the famous examples is Toyota. It implemented
the system to make its assembly line more efficient
 Total Quality Management
Commitment to quality throughout organization

 Principles of TQM
 Customer-oriented
 Leadership
 Strategic planning
 Employee responsibility
 Continuous improvement
 Cooperation
 Statistical methods
 Training and education
 Total Quality Management
Advantages 2. Economic improvements
 The benefits of TQM can be
oriented benefits.
classified into the following  Reductions in operating costs.
two categories:  Reductions in operating losses.
1. Customer satisfaction oriented  Reductions in field service
costs.
benefits.
 Reductions in liability
 Improvement in product quality. exposure
 Improvement in product design.
 Improvement in production flow. Disadvantages
 Improvement in employee morale  Requires financial resources
and quality consciousness.  Employees need training
 Improvement of product service.
 Improvement in market place
acceptance.
 TQM in Service Companies
Principles of TQM apply equally well to
services and manufacturing
Services and manufacturing companies
have similar inputs but different
processes and outputs
Services tend to be labor intensive
Service defects are not always easy to
measure because service output is not
usually a tangible item
 Quality Attributes in Service
Benchmark
 “best” level of quality achievement one
company or companies seek to achieve
Timeliness
 how quickly a service is provided

quickest, friendliest, most accurate

service available
How to implement T Q M
 Commitment for Employees
 Quality Improvement Culture
 Continuous Improvement in Process
 Cooperation from Employees
 Focus on Customer Requirements
 Effective Control shall be laid down
 How to implement TQM cont’…
 Partnering
 a relationship between a company and its
supplier based on mutual quality
standards
 Customers Satisfaction and Focus
 system must measure customer
satisfaction and improve on it
 Information Technology
 infrastructure of hardware, networks,
and software necessary to support a
quality program
 Quality Gurus
 Walter Shewart
 In 1920s, developed control charts
 Introduced the term “quality assurance”
 W. Edwards Deming
 Developed courses during World War II to teach
statistical quality-control techniques to engineers
and executives of companies that were military
suppliers
 After the war, began teaching statistical quality
control to Japanese companies
 Joseph M. Juran
 Followed Deming to Japan in 1954
 Focused on strategic quality planning
 Quality Gurus (cont.)
 Armand V. Feigenbaum
 In 1951, introduced concepts of total quality control
and continuous quality improvement
 Philip Crosby
 In 1979, emphasized that costs of poor quality far
outweigh the cost of preventing poor quality
 In 1984, defined absolutes of quality management—
conformance to requirements, prevention, and “zero
defects”
 Kaoru Ishikawa
 Promoted use of quality circles
 Developed “fishbone” diagram
 Emphasized importance of internal customer
 Deming’s 14 Points
1. Create constancy of purpose
2. Adopt philosophy of prevention
3. Cease mass inspection
4. Select a few suppliers based on
quality
5. Constantly improve system and
workers
 Deming’s 14 Points (cont.)
6. Institute worker training
7. Instill leadership among
supervisors
8. Eliminate fear among employees
9. Eliminate barriers between
departments
10. Eliminate slogans
 Deming’s 14 Points (cont.)
11. Remove numerical quotas
12. Enhance worker pride
13. Institute vigorous training and
education programs
14. Develop a commitment from top
management to implement
above 13 points
Deming Wheel: PDCA Cycle

4. Act 1. Plan
Institutionalize Identify problem
improvement; and develop plan
continue cycle. for improvement.

3. Study/Check 2. Do
Assess plan; is it Implement plan
working? on a test basis.
Seven Quality Control Tools
Pareto Scatter
Analysis Diagram
Flow Chart SPC Chart
Check Sheet Cause-and-
Histogram Effect Diagram
 Quality–Cost Relationship
Cost of quality
 Difference between price of
nonconformance and conformance
 Cost of doing things wrong
 20 to 35% of revenues
 Cost of doing things right
 3 to 4% of revenues

 Profitability
 In the long run, quality is free
 Cost of Quality
 Cost of Achieving Good Quality
 Prevention costs
 costs incurred during product design
 Appraisal costs
 costs of measuring, testing, and analyzing

 Cost of Poor Quality

 Internal failure costs
 include scrap, rework, process failure, downtime,
and price reductions
 External failure costs
 include complaints, returns, warranty claims,
liability, and lost sales
 Prevention Costs
 Quality planning costs  Training costs
 costs of developing and  costs of developing
implementing quality and putting on quality
management program training programs for
 Product-design costs employees and
 costs of designing management
products with quality  Information costs
characteristics
 costs of acquiring and
 Process costs maintaining data
 costs expended to make related to quality, and
sure productive process development of reports
conforms to quality
specifications on quality
performance
Appraisal Costs
Inspection and testing
 costs of testing and inspecting materials,
parts, and product at various stages and at the
end of a process
Test equipment costs
 costs of maintaining equipment used in
testing quality characteristics of products
Operator costs
 costs of time spent by operators to gar data for
testing product quality, to make equipment
adjustments to maintain quality, and to stop
work to assess quality
Internal Failure Costs
 Scrap costs  Process downtime costs
 costs of poor-quality  costs of shutting down
products that must be productive process to fix
discarded, including labor,
material, and indirect costs problem
 Rework costs  Price-downgrading costs
 costs of fixing defective  costs of discounting poor-
products to conform to
quality specifications quality products—that is,
selling products as
 Process failure costs
“seconds”
 costs of determining why
production process is
producing poor-quality
products
 External Failure Costs
 Customer complaint costs  Product liability costs
 costs of investigating and  litigation costs resulting
satisfactorily responding to a from product liability
customer complaint resulting and customer injury
from a poor-quality product
 Product return costs  Lost sales costs
 costs of handling and  costs incurred because
replacing poor-quality customers are
products returned by dissatisfied with poor
customer quality products and do
 Warranty claims costs not make additional
 costs of complying with purchases
product warranties
 ISO 9000
 A set of procedures and  ISO 9001:2000
policies for international  Quality Management
quality certification of Systems—Requirements
suppliers  standard to assess ability
 Standards to achieve customer
satisfaction
 ISO 9000:2000
 ISO 9004:2000
 Quality Management
 Quality Management
Systems— Systems—Guidelines for
Fundamentals and Performance
Vocabulary Improvements
 defines fundamental  guidance to a company
terms and definitions for continual
used in ISO 9000 improvement of its
family quality-management
system
Implications of ISO 9000 for Companies
 Many overseas companies will not do
business with a supplier unless it has ISO
9000 certification
 ISO 9000 accreditation
 ISO registrars
 A total commitment to quality is required
throughout an organization
 Questions
 Examine the the TQM philosophy identifying its major characteristics
and explain how TQM is different from the traditional notions of
quality.
 Comment on each of the four costs of quality: prevention, appraisal,
internal failure, and external failure. Examine how each type of cost
would change (increase, decrease, or remain the same) if we designed a
higher-quality product that was easier to manufacture.
 Assess the seven tools of quality control outlining if some are more
important than others.
 What are ISO 9000 standards and describe other certifications based on
the ISO 9000 certification?
 Comment on the following “gurus” of quality and give the contribution
made by each of them.
 Juran
 Deming
 Crosby
CHAPTER
 Morden Operations
Management Systems
Six Sigma
Disruptive Technology
World Class Manufacturing
Supply Chain Management -SCM
Six Sigma
 Six Sigma
 A process for developing and delivering near perfect
products and services
 Measure of how much a process deviates from
perfection
 Is a disciplined data driven approach and methodology
for eliminating defects
 To achieve six sigma – statistically – a process must not
produce more than 3.4 defects per million opportunities
 it is accomplished through the use of two six sigma sub
methodologies which are DMAIC and DMADV.
 Champion
 an executive responsible for project success
 Six Sigma
 Set of techniques and tools for process improvement
 Introduced by American Engineer Bill Smith in 1980 when
working for Motorola
 It is a process in which 99.9966% of all opportunities to
produce some feature of a part are statistically expected to
be free of defects
 It seeks to improve the quality of output by identifying and
removing the causes of defects
 The purpose of six sigma is to improve process capability or
reduce process variation so that nearly all products or
service meet or exceed customer expectations
Six Sigma: DMAIC
DEFINE MEASURE ANALYZE IMPROVE CONTROL

67,000 DPMO
cost = 25% of
sales 3.4 DPMO
Six Sigma Cont’…
It focuses on: Three main areas
• Improving  Process
customer improvement
satisfaction
 Process design
• Reducing cycle
 Process
time
management
• Reducing defects
 Six Sigma Cont
Advantages Disadvantages

Cost reduction Complex to implement

Quality improvement Expensive and time consuming

Improved organisation
competitive advantage

Enhanced customer
 Six sigma team
Champions
Mentors
Master Black belts
Black belts
Green belts
 SCM -
Supply Chain
Management
Supply Chain Management (SCM)
 Fundamentally, supply chain management
helps a company
 Get the right products
 To the right place
 At the right time
 In the proper quantity
 At an acceptable cost
 What is a Supply Chain?
 The interrelationships
 With suppliers, customers, distributors,
and
other businesses
 Needed to design, build, and sell a
product
 Each supply chain process should add value
to the products or services a company
produces
 Frequently called a value chain
What is a Supply Chain Management?
 A cross-functional inter-enterprise system that
uses information technology to help support and
manage the links between some of a company’s key
business processes and those of its suppliers,
customers, and business partners
 Supply Chain Management
 SCM has been defined as the "design, planning,
execution, control, and monitoring of supply chain
activities with the objective of creating net value,
building a competitive infrastructure, leveraging
worldwide logistics, synchronizing supply with
demand and measuring performance globally.”
(APICS 2013).
 SCM draws heavily from the areas of operations
management, logistics, procurement and
information technology, and aims for an integrated
approach to optimize the flow of good and services.
(Bartch 2013)
Supply Chain Management - SCM
Supply Chain Management refers to
the flow of goods, services,
information, raw materials, work in
progress inventory, finished from point
or origin to point of consumption
The term was first introduced by Booz
Allen Hamilton in 1982.
 Goals of SCM
The goal of SCM is to efficiently
Forecast demand
Control inventory
Enhance relationships with
customers, suppliers, distributors,
and others
Receive feedback on the status of
every link in the supply chain
Goals and Objectives of SCM
Supply Chain Life Cycle
Roles and Activities of SCM in
Business
 What SCM do!!!
 Materials Management: share accurate
inventory and procurement order information,
ensure materials required for production are
available in the right place at the right time,
and reduce raw material spending,
procurement costs, safety stocks, and raw
material and finished goods inventory
 Collaborative Manufacturing: optimize
plans and schedules while considering
resource, material, and dependency constraints
 What SCM do!!!
 Collaborative Fulfillment: commit to delivery dates
in real time, fulfill orders from all channels on time
with order management, transportation planning,
and vehicle scheduling, and support the entire
logistics process, including picking, packing,
shipping, and delivery in foreign countries
 Supply Chain Event Management: monitor every
stage of the supply chain process, from price
quotation to the moment the customer receives the
product, and receive alerts when problems arise
 Supply Chain Performance Management: report
key measurements in the supply chain, such as filling
rates, order cycle times, and capacity utilization
 Planning & Execution Functions of
SCM
 Planning
 Supply chain design
 Collaborative demand and supply planning
 Execution
 Materials management
 Collaborative manufacturing
 Collaborative fulfillment
 Supply chain event management
 Supply chain performance management
Supply Chain Management Systems
Business Value of Supply Chain
Management Systems
Match supply to demand.
Reduce inventory levels.
Improve delivery service.
Speed product time to market.
Use assets more effectively.
Reduced supply chain costs lead to
increased profitability.
Increase sales.
 Benefits of SCM
Key Benefits
Faster, more accurate order
processing
Reductions in inventory levels
Quicker times to market
Lower transaction and materials
costs
Strategic relationships with supplier
 Challenges of SCM
 Key Challenges
 Lack of demand planning knowledge, tools,
and guidelines
 Lack of adequate collaboration among marketing,
production, and inventory management
departments within a company
 Inaccurate or overoptimistic demand forecasts.
 Inaccurate production, inventory and other
business data provided by a company’s other
information systems
 Immature, incomplete or hard to implement SCM
software tools
Supply Chain Management Systems
Intranets and Extranets for Supply Chain
Management
Intranets integrate
information from
isolated business
processes within the
firm to help manage
its internal supply
chain. Access to
these private
intranets can also be
extended to
authorized suppliers,
distributors,
logistics services,
and, sometimes, to
retail customers to
improve
Supply Chain Management Systems
Global Supply Chains and the Internet
Global supply chain issues:
Global supply chains typically span greater
geographic distances and time differences.
More complex pricing issues (local taxes,
transportation, etc.).
Foreign government regulations.
Internet helps companies manage many
aspects of global supply chains.
Supply Chain Management Systems
Global Supply Chains and the Internet
Supply chain management systems
Push-based model (build-to-stock)
Schedules based on best guesses of demand
Pull-based model (demand-driven)
Customer orders trigger events in supply chain
Sequential supply chains
Information and materials flow sequentially from
company to company
Concurrent supply chains
Information flows in many directions
simultaneously among members of a supply
Supply Chain Management Systems
Push- Versus Pull-Based Supply Chain Models
The
difference
between
push- and
pull-based
models is
summarise
d by the
slogan
“Make
what we
sell, not
sell what
we make.”
Trends in SCM
Supply Chain Management - SCM
Disruptive Technology
 Disruptive Technology
• Is an innovation that helps create a new
market and value network, and eventually
disrupts an existing market and value
network (over a few years or decades),
displacing an earlier technology.
• describe innovations that improve a
product or service in ways that the market
does not expect, typically first by designing
for a different set of consumers in a new
market and later by lowering prices in the
existing market.”
Disruptive Technology
 World Class Manufacturing
• Is a collection of concepts, which set standard
for production and manufacturing for another
organization to follow (Reidell, 2013)
• Japanese manufacturing is credited with pioneer
in concept of world-class manufacturing.
• World class manufacturing was introduced in
the automobile, electronic and steel industry.
• World class manufacturing is a process driven
approach where various techniques and
philosophy are used in one combination or
other.
World Class Manufacturing
 Smaller lot sizes
 Collection of parts
 Doing it right first time
 Cellular or group manufacturing
 Total preventive maintenance
 Zero Defects
 World Class Manufacturing
ADVANTAGES
• Operational efficiency,
• Reducing wastage
• Cost efficient organization.
• Creation of high-productivity
organization,
• Use of concurrent production
techniques
 Questions
 Examine the following modern
operations management systems
cases and their applicability:

a. Six sigma
b. SCM
c. Disruptive Technology
d. World Class Manufacturing
1
 2

Industry 4.0
 Definition of Industry 4.0
 Industrial Evolution
 4th Industrial Revolution
 Building Blocks of Industry 4.0
 Potential Industrial Products Implications
 Potential Consumer Products Implications
 Impact of Industry 4.0
 3

Industry 4.0
 is the total integration of manufacturing systems,
production processes, digital communications
technologies and automated machines. This
flexible, intelligent integration provides themeans
to leverage data and machine learning,
empowering manufacturers to sidestep production
issues and forecast unique opportunities (Jain and
Mondal, 2017).
 4

Industry 4.0
 is an umbrella term for the technology and human-
led processes that, when seamlessly combined,
form the digital backbone of smart manufacturing.
 It encapsulates IT systems, the internet of things
(IoT) and adaptive manufacturing systems.
 Essentially, it bridges the physical and digital
worlds, facilitating sustainable growth while
elevating human capacities and restricting
production waste.
 Industry 4.0 is far more than a technical
transformation; it is about improving
manufacturing for the benefit of people and planet.
 5

EU def of Industry 4.0

Efficiency driven  Robotics- automation

arguments  Cyber-physical systems (smart
ordering, scheduling, control
 Smart and webbed and delivery systems, ‘big data’.
factories  New combination capital &
 Large plants labour
 Large firms or multi-  lower inventory upstream, in
national firms process and downstream.
 Mass customisation  Max productivity
 6

Industry 4.0
Industry 4.0 is signalling a change in
the traditional manufacturing
landscape.
Also known as the Fourth Industrial
Revolution, Industry 4.0 encompasses
three technological trends driving this
transformation: connectivity,
intelligence and flexible
automation.
 7

Industry 4.0
 Industry 4.0 is the information-intensive
transformation of manufacturing (and
related industries) in a connected
environment of big data, people, processes,
services, systems and IoT-enabled
industrial assets with the generation,
leverage and utilization of actionable data
and information as a way and means to
realize smart industry and ecosystems of
industrial innovation and collaboration.
 8
SMART MANUFAZCTURING - the synthesis of advanced
manufacturing capabilities and digital technologies to
produce highly customizable products faster, cheaper,
better, and greener
 Internet of  Security technologies
Things/Ubiquitous
Sensing  Advances in additive
 Big data & advanced processes/3D printing
analytics  Advances in robotics
 Cloud computing  Model-based
 Broadband everything
communications,
 Cyber-physical systems
wireless
engineering
 Mobile computing/apps
•Advances in materials
 9

Hallmarks of Industry 4.0

 Visibility: Silos come down, freeing up
previously hidden value.
 Transparency: Information is accessible
and contextualised in real-time.
 Predictability: Production is
decentralised and functions
autonomously.
 Adaptability: Systems self-diagnose and
auto-adjust for preventative maintenance.
 10

Industrie 4.0: Internet

technologies
 11
Industrie 4.0: Internet of Things -IoT
 Communicating objects based on internet
technologies
 Detection and identification using IPv6-
addresses (128 bit address space)
Advantages:
 Detection, identification and location of
physical objects
 Communication through connectivity
 Every physical object might be
equipped with an IPv6-address
 12

Industrie 4.0: Internet of Services – IoS

 New approach to provide internet based
services
 Concepts for product specific services on
demand, knowledge provision and
services for controlling product behaviour
 Interaction between people, machines and
systems to improve added value
 Service based added value processes
 13
Industrie 4.0: Internet of Data - IoD
 Data is managed and shared using internet
technologies
 Cyber-physical systems are producing big
data
 Fundamental prerequisite: Development of
a holistic security and safety culture to
establish sustainable trusted environments

 Manage big data: integrate product and

production data
 14

In MAKERS  Broader
1) New
technological
5) New capabilities 2) New
forms of organisation of
Biotech, nanotech, production inside
B2B
linkages neurotech, green & factory – smart
renewables, ICT & factory
mobile tech, 3D,
AI, Robotics,
4) New sensoring & space 2) New cyber-
tech, drones physical
sectors system
3)
Makers,
innovator
s MAKERS - Smart Manufacturing for EU growth
and prosperity is a project funded by the Horizon
2020-MSCA- RISE - Grant agreement number
691192.
 15

Industry 4.0
Personalised
New flexible
markets Artisan
New customisation
technologies
New business
I4.0 models
New (gig economy &
production Servinomics)
spaces Local
(Connected
Sustainability
factory)
supply core
chains
 16

Building blocks of Industry 4.0

Autonomous
Robots

Big data
Simulation
analytics

Augmented Industry Horizontal and

vertical system
reality
4.0 integration

Industrial
Additive
Internet of
Mfg
Things
Cyber
Security
 17

Impacting all aspect of value chain

18
 19

Digital Enterprise
Entire value chain is digitized and integrated
Primary Objective of the Smart 20

Manufacturing Goal
 Drive innovation and reduce risks of adoption of Smart
Manufacturing technologies through measurement science
and standards:
 •EL products include:
 •Performance metrics
 •Measurement, testing methods, and artefacts
 •Predictive modelling and simulation tools
 •Information and knowledge modelling
 •Protocols and specifications
 •Reference Technical data
 •Collaborations with academia and industry
 •Critical technical contributions to standards
 21

Benefits of Industry 4.0

 Enhanced productivity through optimization and
automation
 Real-time data for a real-time supply chain in a real-time
economy
 Higher business continuity through advanced maintenance
and monitoring possibilities
 Better quality products: real-time monitoring, IoT-enabled
quality improvement
 Better working conditions and sustainability
 Personalization and customization for the ‘new’ consumer
 Improved agility
 The development of innovative capabilities and new revenue
models
 22

Promoting Industry 4.0

 23
Stimulate and embrace experiments within
the organisation
 Create within the company that desire to trying
new methods, and enable Industry 4.0. This
step comprises several moving parts:
a. Design Thinking
 Conduct several workshops using design
thinking.
 It starts with the concept of either a problem
statement or an opportunity statement.
 Try to identify biggest problems and their real
opportunities.
 24

Stimulate and embrace experiments within

the organisation
b. Prioritisation
 The identified opportunities are prioritized
based on the leadership team’s willingness to
engage in a project. Prioritisation is not based on
major savings but on the notion of the art of the
possible.
 The team thinks about how technology can help
the company and how the company could show
things that are tangible to their people.
 25
Stimulate and embrace experiments
within the organisation
c. Execution
 Run selected PoCs for system connectivity,
data centralization, shop floor dashboards,
analytics solutions, automation, etc.
 The detailed scope, solutions and
acceptance criteria for the respective
projects are defined and shared with the
help of design thinking workshops or
requirement-gathering sessions.
 26

Stimulate and embrace experiments

within the organisation
d. Inclusion
 As new solutions advance, they will inevitably
change how people in the manufacturing space
perform their jobs.
 Automating dull, repetitive jobs is a positive
change for employees, but people will not
automatically adapt.
 Invite people to participate in reshaping their
work by including staff in the creative process as
well as the implementation of new solutions.
Stimulate and embrace experiments 27

within the organisation

e. Change Management
 As noted above, job functions evolve in Industry 4.0.
Preparing employees for the future of work requires
significant investment in change management.
 Additionally, we are entering a new era of collaboration
across enterprises. Multiple divisions within an
enterprise are cooperating, perhaps in a departure from
how they operated before an Industry 4.0 initiative.
 The governance and the engagement models between
these diverse groups—whether it is operations, field
service or IT— should look and feel like one integrated
organisation and not separate organisations with
different values.
 28

Addressing the Challenges to I4.0

 While many enterprise leaders are well
aware of the benefits and potential of
Industry 4.0, they may struggle with rolling
out their company’s digital transformation.
The larger an organisation, the more
challenging it can be to get started.
 Below are the most common barriers that
must be explained for manufacturers can
move forward.
 29

Strategy
 Most initial deployments of Industry 4.0 will likely be
used to reduce costs and improve efficiencies.
 The next wave of manufacturing calls for defining
business value, which is pivotal to forging new
revenue streams and customer experiences.
 A digital-first strategy takes value generation into
account.
 Impacts on the business cannot be pushed to the
background where they go unmeasured.
 Flexibility means leaping from waterfall development
to agile methodologies.
 30

Culture
 Organisations that lag in cultivating a digital
culture risk stumbling into Industry 4.0
tremendously unprepared.
 Today’s enterprises can be slow-moving, but
smart manufacturing calls for constant change.
 Businesses should create programs that regularly
up skill and train employees.
 Organisations need to envision how they will
make their mark in an ecosystem of on-going
innovation (Jain and Mondal, 2017).
 31

Leadership
 With a lack of business and IT leadership
dedicated to Industry 4.0 and IoT, formal
responsibility for digital transformation rarely
exists.
 Diffused accountability is limiting traction and
scaling, delaying the time to capture the value at
stake.
 Moving the ball forward requires building cross-
functional leadership teams (e.g. Manufacturing
Process, IT/Plant Networking, Controls, Digital,
Business and Program Management.
 32

Focus
 High-paced change makes it tough for many
organisations to set aside time for concentrated
thinking and experimentation, resulting in
“digital distraction.”
 Initiatives are not aligned with the business
strategy and/or applied to areas of maximum
value generation.
 On top of that, there is a tendency to select tools
and solutions that are not reliable or
architecturally scalable
 33

Infrastructure
 Many people in enterprises adhere to traditional
IT structures, approaches and methodologies.
 Additionally, manufacturers grapple with data
management. The volume and variability of
data— combined with hybrid vendor
environments, data security and the convergence
of OT and IT solutions— can seem
overwhelming. E.g, some IT executives say that
collecting, storing, integrating and analysing
real-time data from endpoint devices is a
principal barrier to a successful IoT
implementation
 34

Berger 2014- Industry 4.0

 Industrial excellence
 production process sophistication
 Degree of automation
 Workforce readiness
 Innovation intensity
 Value network
 VA
 Industry openness
 Innovation network
 Internet sophistication
 35

Take one technology: remote sensoring

Cloud
transport

Home

Medical
IoT devices

machinery

agriculture
 36

Pinch points for change

Lack of information
Vested interests
Resistance to change
Risk and uncertainty
Delusion about the inevitable
supremacy of services
Belief that businesses & market
know better
37
 38

Implications for industrial policy

 Political understanding of scale of change
 information and education
 Design clear and communicated vision 
shared vision
 Promote technology adoption and
application join tech with sectors
 Join national with regional scales multi-
level
 Industrial policy
 39

Firms’ Readiness to I4.0

applicab
awareness adoption advantage
ility

Drivers, Sweden Italy Germany UK

barriers,
conditions and
Bio-based
sectors
nautical engineering auto
needs of small
and large firms Digital ICT
to adopt the
Robotics
I4.0 model.
 40

Ready? Why and How?

Shapers
Adopters

Learners

Laggards
 41

Impact of I 4.0
Economy
 Growth
 Ageing
 Productivity
 Employment
 Labour subsititution
 The nature of Work
 42

Impact of I 4.0
Business

 Customer expectations

 Data enhanced products

 Collaborative innovation

 New operating models

 43

Top 10 Skills to be relevant in Industry 4.0

 References 44

 Industrie 4.0 – Smart Manufacturing for the

Future”, GTAI (Germany Trade and Invest) .
 (Deh Hui and Prasad, 2018, p. 9).
 (Cognizant, February 2019)
 (Cognizant, 2017).
 Learn how Cognizant helps clients lead with digital at
www.cognizant.com
https://www.cognizant.com/en-be/manufacturing
1
Accidents
Causes and Effects of
Accidents
Responsibilities and
Organisation for Safety
Safety Training
2
An Accident is:
a. An unexpected and
undesirable event, especially
one resulting in damage or
harm.
b. An unforeseen incident that
cause damage to people,
machinery or buildings.
3
 An Accident is:
Any danger originating from
technological or industrial mishaps,
dangerous procedures, infrastructure
failures or certain human activities,
which may cause the loss of life or
injury, property damage, social and
economic disruption or environmental
degradation
4
An Industrial Accident is:
A is a sudden and unexpected
occurrence in the industry which
interrupts the orderly progress of
the work.
“It is an occurrence in an industrial
establishment causing bodily
injury to a person who makes him
unfit to resume/ carryout his/her
duties in the next 48 hours”. 5
Industrial Accidents
“Industrial Accidents are caused
by chemical, mechanical, civil,
electrical, or other process
failures due to accident,
negligence or incompetence, in
an industrial plant which may
spill over to the areas outside
the plant causing damage to life
and property.”
6
 Industrial Accidents
These may originate in:
 Manufacturing and formulation
installations including during
commissioning and process operations;
maintenance and disposal.
 Material handling and storage in
manufacturing facilities, and isolated
storages; warehouses.
 Transportation (road, rail, air, water, and
pipelines). 7
 Hazard
Existing or Potential Condition That
Alone or Interacting With Other
Factors Can Cause Harm

A Spill on the Floor

Broken Equipment

8
 Risk
A measure of the probability and
severity of a hazard to harm human
health, property, or the
environment
A measure of how likely harm is to
occur and an indication of how
serious the harm might be
Risk  0 9
Causes of Accidents

10
 Accident Causing Factors
 Basic Causes  Direct Causes
 Management  Slips, Trips,
 Environmental Falls
 Equipment  Caught In
 Human Behavior
 Run Over
 Indirect Causes
 Chemical
 Unsafe Acts
Exposure
 Unsafe Conditions

11
 Policy & Procedures
Environmental Conditions
Basic Causes Equipment/Plant Design
Human Behavior

Unsafe Indirect Causes Unsafe

Acts Conditions

Slip/Trip Fall
Direct Causes Energy Release
Pinched Between

ACCIDENT
Personal Injury
Property Damage
Potential/Actual 12
Basic Causes
Management Systems &
Procedures

Environment Natural & Man-

made
Equipment

Human Design &

Behavior Equipment
13
1. Unsafe Conditions (work-related):
 Unsafe working conditions are the biggest
causes of accidents.
 These are associated with defective plants, tools,
equipment’s, machines, and materials.
 Such causes are known as ‘technical causes’.
 They arise when there are improper guarded
equipment’s, defective equipment’s, faulty
layout and location of plant, inadequate lighting
arrangements and ventilation, unsafe storage,
inadequate safety devices, etc
14
 2. Unsafe Acts:
 Accidents occur due to certain acts on the part of workers.
 These acts may be the result of lack of knowledge or skill on the
part of the worker, certain bodily defects and wrong attitude.
 Examples of these acts are:
 (a) Operating without authority.
 (b) Failure to use safe attire or personal protective equipment’s,
 (c) Careless throwing of material at the work place.
 (d) Working at unsafe speed, i.e., too fast or too low.
 (e) Using unsafe equipment, or using equipment’s unsafely.
 (f) Removing safety devices.
 (g) Taking unsafe position under suspended loads.
 (h) Distracting, teasing, abusing, quarrelling, day-dreaming,
horseplay
 (i) One’s own accident prone personality and behaviour.
15
3. Other Causes:
 These causes arise out of unsafe
situational and climatic conditions and
variations.
 These may include excessive noise, very
high temperature, humid conditions,
bad working conditions, unhealthy
environment, slippery floors, excessive
glare, dust and fume, arrogant behaviour
of domineering supervisors, etc. 16
 Major Consequences
Loss of life / injuries
Impact on livestock
Damage to Flora/fauna
Damage to property
Loss of machinery/ equipment
Environmental Impact (air, soil &
water)
Financial losses to industry. 17
ACCIDENT RISK CONTROL MEASURES

Physical Protection
Procedural Protection
Educational Protection

18
 Physical Protection
•Strict & Rigorous approach in
following the Relevant Standards ,
Codes, Procedures & Practices
•Built in Safety Devices and Safety
System
•Field Monitors for Different Toxic
Gases/ Chemicals/ substances
19
PROCEDURAL PROTECTION
• Fire Emergency Procedure
• Disaster Preparedness Plan
• Mutual Aid Scheme
• No Smoking Policy
• Investigation of All Accidents
• Hazard Identification through Safety Committee,
House Keeping Committee, Safety audit
Committee
• Conducting Plant Survey, safety survey
• Work Permit System
20
PROCEDURAL PROTECTION
• Safety promotional activities
• Information notes on unsafe conditions
•Annual Medical Check up of
Employees
• Safe Start up & Shut Down Procedure
• Regular and Preventive Maintenance
• Periodic testing of Fire Fighting
Appliances 21
 EDUCATIONAL PROTECTION
•Periodic Training Program on Safety, Fire Safety
and Hazardous properties of materials
•Mock Fire Drill
•Safety Manuals
•Health & Safety News Bulletins, leaflets
•Safety Motivation schemes
•Plant Operating Manual
•Educating the Public Living nearby about the
activities in the industry 22
Process Safety Management
• Recognition of seriousness of
consequences and mechanisms of
causation lead to focus on the
process rather than the individual
worker
• Many of the key decisions
influencing safety may be beyond
the control of the worker or even
the site – they may be made by
people at another site, country or
organization
23
Process Safety Management
• Need to look at the whole –
materials, equipment and
systems – and consider
individuals and procedures
as part of the system
• Management system
approach for control
24
 Scope
(elements of process safety management)
1. Accountability
2. Process Knowledge and Documentation
3. Capital Project Review and Design Procedures
4. Process Risk Management
5. Management of Change
6. Process and Equipment Integrity
7. Human Factors
8. Training and Performance
9. Incident Investigation
10. Company Standards, Codes and Regulations
11. Audits and Corrective Actions
12. Enhancement of Process Safety Knowledge 25
Functions of a management system

Planning
Measurement Direction Organizing

Structure
Leadership

Controlling Results Implementing

26
Features and characteristics of a management
system for process safety
Planning Organizing
Explicit goals and objectives Strong sponsorship
Well-defined scope Clear lines of authority
Clear-cut desired outputs Explicit assignments of roles and
Consideration of alternative responsibilities
achievement mechanisms Formal procedures
Well-defined inputs and resource Internal coordination and
requirements communication
Identification of needed tools and
training
Implementing Controlling
Detailed work plans Performance standards and
Specific milestones for measurement methods
accomplishments Checks and balances
Initiating mechanisms Performance measurement and
reporting
Internal reviews
Variance procedures
Audit mechanisms
Corrective action mechanisms
Procedure renewal and reauthorization27
 Accountability
Management commitment at all
levels
Status of process safety compared
to other organizational objectives
such as output, quality and cost
Objectives must be supported by
appropriate resources
Be accessible for guidance,
communicate and lead
28
 Management of Change

Change of process technology

Change of facility
Organizational changes
Variance procedures
Permanent changes
Temporary changes
29
 Human behaviour aspects
 People, and most organizations, don’t intend to get
hurt (have accidents)
 To understand why they do leads us eventually into
understanding human behaviour, both at the
individual and organizational level, and involves:
 Physical interface
 Ergonomics

 Psychological interface
 Perception, decision-making, control actions

 Human thought processes

 Basis for reaching decisions
 Ideal versus actual behaviour

 Social psychology
 Relationships with others
 Organizational behaviour
30
 Human behaviour modes
 Instead of looking at the ways in which people can fail, look at
how they function normally:
Skill-based
 Rapid responses to internal states with only occasional
attention to external info to check that events are going
according to plan
 Often starts out as rule-based
 Rule-based
 IF…, THEN…
 Rules need not make sense – they only need to work, and one
has to know the conditions under which a particular rule
applies
 Knowledge-based
 Used when no rules apply but some appropriate action must
be found
 Slowest, but most flexible
31
ERM Framework and Process Model

32
 Framework for Safe System of Work
1. Safe design.
2. Safe installation.
3. Safe premises and plant.
4. Safe tools and equipment.
5. Correct use of plant, tools and
equipment.
6. Effective planned maintenance of plant
and equipment. 33
 Framework for Safe System of Work
1. Proper working environment ensuring
adequate lighting, heating and ventilation.
2. Trained and competent employees.
3. Adequate and competent supervision.
4. Enforcement of safety policy and rules.
5. Additional protection for vulnerable
employees.
6. Formalised issue and proper utilisation of all
necessary clothing. 34
 Framework for Safe System of Work
1. Continued emphasis on adherence to the agreed safe method
of work.
2. Regular annual reviews of all systems of work to ensure:-
 Compliance with current legislation.
 Systems are still workable in practice.
 Plant modifications are accounted for.
 Substituted materials are allowed for.
 New work methods are incorporated into the system.
 Advances in technology are exploited.
 Proper precautions in light of any accidents are taken.
 Continued involvement in and awareness of the importance of written
safe systems of work.
35
Process Safety and Risk Management Model
Process
Auditing Technology Operating
Procedures and Safe
Emergency Planning Practices
and Response
Management of Change Management of
Change
Incident Investigation
and Reporting MANAGEMENT
LEADERSHIP & Process Hazards
COMMITMENT Analysis
Contractor Safety
and Performance
Quality Assurance
Training and
Performance

Management of Prestart-Up Safety

“Subtle” Change Reviews
Mechanical Integrity

Copyright © 2010 E.I. du Pont de Nemours, Inc. All rights reserved. 36

QUESTIONS
Examine features and characteristics of
a management system for process safety.
Using examples discuss the importance
of accident management in an
organization.
Assess the accident risk control
measures and their significance to a
manufacturing entity of your choice.

37
What is it?
Why managing waste?
Ways of managing waste
38
Materials consumed by the
economic industrial system do
not disappear ... they are merely
transformed to less useful forms

39
The true cost of waste is not simply the
cost of discarded materials; it
encompasses inefficient use of
raw materials,
unnecessary use of energy and water,
faulty products,
waste disposal of by-products,
waste treatment and
wasted labour.
40
 What are wastes?
It is also known as rubbish, trash,
refuse, garbage, junk.
It is any unwanted or useless
materials. OR
Any materials unused and rejected
as worthless or unwanted
41
 Waste
Waste includes:
 any scrap material,
effluent or unwanted surplus
substance or article
that requires disposal because it is
broken, worn out, contaminated or
otherwise spoiled.

42
 Wastes are:
 ‘Those substances or objects which
fall out of the commercial cycle or
chain of utility’
For example
 glass bottles that are returned or reused
in their original form are not waste,
whilst glass bottles banked by the public
and dispatched for remoulding are waste
‘until they have been recovered’. 43
 Types of Waste
Solid waste
Liquid waste
Gaseous waste
Chemical waste
Commercial waste/ Business waste
Biodegradable waste
44
 Types of Waste
 Waste can be non-liquid waste /solid or
liquid waste .

waste from production of consumer

goods, mining, agriculture, and
petroleum extraction and refining
Hazardous waste = that is toxic,
chemically reactive, flammable, or
corrosive, explosive.
45
Hazardous waste
 Flammable = substances that easily catch fire
 Corrosive = substances that corrode metals in
storage tanks or equipment
 Reactive = substances that are chemically
unstable and readily react with other
compounds, often explosively or by producing
noxious fumes
 Toxic = substances that harm human health
when they are inhaled, are ingested, or contact
human skin
18-46
46
 Waste
 Industrial waste is considered hazardous
as they may contain toxic substances
 Hazardous waste could be highly toxic to
humans, animals and plants.
 They are - corrosive - highly inflammable
or explosive
 Direct exposure to chemicals in hazardous
waste such as mercury and cyanide can be
fatal
47
 Broad categories of potential
waste
 Worn but functioning substances or
objects that are still useable (albeit after
repair) for the purpose they were made.
• Substances or objects that can be put to
immediate use otherwise by a specialised
waste recovery establishment or
undertaking for example ash from a power
station used as a raw material in building
blocks.
48
Broad categories of potential waste
 Degenerated substances or objects that can be put to use
only by establishments or undertakings specialised in waste
recovery.
 These are always wastes even if transferred for recovery for
value for example contaminated solvents or scrap.
 Such substances only cease to be waste when they have been
recovered
 Substances or objects which the holder does not want and
wish to have them taken away.
 Thus entrepreneurs may dispose of items of considerable
residual value, from production scrap materials to
redundant plant and equipment, which may fall within the
legal definitions of waste and their control regimes.
49
 Waste Management
 Waste management is the:
collection
storage
transport and handling
recycling
disposal
and monitoring of waste materials.
 Waste handling and separation involves activities
associated with waste management until the waste
is placed in storage containers for collection.
50
Waste Management
 Waste management is all those activities and
action required to manage waste from its
inception to its final disposal.
 This includes amongst other things,
collection, transport, treatment and disposal
of waste together with monitoring and
regulation.
 It also encompasses the legal and regulatory
framework the relates to waste management
encompassing guidance on recycling etc
51
 Waste Management
 Waste management mean
 the collection,
 transport,
 recovery and
 disposal of waste,
including the supervision of such operations and
aftercare of disposal sites
However the newer concepts of ‘Waste management’
talk about ‘Reduce, Reuse and Recycle of waste’ over
and above waste disposal.
52
Effects of Waste
Surface water contamination
Ground Water contamination
Soil contamination
Air contamination

53
 Managing Waste
Three main components of waste
management
Minimizing the amount of waste we
generate (source reduction)
Recovering waste materials and
finding ways to recycle them
Disposing of waste safely and
effectively
54
Approaches to Waste Management
● Holistic Approach to Waste Management
● Waste-to-Resource:

● Promotion of Preventive Policy and 3R

55
Key Principles and Concepts to be Considered

Sustainable
Consumption
and
Production

Eco Cleaner
Innovation Production

Holistic/Inte
grated Waste
Management

Green Resource
Economy Efficiency

Life Cycle
Approach

5656
56
Waste Management Options
 Waste reduction at source
 Reuse
 Recycling
 Composting
 Anaerobic Digestion
 Waste Incineration
 Other methods for treatment of waste
 Waste disposal
57
 Recycling
 Recycling = using used goods to
manufacture new goods
 Recycling refers to the collection and reuse
of waste materials such as empty beverage
container.
 The materials from which the items are
made can be processed into new products.
 Materials for recycling may be collected
separately from general waste using
dedicated bins.
58
 Recycling
 Involves the reprocessing of wastes,
either into the same product or a
different one.
 Many non-hazardous industrial wastes
such as paper, glass, cardboard, plastics
and scrap metals can be recycled.
 Special wastes such as solvents can also
be recycled by specialist companies, or
by in-house equipment. 59
Reducing waste is a better option
 Source reduction = preventing waste
generation in the first place
 Avoids costs of disposal and recycling

 Helps conserve resources

 Minimizes pollution

 Can save consumers and businesses money

 Strategies
 Reduce packaging
 Increase the longevity of goods 18-60
60
 Reducing Packaging
Reducing packaging cuts down on the waste stream, but
how, when, and how much should we reduce?
Packaging can serve very worthwhile purposes, such as
safeguarding consumer health and safety.
 Can you think of three products for which you would
not want to see less packaging?
Can you name three products for which packaging could
easily be reduced without ill effects to the consumer?
Would you be any more or less likely to buy these
products if they had less packaging?
18-61
61
Waste Management Legal Framework
 EMA
 Ministry of Health & Child Care
 Ministry of Environment
 Environmental Management Act

62
 Waste management
Save
Money
And
Reduce
Trash
Businesses can save when they reduce
the amount of trash they produce!!!
63
Location is the general area and
site i.e. place chosen within the
location – Geographic location.
 Locating Production and Service
Facilities
Many organisations whether public or
private have to make a decision on the
number of facilities to have and the
location of these facilities.
Location decisions of facilities affects
the operations of businesses in many
ways.
Locating Production and Service Facilities
 Plant location or the facilities location
problem is an important strategic level
decision making for an organisation.
 One of the key features of a conversion
process (manufacturing system) is the
efficiency with which the products
(services) are transferred to the customers.
 This fact will include the determination of
where to place the plant or facility.
Locating Production and Service Facilities

 The selection of location is a key-decision

as large investment is made in building
plant and machinery.
 So an improper location of plant may lead
to waste of all the investments made in
building and machinery, equipment.
 Before a location for a plant is selected,
long range forecasts should be made
anticipating future needs of the company.
Locating Production and Service Facilities
 The plant location should be based on:
the company’s expansion plan and
policy,
diversification plan for the products,
changing market conditions,
the changing sources of raw materials
and
many other factors that influence the
choice of the location decision.
Locating Production and Service Facilities
The purpose of the location study is to
find an optimum location one that
will result in the greatest
advantage to the organization.
Locating Production and Service Facilities
Any consideration of this will
include:
determination of where to place
the plant or operational facility,
and
how much transportation of the
inputs and outputs will be required
Locating Production and Service Facilities
 The way in which the inputs are
obtained and the outputs distributed
has an effect on:
 The total cost of the product / service.
 Number of customer that can be reached.
 The location of the organization and its
units.
 The design of the plant or operational
facilities.
Locating Production and Service Facilities
An efficient supply distribution system
will reduce cost and lead to a more
effective service in the form of quarter
deliveries and less stock outs.
The type of output involved is
clearly a major factor in the
determination of the best distribution
system.
Locating Production and Service Facilities
The supply, storage and movement
of materials, people, equipment
and finished goods and services
affects not only the number of
location of units to be established
but also the design of the
transformation facilities.
Locating Production and Service Facilities
 All the potentially available plant must be
considered as part of the whole supply
distribution system to devise the most
strategy for obtaining the right inputs and
desired outputs.
 Plant flexibility, efficiency, effectiveness,
capacity e.t.c will be determined by the
plant design and constantly changing
environment may require repeated
redesigns.
Locating Production and Service Facilities
The advancement in technology and
the availability of certain materials
and energy source must also be
carefully examined by the operations
management team when deciding on
the facilities.
 Location strategy
Location is the general area and
site is the place chosen within
the location.
There are a number of factors
which should be considered when
choosing a location.
Making Location Decisions
Decide on the criteria
Identify the important factors
Develop location alternatives
Evaluate the alternatives
Make selection
 Factors influencing
the choice of location
 1. Proximity to market
 Organization may choose to locate
facilities close to their market to
minimize transportation cost and provide
better service.
 The closer the plant is to the consumer
the easier it is providing better service.
 The closer the plant is to the consumer
the easier it is to provide JIT delivery and
to respond to changes in demand and to
react to field or service problems.
2.Integration with other parts of the
organization
If the new plant is one of many owned
or operated by a single organization it
should be situated where its work can
be integrated with that of the
associated units.
This will require that the group will be
considered as an entity not as a
number of independents units.
3.Availability of labor and skills
Labor may be more readily available in
some cases but certain geographical
areas require the company to import
labor.
4.Availability of transport
It is important that good transport
facilities are readily available to
ferry inputs/ outputs & resources
 5.Availability of inputs
Good transport facilities will enable
goods and services to be delivered
readily but a location near main
suppliers will reduce costs and permit
staff to meet suppliers easily to discuss
quality, technical or delivery problems.
6.Availability of service
These are main services which need to
be considered and these are water,
electricity, drainage, gas disposals
of waste and communications.
An assessment must be made of the
requirements of these as
underestimating the needs of any of
the services can be costly and
inconvenient.
7.Regional regulations
It is important to check in early
stages that the proposed
location does not infringe on
the local regulations.
A study must be made of the
appropriate by-laws and of any
special regulations.
8.Suitability of land and climate

Geology of the area need to be

examined and considerations made
together with the climatic conditions.
Products/ Services are different hence
requirements also differ.
9.Room for expansion
It is most unwise to build to the
limit of any site unless the long
range forecasts indicates very
definitely that the initial building
will never be required to increase
in size.
Consider future plans
10.Safety requirements - Some
production units may present
potential dangers/ hazards to the
surrounding neighborhood
11.Political, cultural and economic
situation
It is important to consider these as
they can affect the organization
operation negatively.
 12.Availability of amenities
A location which provides good
external amenities i.e. housing,
shops, community service,
communication system is often more
attractive than one which is remote.
This must be looked at in line with
the type of products/ services to be
produces but these amenities are
needed.
LOCATION EVALUATION METHODS
In most location problems there are
some mandatory factors which must
be fulfilled.
Once these key factors are identified
the location problem ceases to be open
and become a choice from a number of
sites.
LOCATION EVALUATION METHODS
 An evaluation technique based an ranking
the various weighted factors can be helpful
The principals of ranking are:
 Examine various factors and assign to
them weights representing their
importance.
 Ranking is carried out factor by factor.
 Each of the locations is examined and
ranked.
LOCATION EVALUATION METHODS
Each ranking is then multiplied by the
appropriate weighting factor and the
scores totaled for the each possible
location.
These totals indicate the desirability of
the possible locations compared with
each other.
Location Cost-Volume Analysis
Fixed costs
Variable costs
Output estimate
Land
Transportation
Environmental
Legal
Other Considerations
Surrounding Community(ies)
Attitudes
Quality of life
Services and Utilities available
Taxes
Environmental regulations
Developer support
Foreign a. Policies on foreign ownership of production facilities
Government Local Content
Import restrictions
Currency restrictions
Environmental regulations
Local product standards
b. Stability issues
Cultural Living circumstances for foreign workers / dependents
Differences Religious holidays/traditions

Customer Possible buy locally sentiment

Preferences

Labor Level of training and education of workers

Work practices
Possible regulations limiting number of foreign employees
Language differences
Resources Availability and quality of raw materials, energy,
transportation
Effects of location on revenues
and costs
 Revenues
 In some industries revenues depend on whether the
production facility is closer to the potential customers
whereas for manufacturing firms revenues are
dependent on whether the firm is located closer to
the supplies or not.
 However for service firms location is not very
important for stored services i.e. those not directly
consumed.
 On those services that are directly consumed location
is very critical e.g. dry cleaning services, restaurants
among others.
 Costs
Fixed costs:
 New or additional facilities entail additional fixed costs which
must be recouped from the revenues generated.
 It can also involve the costs of new constructions, purchase or
renovations of existing facilities. The magnitude of these costs
depend on the site chosen.
Variable costs:
 Once built the new facilities need staffing and needs to be
operated. For labour intensive operations, labour costs constitute
the bulk of the variable costs of such operations.
 Management should also take into account the proximity to the
sources of raw materials and markets for finished products as
this can result in increased transportation and distribution costs.
 In selecting any potential site, Operations Managers should
consider all these revenue and cost factors using break even
analysis.
Reasons for locational changes
Sometimes an organisation may consider changing its
operations site because for the need for greater capacity. The
following are some of the driving forces for locational
changes:
 1. Changes in resources may occur. Resource change can occur
in terms of cost or availability.
 2. The geography of demand may shift it may be necessary to
change facility location to provide better services to
customers, e.g. a shift from rural to urban and vice versa.
 3. Companies may merge making other facilities redundant.
 4. New products may be introduced requiring change in
availability of resources and markets.
 5. Political and economic changes may occur.
General procedures for facility Location planning.
1. The preliminary screening:
 This involves the identification of feasible sites
by considering environmental and labour
considerations for instance brewery requires
adequate supplies of water while an aircraft
requires a variety of subcontractors.
 After identifying key location requirements,
alternative locations are identified consistent
with these requirements. Such information can
be from the local chamber of commerce.
General procedures for facility Location planning.
2. Detailed analysis:
 Once the preliminary screening has narrowed alternative sites
the next stage is the detailed analysis.
 Labour survey will be carried out to assess the local skills as
well as a community assessment is done to see the community’s
response to the site.
 Factor ratings are frequently used to evaluate location alternatives
by listing the most relevant factors in the location decision.
 Each location is rated from very low to very high according to its
merits on each characteristics.
 The sum of the products yields the total rating score for that
location.
 The total scores indicate which alternative locations are most
promising, considering all the various location factors.
 Facility Location Models
 Quantitative models are used to determine
the best location facilities.
 Some of the generic models that can be
applied include:
 1. The simple median model - This is a quantitative model for
choosing an optimal facility location, minimising costs of transportation and
based on the median load
 2. Linear programming model
 3. Simulation. Applied in complex real world problems where systems have
multiple sources of shipping to numerous plants and in term the finished goods are
shipped to warehouses which are further shipped to retailers.
 Problems of this magnitude do not have optimal solution and hence approximation
techniques like computer simulation are used.
Behavioural impact on facility location
 The previous models have emphasised more on cost
differences that can be quantified.
 The models ignore the qualitative factors in facility location.
 New locations should have a relationships with the new
environments and employees.
 These are some of the system hidden costs excluded from
quantitative models and are an important aspect of the
location decision.
 Cultural differences - Organisational structure must
adapt to the norms and customs of local subcultures. The
organisation must therefore establish appropriate
community relations to fit into the community.
Behavioural impact on facility location
 Job satisfaction - It is employee perception of the
extent to which their work fulfils or satisfies their
needs.
 Job satisfaction affects how well the organisation
operates and it also affects the productivity of
employees. Job satisfaction is characterised by the
following variables.
 Labour turnover
 Absenteeism
 Tardiness
 Number of grievances.
 These factors affect both the costs and operations.
 Questions
Using examples, explore 10 factors that
can be considered when choosing
good location.
 Examine the significance of the following
models used to determine the optimum
location of facilities:
The simple median model
Linear programming model
Simulation
 Layout
The configuration of
departments, work centers,
and equipment in the
conversion process,
Whose design involves particular
emphasis on movement of work
(customers or materials) through
the system
2
Strategic Layout
 Layout is used to indicate
the physical disposition of the
Facilities/ Plant and of the various
parts of the plant
the location of equipment using a
small department
the disposition of departments
 Strategic Layout
Policy decisions concerning the
organization, methods and workflow
are made before the facilities are laid
out.
It is an important area of POM’s
responsibility since we are dealing
with capital equipment of the
organization which is difficult to
relocate once it has been put in place.
Layout Planning
Successful operations depend
upon the physical layout of
facilities.
Flows of materials, productivity
and human relationships also
affect the arrangement of the
conversion facility.
 Layout planning
 LP is deciding on the best physical
arrangement of all resources that consume
space within a facility.
 These resources might include a desk, a
work centre, a cabinet, a person, an entire
office, or even a department.
 Also, layout planning is performed any
time there is an expansion in the facility or
a space reduction.
 Layout Planning
 Decisions about the arrangement of resources in
a business are not made only when a new facility
is being designed; they are made any time there
is a change in the arrangement of resources,
such as a new worker being added, a machine
being moved, or a change in procedure being
implemented.
 Facility resource arrangement can significantly
affect productivity and quality of
products/services
Layout Planning
 The following information should be
available when planning a layout.
The original structure
Type of production / operating system
to be employed
Type of quality and people involved
Dimensional plan of the space to be
laid out
 Layout Planning
 The following information should be
available when planning a layout
Operations to be undertaken, their
descriptions, sequence and standard times.
 The equipment needed to carry out the
operations and any special requirements it
imposes such as maintenance facilities and
safety devices
 The number of movements of materials
from one work center to another during
the working period
Layout Planning
The following information should
be available when planning a
layout
Volume of materials required at each
work station
Any special inspection requirements
Any spare facilities or equipment
which will need to be stored
 Types of Layout
Organizations usually start with very
small product/ service layouts.
As they increase in size they tend to
move towards a process layout in the
belief that such a layout will make
better use of the physical resources
There are different types of Layouts
 Basic types of layout
 Product layouts; most conducive to
repetitive processing
Process layouts: used for
intermittent processing
Fixed position layouts: are used
when projects require layouts.
Combination layouts
 Basic Layout Types
Product Layout
One that uses standardized
processing operations to achieve
smooth, rapid, high-volume flow
Seeks the best personnel and
machine utilization in repetitive
or continuous production.
 Auto plants, cafeterias
 Basic Layout Types
Process Layout
Layout that can handle varied
processing requirements
Deals with low volume and high
variety production
Ideal for intermittent operations
where the workflow is not
consistent for all the products.
Products are produced in
different variations.
 Basic Layout Types
Process Layout
Workstations are grouped together
according to their functional types
Ideal for producing a single
standardized product in large
volumes.
Each product will require the same
sequence of operations from the
beginning right up to the end.
Workstations are arranged in a line
to afford a specialized sequence of
tasks.
 Basic Layout Types
 Fixed Position Layout
 Layout in which the product or project
remains stationary, and workers,
materials, and equipment are moved as
needed to the site
 Addresses the layout requirement of
large bulky project s such as buildings,
dam construction
 Product is difficult or impossible to
movebecause of its size, i.e. very large or
fixed
 Building / Construction projects
 Basic Layout Types
 Combination Layouts/ Hybrid layouts -
This when an operations system combines two or
more layouts for instance process layout can be
combined with product layout
 Combine elements of both product & process
layouts
 Maintain some of the efficiencies of product
layouts
 Maintain some of the flexibility of process
layouts
 Examples:
 Group technology & manufacturing cells
 Grocery stores
 Service Layouts
Warehouse and storage
layouts
 Issue: Frequency of orders
Addresses trade offs between
space and material handling.
18
 Service Layouts
Retail layouts
 Issue: Traffic patterns and
traffic flows
Allocates shelf space and
responds to customer behavior

19
Service Layouts
Office layouts
 Issue: Information transfer,
openness
It positions workers equipment
and spaces / offices to provide
for moment of information.
20
Characteristics of a good Layout
 The techniques employed in making a layout are normal
work study or industrial engineering techniques, the
process is a creative which can be set down with any
finality and one’s experience plays a great role.
 It is not possible to define a good layout but there are
certain criteria which may be satisfied by a layout a
 It is not possible to define a good layout but there are
certain criteria which may be satisfied by a layout.
Characteristics of a good Layout
1. Maximum Coordination
 Entry into physical form any
departmental or financial area should
be in such a manner that it is most
convenient to the issuing/ receiving
departments.
Effective coordination must be high
Characteristics of a good Layout
2. Maximum flexibility
 A good layout will be one which can be rapidly
modified to meet changing circumstances.
 Attention should be paid to the supply of
service/ product which should be easy to access
 Any modification must be easily done
 Future
 Anticipate changes
2 types of expansion: 1. sizes 2.number of activities
Characteristics of a good Layout
3. Maximum use of volume
Facilities should be considered as
cubic devices for maximum use made
of the volume available e.g. cables,
pipelines and conveyers can be run
above head height and used as moving
WIP stores and or tools or equipment
can be suspended from ceiling.
Characteristics of a good Layout
4. Maximum visibility
All the people and material
must be readily observable at all
times.
They should be no hiding
places into which goods /
information can get mislaid.
Characteristics of a good Layout
5. Maximum Accessibility
All serving and maintenance
points should be readily accessible
e.g. equipment should not be
placed against a wall in such a
manner that necessary
maintenance cannot be easily
carried out.
Characteristics of a good Layout
6. Minimum Discomfort
Poor lighting excessive sunlight,
noise vibrations and smells should
be minimized ..
CONDUCIVE ENVIRONMENT
Characteristics of a good Layout
7. Inherent Safety
 All layouts should be safe and no person
should be exposed to danger.
 Care must be taken on both the people
operating the equipment and of the
customers and any passerby
 Adequate medical facilities and services
must be provided and these must satisfy
the requirements of the healthy and
safety regulations
Characteristics of a good Layout
Maximum Security
8.

Safeguards against fire, moisture, theft

and general deterioration should be
provided for in the original layout. NO
HARM ON ALL
9. Minimum distance
All movements should be both
necessary and direct .
There should be very little distance
between offices/buildings
Characteristics of a good Layout
10. Efficient process flow
 Work flow and any transport flow
must not cross each other’s way
 Effort should be taken to ensure that
paper or material flows are in one
direction only
 The use of gravitational force in certain
types of processing can lead to great
saving in energy and time.
 Characteristics of a good Layout
11. Identification
Wherever possible, working
groups should be provided with
their own working place
The need for a defined territory
is basic.
 Advantages of a good layout
The overall process time will be
minimized
Overall cost will be minimized by
reducing unnecessary handling
Supervision and control will be
simplified by the elimination of
hidden corners in which both
information and material can be
misplaced.
Advantages of a good layout
Changes in the programmes will
be most readily accommodated.
Total output from the given facility
will be as high as possible by
making the maximum effective use
of available space and resources.
 Advantages of a good layout
A feeling of unity among
employees will be encouraged by
avoiding unnecessary segregation
Quality of the product service will
be sustained by safer or more
effective methods of operation.
Layout Done