Production and Operations Management

BBA 2023-26
Code: BBA 403
 Course Outcomes
After going through the Course, students shall be able
to:
CO1: Comprehend the scope and functional areas of
Production & Operation Management.
CO2: Demonstrate and understanding various types of
manufacturing systems.
CO3: Apply different types of layouts by analyzing the
production capacity needs and resources.
CO4: Use Inventory management techniques like EOQ, ABC
analysis to optimize stock levels and reduce costs.
CO5: Examine quality control techniques like TQM, JIT and
SQC in manufacturing scenario.
 Syllabus
• Unit 1: Nature & Scope of Production Management, Functions
of Production Management, Production Systems, Responsibilities
of Production manager. Production Planning & Control (PPC),
Objectives of PPC.
• Unit 2: Types of manufacturing Systems: Intermittent &
Continuous Systems, Product design & development.
• Unit 3: Plant Location & Plant layout. Introduction to method
study and work study.
• Unit 4: Materials Management & Inventory Control: Purchasing
Economic lot quality / Economic order quantity (EOQ), Lead time,
Reorder level. Brief of ABC analysis, Stock Keeping.
• Unit 5: Quality Control: Quality, Quality assurance, Quality
Circles, TQM, JIT, Statistical Quality Control
 Unit 1: Introduction to
Production and Operations
Management
 Introduction
• Production/Operations Management is the set
of processes that manages the transformation of
various resources into value added
product/services as per policies of the firm.
• Set of interrelated management activities that
are involved in manufacturing products is called
as Production Management.
• If the same concept is extended to services, then
the corresponding set of management activities is
called as Operations Management.
 Value Addition Parameters
• Functions / Utility
• Shelf Life
• Less Space
• Aesthetics
• Time Factor

Examples
• Milk to Milk Powder
• Tomato to Tomato Ketchup
• Apple to Apple Jam
Scope of Production and Operations
Management
1. Location of Facilities
2. Plant Layout
3. Product Design and Development
4. Material Handling
5. Inventory Management
6. Quality Control
7. Maintenance Management
 History of POM
• Pre Industrial Revolution.
• Post Industrial Revolution.
• In 18th century when Adam Smith recognised
the economic benefits of specialisation of
labour wherein there was allotment of workers
to specialised tasks in which they were highly
skilled and efficient.
• In early 20th century, F.W. Taylor implemented
Smith’s theories and developed Scientific
Management.
 Cont…
Date Contribution Contributor
1776 Specialization of labour in manufacturing Adam Smith
1799 Cost accounting Eli Whitney
1832 Division of labour by skill; assignment of Charles Babbage
jobs by skill; basics of time study
1900 Scientific management time study and Frederick W. Taylor
work study developed; dividing planning
and doing of work
1900 Motion of study of jobs Frank B. Gilbreth
1901 Scheduling techniques for employees, Henry L. Gantt
machines jobs in manufacturing
1915 Economic lot sizes for inventory control F. W. Harris
 Cont…
Date Contribution Contributor
1927 Human relations; Hawthorne studies Elton Mayo
1931 Statistical inference applied to product W. A. Shewart
quality: quality control charts
1935 Statistical sampling applied to quality H. F. Dodge and
control: inspection sampling plans H. G. Roming
1940 Operations Research Applications in WorldP. M. Blacker and
War II Others.
1946 Digital Computer John Mauchlly and
J. P. Eckert
1947 Linear Programming G. B. Dantzig, William
& others.
1950 Mathematical programming, on-linear and A. Charnes, W. W.
stochastic processes Cooper & others
1951 Commercial digital computer: large-scale Sperry Univac
computations available.
 Cont…
Date Contribution Contributor
1960 Organizational behaviour: continued study L. Cummings, L. Porter
of people at work
1970 Integrating operations into overall strategy W. Skinner J. Orlicky
and policy, Computer applications to and G. Wright
manufacturing, Scheduling and control,
Material requirement planning (MRP)
1980 Quality and productivity applications from W. E. Deming and
Japan: robotics, CAD-CAM J. Juran
 Modern Era
• Production Management became more
acceptable after WWII.
• Managers developed techniques that
focused on economic efficiency. Efforts
were put to eliminate wasteful efforts
and achieve greater efficiency.
• With the 1970s Operations Management
came into existence and it was a shift
towards the service sectors of the
economy.
 Production
• Production is defined as “the step-by-step
conversion of one form of material into another
form through chemical or mechanical process to
create or enhance the utility of the product to the
user.”
• Thus production is a value addition process. At
each stage of processing, there will be value
addition.
• Edwood Buffa defines production as ‘a
process by which goods and services are created’.
Scope of Production and Operations
Management
1. Location of Facilities
2. Plant Layout
3. Product Design and Development
4. Material Handling
5. Inventory Management
6. Quality Control
7. Maintenance Management
Nature of Production Management

None
 Cont…
• Results in Value Addition: Production
management is a key tool available with
an organization which assist in value
addition.
• It is a process which enables in producing
high-quality products from raw materials.
• These quality goods provide better
satisfaction to customers.
None
 Cont…
• Inter-Disciplinary Approach: It is an inter-
disciplinary approach which is derived from
several disciplines and subjects.
• Different subjects like statistics,
mathematics, economics, engineering,
sociology and human psychology have
contributed towards the development of
production management approach.
None
 Cont…
• Part of General Management: Production
management is an essential component
of General management.
• It is a tool which assist managers in
planning, organizing, coordinating and
controlling all activities related to the
production of products and services.

None
 Cont…
• Transformation Process: It is a process of
transformation in which raw materials are
converted into finished products that are
ready for consumption by consumers.
• Production management focuses on
economical production of products
avoiding any wastage of raw materials
used.
None
 Cont…
• Operative Function: Production
management monitors day to day
operations of business for ensuring long-
term continuity.
• It supervises all production activities on
daily basis for checking out whether all
resources are efficiently utilized.

None
 Cont…
• Both Art and Science: It can be treated
both as an art as well as science.
• Production management is termed as art as
it is the one which assign, coordinates and
monitors work activities.
• It is a science as it manages all machines
and technical aspects helping in production
activities.
None
 Cont…
• Management of Service
Sector: Production management not only
manages the activities related to
production of tangible products.
• It is a process which monitors the service
sector also where intangible products
are provided to customers as per their
needs.
None
 Production Management: Objectives

The objective of the production

management is ‘to produce goods services of
right quality and quantity at the right time and
right manufacturing cost’.
1. Right Quality
2. Right Quantity
3. Right Time
4. Right Manufacturing Cost
 Cont…
5. Minimisation of Production time
6. Planning and Control of Materials
7. Analyse the Market
8. Optimum utilization of Resources
 Inputs Transformation Process Outputs

• Men • Product
• Product Design • Services
• Materials
• Machines • Product Planning
• Information • Production Control
• Capital • Maintenance

• Inventory
• Quality
• Cost

Environment
Continuous
Feedback Information
Production System
 General Model for Operations
Planning
Planning Conversion System Organizing
• Operational Organizing for Conversion
• Forecasting
•
• Job design,
Product and process choices
• Operations capacity production/operations
• Facility location planning standard, work
• Layout planning measurement
Scheduling Conversion • Project management
System
• Scheduling system and
aggregate
planning
• Operations scheduling

Conversion Process
Controlling
Material Control
• Inventory control
• Material requirement planning
Managing for World-Class Competition
• Japanese manufacturing
• Managing for quality
 Functions of Production Management

None
 Functions
• Selection of Product and Design
• Selection of Production Process
• Selecting Right Production Capacity
• Production Planning
• Production Control
• Quality and Cost Control
• Inventory Control
• Maintenance and Replacement of Machines
None
 Cont…
1. Selection of Product and Design
Production management first selects the right
product for production. Then it selects the right
design for the product.
The product must be selected only after detailed
evaluation of all the other alternative products.
After selecting the right product, the right
design must be selected. The design must be
according to the customers' requirements.
None
 Cont…
2. Selection of Production Process
Production management must select the right production
process. They must decide about the type of technology,
machines, material handling system etc.

3. Selecting Right Production Capacity

Production management must select the right production
capacity to match the demand for the product.
The production manager must plan the capacity for both
short and long term's production.

None
 Cont…
4. Production Planning
Production management includes production planning.
• Routing means deciding the path of work and the sequence of
operations. Main objective of routing is to find out the best and
most economical sequence of operations. Routing ensures a
smooth flow of work.
• Scheduling means to decide when to start and when to complete
a particular production activity.

5. Production Control
The manager has to monitor and control the production. He has to
compare actual production with the plans and finds out the
deviations. He then takes necessary steps to correct these deviations.
 Cont…
6. Quality and Cost Control
Production management also includes Quality and
Cost Control. Quality and Cost Control are given a
lot of importance in today's competitive world.
Customers generally want good-quality products at
lower prices. To satisfy this demand of consumers,
the production manager must continuously
improve the quality of his products.

None
 Cont…
7. Inventory Control
Production management also includes inventory
control. The production manager must monitor the
level of inventories.
• If there is an overstocking, then the working
capital will be blocked, and the materials may be
spoiled, wasted or misused.
• If there is an understocking, then production will
not take place as per schedule, and deliveries will
be affected.
None
 Cont…
8. Maintenance and Replacement of Machines

Production management ensures proper maintenance

and replacement of machines and equipments.
The production manager must have an efficient system
for continuous inspection (routine checks), cleaning,
oiling, maintenance and replacement of machines,
equipments, spare parts etc.
This prevents breakdown of machines and avoids
production halts.
None
 Product Design and Development
• Product Design is to create a new product to be
sold by a business to its customers.
• It is the efficient and effective generation and
development of ideas through a process that
leads to new products.
• It is a major aspect of new product
development.
Stages: New Product Development
• Idea Generation
• Idea Screening
• Concept Development & Testing
• Business Analysis
• Product Development
• Test Marketing
• Commercialisation
• Launch
 Idea Generation
• Development of a product starts with a Concept
• Have SWOT analysis which incorporates current
market trends.
• Under-taking Market Research (Suggestions from
your target audience including feedback on
current products’ Strengths and Weaknesses).
• Encouraging suggestions from employees and
partners
• Looking at your Competition successes and
failures
 Idea Screening
• Unsuitable ideas, for whatever reason, are
rejected as soon as possible.
• Ideas need to be considered objectively
(Ideally by a group of experts)
• Specific screening criteria need to be set for
this stage, looking at ROI, affordability,
technical feasibility and market potential
 Concept Development & Testing
• Using a small group of your true customer base
– the idea need to be tested to see their
reaction
• Do they understand the concept?
• Do they want or need it?
• This stage gives you a chance to develop the
Concept further, considering their feedback
 Business Analysis
• A business case needs to be put together to
assess whether the new product/service will be
profitable in the long run
• Includes a detailed marketing strategy,
highlighting the target market, product
positioning and marketing mix that will be used
• This analysis needs to include: whether there is a
demand for the product, a full appraisal of the
costs, competition and identification of a break-
even point
 Product Development
• If the new product is approved, it will be
passed to the technical and marketing
development stage
• This is when a prototype or a limited
production model will be created
• You can investigate exact design &
specifications and any manufacturing methods
 Test Marketing
• This process is required to validate the whole
concept and is used for further refinement of
all elements, from product to marketing
message.
• Also used to avoid a bad name in case of
product being a failure.
• Should a Customer Know that product is test
marketed? Should Test Marketing be
advertised?
 Commercialisation
• When the concept has been developed and
tested, final decisions need to be made to
move the product to its launch into the
market
• Pricing and Marketing plans need to be
finalised and the Sales & Distribution teams
briefed, so that the product and company is
ready for the final stage

None
 Launch
• A detailed launch plan is needed for this stage to
run smoothly and to have maximum impact
• Should include decisions surrounding when and
where to launch to target your primary
consumer group.
• New product development can be made much
simpler and focused, with a higher likelihood of
success

None
 Summary

None
 Types of New Product Designs
• Incremental Changes
• Disruptive Changes
• New Products

None
 Cont…
• Incremental Innovation is the most common
form of innovation.
• It utilizes your existing technology and increases
value to the customer (features, design changes,
etc.) within your existing market.
• Almost all companies engage in incremental
innovation in one form or another.

None
 Cont…
• Disruptive innovation involves applying
totally new technology or processes to your
company’s current market.
• This newer technology is often more
expensive, may be harder to use.
• It is only after a few iterations that the newer
tech surpasses the old and disrupts all existing
companies.
• It might be difficult for the companies to
quickly compete with the newer technology.
None
 Types of New Products
New-to-the-world Products (really
new Products)
• The alternative expression for new-to-the-
world products (really new products) already
indicates that this is what most people would
define as a new product.
• These products are inventions that create a
whole new market. Examples: Polaroid
camera, iPod and iPad, laser printer and so on.
None
 Types of New Products
New-to-the-firm Products (new Product Lines)
• Products that take a firm into a category new
to it. The products are not new to the world,
but are new to the firm.
• The new product line raises the issue of the
imitation product: a “me-too”.

None
 Types of New Products
Additions to existing Product Lines
• These are simple line extensions, designed to
flesh out the product line as offered to the
firm’s current markets.
• Examples: P&G’s Tide Liquid detergent

None
 Types of New Products
Improvements and Revisions to existing
Products
• Current products made better. Examples:
P&G’s Ivory Soap and Tide power laundry
detergent have been revised numerous times
throughout their history and there are
countless other examples.

None
 Types of New Products
Cost Reductions
• Cost reductions refer to new products that
simply replace existing products in the line,
providing the customer similar performance
but at a lower cost.
• May be more of a “new product” in terms of
design or production than marketing.

None
 Production Planning and Control
• For efficient, effective and economical
operation in a manufacturing unit of an
organization, it is essential to integrate the
production planning and control system.
• Production Planning and Control follow
adaption of product design and finalization of a
production process.
• Production Planning and Control address a
fundamental problem of productivity, inventory
management and resource utilization.
None
 Production Planning and Control
• Production planning is required for
scheduling, dispatch, inspection, quality
management, inventory management, supply
management and equipment management.
• Production control ensures that production
team can achieve required production target,
optimum utilization of resources, quality
management and cost savings.

None
 Benefits
• It ensures that optimum utilization of production
capacity is achieved, by proper scheduling of the
machine items which reduces the idle time as well
as over use.
• It ensures that inventory level are maintained at
optimum levels at all time, i.e. there is no over-
stocking or under-stocking.
• It also ensures that production time is kept at
optimum level.
• Since it overlooks all aspects of production, quality
None
of final product is always maintained.
 Production Planning
• Production planning deals with basic concepts
of what to produce, when to produce, how
much to produce etc.
• It involves taking a long-term view at overall
production planning.

None
 Objectives
• To ensure right quantity and quality of raw
material, equipment etc. are available during
times of production.
• To ensure capacity utilization is in tune with
forecast demand at all the time.

None
 Benefits
• Organization can deliver a product in a timely
and regular manner.
• Supplier are informed will in advance for the
requirement of raw materials.
• It reduces investment in inventory.
• It reduces overall production cost by driving in
efficiency.

None
 Production Control
Production Control looks to utilize different type
of control techniques to achieve optimum
performance out of the production system as to
achieve overall production planning targets.

None
 Objectives
• Regulate inventory management
• Organize the production schedules
• Optimum utilization of resources and
production process

None
 Benefits
• Ensure a smooth flow of all production
processes
• Ensure production cost savings thereby
improving the bottom line
• Control wastage of resources
• It maintains standard of quality through the
production life cycle.

None
Unit 2: Types of Manufacturing
Systems
 Production Systems
• Production System of an organization is that
part of firm which produces products of an
organization.
• It is that activity whereby resources flowing
within a defined system are combined and
transformed in a controlled manner to add
value in accordance with the policies of
Organisation.

None
 Characteristics
• Production is an organized activity, so every
production system has an objective.
• The system transforms the various inputs to
useful outputs.
• It does not operate in isolation from the other
organization system.
• There exists a feedback about the activities,
which is essential to control and improve
system performance.
None
 Types of Production Systems
Production systems are any of the methods used to
create goods and services from various resources.

None
 Intermittent Production
• Intermittent means something that starts and stops
at irregular intervals.
• Goods are generally produced based on customer's
orders. These goods are produced on a small scale.
• The products may be of different specifications.
The design of these products goes on changing. It
keeps changing according to the design and size of
the product. So this system is very flexible.
• Example: Work of a Goldsmith or a Tailor

None
 Batch Production
• Batch production is defined by American Production
and Inventory Control Society (APICS) “as a form of
manufacturing in which the job passes through the
functional departments in lots or batches and each
lot may have a different routing.”
• General-purpose equipment and methods are used
to produce small quantities of output (goods or
services) with specifications that vary greatly from
one batch to the next.
• A given quantity of a product is moved as a batch
and the total volume emerges simultaneously at the
end of the cycle.
None
 Characteristics
• There are shorter production runs.
• Plant and machinery are flexible.
• When plant and machinery set up is used
for the production of item in a batch and
change of set up is required for
processing the next batch.

None
 Advantages
• Better utilization of plant and machinery.
• Promotes functional specialization.
• Lower investment in plant and machinery.
• Flexibility to accommodate and process
number of products.
• Job satisfaction exists for operators.

None
 Limitations
• Material handling is complex because of
irregular and longer flows.
• Production planning and control is complex.
• Work in process inventory is higher compared
to continuous production.
• Higher set up costs due to frequent changes in
set up.

None
 Job Production
• Job Production is used for one-off products or
prototypes (hence also known as Prototype
Production).
• Quality is greatly enhanced with job production
compared to other methods.
• Individual made-to-measure suits are examples of job
production.
• In other words, it is producing an absolute
Customised Product on a very small scale.
• Each job demands unique technological
requirements, demands processing on machines in a
Nonecertain sequence.
 Characteristics
• High variety of products and low volume.
• Use of general purpose machines and
facilities.
• Highly skilled operators who can take up each
job as a challenge because of uniqueness.
• Large inventory of materials, tools, parts.
• Detailed planning is essential for sequencing
the requirements of each product, capacities
for each work centre and order priorities.
None
 Advantages
• Because of general purpose machines and
facilities, variety of products can be produced.
• Operators will become more skilled and
competent, as each job gives them learning
opportunities.
• Full potential of operators can be utilized.
• Opportunity exists for creative methods and
innovative ideas.

None
 Limitations
• Higher cost due to frequent set up
changes.
• Higher level of inventory at all levels and
hence higher inventory cost.
• Production planning is very complicated.

None
 Project System
• For a single, one-of-a-kind product, for
example, a building, a ship or the prototype of
a product such as an airplane or a large
computer, resources are brought together
only once.
• Because of singular nature of project systems,
special methods of management have been
developed to contain the costs of production
within reasonable levels (CPM, PERT).

None
 Continuous System
• Continuous means something that operates
constantly without any irregularities or
frequent halts.
• In the continuous production system, goods
are produced constantly as per demand
forecast.
• Here the inputs and outputs are standardized
along with the production process and
sequence.

None
 Cont…
• Examples include systems for assembling
televisions, washing machines, food products,
personal computers.
• Continuous production systems are often
referred to as assembly systems or assembly
line systems and are common in mass
production operations.

None
 Characteristics
• Dedicated plant and equipment with
zero flexibility.
• Material handling is fully automated.
• Process follows a predetermined
sequence of operations.
• Planning and scheduling is a routine
action.

None
 Example

None
 Advantages
• Standardization of product and process sequence.
• Higher rate of production with reduced cycle time.
• Higher capacity utilization.
• Manpower is not required for material handling as it
is completely automatic.
• Person with limited skills can be used on the
production line.
• Unit cost is lower due to high volume of production.

None
 Limitations
• Flexibility to accommodate and process
number of products does not exist.
• Very high investment for setting flow
lines.
• Product differentiation is limited.

None
 Mass Production Flow
• Manufacture of discrete parts or assemblies using a
continuous process are called mass production.
• Production system is justified by very large volume of
production.
• Machines are arranged in a line or product layout.
• Product and process standardization exists and all
outputs follow the same path.
• Company produces different types of products on a
large-scale and stocks them until they are demanded
• Example: Production of toothpastes, soaps, pens etc
None
 Characteristics
• Standardization of product and process
sequence.
• Dedicated special purpose machines having
higher production capacities and output rates.
• Large volume of products.
• Shorter cycle time of production.
• Lower in process inventory.
• Perfectly balanced production lines.
• Production planning and control is easy.
• Material handling can be completely automatic.
None
 Advantages
• Higher rate of production with reduced cycle
time.
• Higher capacity utilization due to line
balancing.
• Use of less skilled operators may be ok.
• Manufacturing cost per unit is low.

None
 Limitations
• Breakdown of one machine will stop an
entire production line.
• Line layout needs major change with the
changes in the product design.
• High investment in production facilities.
• Cycle time is determined by the slowest
operation.

None
 Process Production Flows
• A single product is produced and stocked until
it is demanded in the market.
• The flexibility of these plants is almost zero
because only one product can be produced.
• Sugar or Steel or Cement Producing Company
may use this Production System.

None
 Operations Strategy
• Operational Strategies refers to the methods
companies use to reach their objectives.
• By developing Operational Strategies, a
company can examine and implement
effective and efficient systems for using
resources, personnel and the work process.

None
 Core Operations Strategies
• Corporate Strategy: Corporate strategies involve seeing a
company as a system of interconnected parts.
Each department in a company depends on the others to
stay healthy and achieve desired outcomes

• Customer Driven Strategies: Company must develop

strategies that evaluate and adapt to changing
environments, continuously enhance core competencies
and develop new strengths on an ongoing basis.
Company should monitor market trends to take advantage
of new opportunities and avoid possible threats.

None
 Cont…
• Developing Core Competencies: Core
competencies are the strengths and resources
within a company.

• Competitive Priorities: Organization evaluates

operational costs, quality of a product or service,
time it takes to develop and deliver a good or
service and the flexibility of a good or service with
regard to variety, volume and customization.
Competitive priorities should include being able to
provide a quality product or service at a fair cost
Nonethat consistently meets the needs of a customer.
 Cont…
• Product and Service Development: Strategies
behind development of products and services
should consider design, innovation and added
values.
• When developing new customer products, a
company can decide to be a leader in introducing
a new product or service, wait for the
introduction of innovations in the market to
improve upon them or wait to see if a company’s
innovation is successful before moving forward.
None
 Productivity
• Ratio of Output to Input
• Productivity is a measure of how much input
is needed for a given output.
• Indicator to how well the factors of production
(land, capital, labor and energy) are utilized.
• As per Peter Drucker, Productivity means a
balance between all factors of production that
will give the maximum output with minimum
inputs
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 Cont…
• European Productivity Agency (EPA) has
defined productivity as, “Productivity is an
attitude of mind. It is the mentality of progress,
of the constant improvements of that which
exists. It is the certainty of being able to do
better today than yesterday and continuously.
It is the constant adaptation of economic and
social life to changing conditions. It is the
continual effort to apply new techniques and
methods. It is the faith in progress.”
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 Importance of Productivity
• Judicious use of Limited Resources
• Maximum Satisfaction with Minimum
efforts
• Lets know the scope of improvement
(Stage wise)

None
 Factors affecting Productivity

None
 Controllable Factors
Product Factor: Means the extent to which
product meets output requirements and
product is judged by its usefulness.
• Cost benefit factor of a product can be
enhanced by increasing the benefit at
the same cost or by reducing cost for the
same benefit.

None
 Cont…
Plant and Equipment
• Increased availability of plant through
proper maintenance and reduction of idle
time increases the productivity
• Productivity can be increased by paying
proper attention to utilization, age,
modernization of the equipment /
machinery
None
 Cont…
Technology
• Innovative and latest technology
improves productivity to a greater
extent.
• Automation and information technology
helps to achieve improvements in
material handling, storage,
communication system and quality
control.
None
 Cont…
Material and energy
• Efforts to reduce materials and energy
consumption brings about considerable
improvement in productivity
• Selection of right quality material
• Control of wastage and scrap
• Effective stock control
• Optimum energy utilization and energy
savings
 Cont…
Human Factors
• Productivity is dependent upon human
competence and skill.
• Ability to work effectively is governed by
various factors such as education,
training, experience, aptitude of the
employees.
• Motivation of employees will influence
productivity.
None
 Cont…
Work methods
• Improving the ways in which the work is
done (methods) improves productivity.
• Work study and industrial engineering
techniques and training are the areas
which improve the work methods, which
in term enhance productivity.

None
 Cont…
Management Style
• This influences the organizational design,
communication in organization, policy
and procedures.
• A flexible and dynamic management
style is a better approach to achieve
higher productivity.

None
 Uncontrollable Factors
Structural adjustments
• Structural adjustments include both
economic and social changes.
• Economic changes that influence
significantly include shift in employment
from agriculture to manufacturing
industry

None
 Cont…
Natural resources
• Manpower, land and raw materials are
vital to the productivity improvement.

None
 Cont…
Government and infrastructure
• Government policies are significant to
productivity
• Fiscal policies (interest rates, taxes) influence
productivity to the greater extent.

None
 How to Improve Productivity
• Technology Based: CAD, CAM
• Computer integrated manufacturing:
Computer integrated manufacturing is
characterized by automatic line balancing,
machine loading (scheduling and sequencing),
automatic inventory control and inspection.

None
 Cont…
Employee Based
• Employee promotion.
• Job design, job enlargement, job enrichment and
job rotation.
• Financial and non-financial incentives.
• Worker participation in decision-making
• Small Group Activities (SGA)
• Personal development.
None
 Cont…
Production Based

• Purchasing, logistics
• Material planning and control
• Material storage and retrieval
• Source selection and procurement of quality
material
• Waste elimination
None
 Cont…
Process Based

• Job design evaluation, job safety

• Work simplification

None
 Cont…
Product Based

• Product Diversification
• Standardization and Simplification
• Product Mix and Promotion

None
 Cont…
Task Based

• Communication in the organization

• Work culture / Management style
• Motivation
• Promotion group activity

None
 Productivity Calculations

Labor Productivity
Units produced
Productivity =
Labor-hours used

1,000
= = 4 units/labor-hour
250

One resource Input  Single-Factor Productivity

 Example
• A Factory has employed 12 labours who work
between 10 am to 6 pm everyday with 1 hour
lunch break in between. During the month of
April 2019, there were 25 working days. At the
same time, 2 labours were on leave for 3
working days each and 1 labour was on leave for
4 working days (during the mentioned period)
• Output = 1200 cycles
• Find Labour Productivity
None
 Multi-Factor Productivity
Output
Productivity =
Labor + Material + Energy +
Capital + Miscellaneous
 Also known as Total Factor Productivity
 Output and inputs are often expressed in
value terms (Rs)

Multiple resource inputs  Multi-Factor Productivity

None
 Quiz - Productivity Calculations
A factory produced 800 units of output. Inputs are
as follows:
• Raw material : 50 Kgs @ Rs. 100 / Kg
• Electricity: 700 KWH @ Rs. 10 / KWH
• Diesel Generator Set: Rs. 5000
• Labour Charges: Rs. 8000
• Extra Charges: Rs. 2000

Find Productivity of the entire System

None
 Quiz - Productivity Calculations
A factory produced 800 units of output. Selling
Price per units is Rs. 2000. Inputs are as follows:
• Raw material : 500 Kgs @ Rs. 100 / Kg
• Electricity: 700 KWH @ Rs. 10 / KWH
• Diesel Generator Set: Rs. 10000
• Labour Charges: Rs. 15000
• Extra Charges: Rs. 5000

Find Productivity of the entire System

None
 Production Flexibility
• Product flexibility can be defined as the
amount of responsiveness (or adaptability)
for any future change in a product design,
including new products and derivatives of
existing products.
• A flexible design will reduce redesign costs
and allow quicker response to customers
with increased performance.
• It indicates level of competitiveness
None
 Basic Flexibility
• Material Handling Flexibility: Different part
types can be transported and positioned
properly at various machine tools in a
system.
• Machine Flexibility: The ease due to which
machine can possess multiple operations.
• Operation Flexibility: Alternative operation
sequences can be used for a processing
part type
None
 System Flexibility
• Product Flexibility: The volume of set of part types that
can be manufactured in a system with minor setup.
• Process Flexibility: The volume of set of part types that
system can produce without incurring any setup.
• Routing Flexibility: The alternative path that a part can
effectively follow through a system for a given process
plan.
• Volume Flexibility: Measure of a system’s capability to
be operated profitably at different volumes of existing a
part type.
• Expansion Flexibility: Ability to build a system and
expand.
None
 Aggregate Flexibility
• Production Flexibility: The volume of set of
part types that a system can produce without
major investment in capital equipment.
• Market Flexibility: The ability of a system to
efficiently adapt to changing market
conditions.
• Program Flexibility: The ability of a system to
run for reasonably long periods without
external intervention.
None
 Demand Forecasting
• It is an estimation of Sales (Value or Volume) over a
period of time.
• Companies may Forecast “Market Demand” and then
arrive at own “Forecasts” after deciding on a certain
Market Share for the Company.
• This is further broken down into relevant numbers
for Production department.
• What is the Volume of Sales to be achieved and also
inputs needed to realise the expected sales.

None
 Basic Terms Used in Sales Forecasting

• Market demand for a product or service is the

estimated total sales volume in a market (or
industry) for a specific time period in a defined
marketing environment, under a defined
marketing program or expenditure.
• Market (or industry) forecast (or market size)
is the expected market (or industry) demand
at one level of industry marketing expenditure

None
 Why Forecasting
• New Facility Planning.
• Production Planning.
• Work Force Planning.
• Financial Planning.

None
 Changes in Sales due to

• Economy
• Legal and Regulatory
• Social Factors
• Demographic Trends
• Seasonality
• Non Controllable Factors

None
 Forecast Components
• Base Demand
• Seasonal Component
• Trend Component
• Cyclic Component
• Promotional Component
• Irregular Component

None
 Information Needs for Forecasting

• Historical Market Share.

• Market Information (Market Assessment, Market
Trends)
• Trends outside Market.
• Competitive Strength.
• Factors influencing Sales.
• Competitive influence.
• Internal Factors.
•
None
Planned Promotional / Distributional Activities.
 Steps in Forecasting Process

• Determine Objective of Forecast

• Select the Relevant Period
• Select Forecasting Approach
• Gather data to be needed
• Arrive at conclusion

None
 How to Prepare Sales Forecast

• Get Past data of Sales.

• List down Factors influencing Sales.
• List down Market Operating Forces.
• Use of Appropriate Techniques.
• Decide Market Share Objectives.

None
 Forecasting Approaches

• Two basic approaches:

• Top-down or Break-down approach
• Bottom-up or Build-up approach
• Some companies use both approaches to
increase their confidence in the forecast

None
 Top-down / Break-down Approach
• Forecast relevant external environmental
factors
• Estimate industry sales or market potential
• Calculate company sales potential = market
potential * company share
• Decide company sales forecast (lower than
company sales potential because sales
potential is maximum estimated sales, without
any constraints)
None
 Bottom-up / Build-up Approach
• Salespersons estimate sales expected from
their customers
• Area / Branch managers combine sales
forecasts received from salespersons
• Regional / Zonal managers combine sales
forecasts received from area / branch
managers
• Sales / marketing head combines sales
forecasts received from regional / zonal
managers into company sales forecast

None
 Sales Forecasting Methods

Qualitative Methods Quantitative Methods

• Executive opinion • Moving averages

• Delphi method • Exponential smoothing
• Salesforce composite • Decomposition
• Survey of buyers’ • Naïve / Ratio method
intentions
• Test marketing • Regression analysis
• Econometric analysis
Executive opinion method
• Most widely used as Sales Executive forecasts
• Procedure includes discussions
• Advantages: quick forecast, less expensive
• Disadvantages: bias
• Accuracy: correct way (due to grass roots information)

Delphi method
• Process includes getting forecasts separately from experts,
summarizing forecasts, giving summary report to experts and
process is repeated till consensus is reached
• Experts are company managers, consultants, intermediaries
• Advantages: good accuracy
• Disadvantages: getting experts on a common platform, time
required

None
Survey of Buyers’ Intentions Method
• Process includes asking customers about their intentions to buy
• Questionnaire may contain other relevant questions
• Advantages: gives more market information, can forecast new and
existing products, good accuracy
• Disadvantages: buyers’ may not respond, time required is long,
costly

Test Marketing Method

• Consumer Market Testing: Controlled and Simulated test
marketing
• Business Market testing: Alpha and Beta testing
• Advantages: used for new/modified products, good accuracy,
minimizes risk of national launch
• Disadvantages: Competitors may disturb, medium to high cost,
medium to long time required
None
 Quantitative Methods
Moving Average Method
• Procedure is to calculate the average company sales for
previous years
• Moving average is dropping sales in the oldest period
and replacing it by sales in the newest period
• Advantages: simple and easy to calculate, low cost, less
time, good accuracy for short term and stable
conditions
• Disadvantages: can not predict downturn / upturn, not
used for unstable market conditions and long-term
forecasts

None
 Simple Moving Average Formula
• The simple moving average model assumes an
average is a good estimator of future behavior
• The formula for the simple moving average is:

A t-1 + A t-2 + A t-3 +...+A t-n

Ft =
n
Ft = Forecast for the coming period
N = Number of periods to be averaged
A t-1 = Actual occurrence in the past period for up to “n”
periods

None
 Simple Moving Average Problem (1)

A t-1 + A t-2 + A t-3 +...+A t-n

Ft =
Week Demand n
1 650
2 678 Question: What are the 3-
3
4
720
785
week moving average
5 859 forecasts for demand?
6 920
7 850
8 758 Assume you only have 3
9
10
892
920
weeks of actual demand
11 789 data for the respective
None
12 844
forecasts
 Quiz: Simple Moving Average Problem

Week Demand
1 680
2 685 Question: What are the 6-
3
4
730
755
week moving average
5 822 forecasts for demand?
6 920
7 850
8 758
9 899
10 930
11 815
12 835
None
 Weighted Moving Average Problem Data
Question: Given the weekly demand and weights, what is the
forecast for the 4th period or Week 4?

Week Demand Weights:

1 650
2 678 t-1 0.5
3 720 t-2 0.3
4 t-3 0.2

Note that the weights place more emphasis on the most

recent data, that is time period “t-1”
None
Weighted Moving Average Problem (1) Solution

Week Demand Forecast

1 650
2 678
3 720
4 693.4
F4 = 0.5*(720)+0.3*(678)+0.2*(650) = 693.4

None
 Quiz: Weighted Moving Average Problem

Question: Given the weekly demand information

and weights, what is the weighted moving average
forecast of the 5th period or week?

Week Demand Weights:

1 820 t-1 0.7
2 775 t-2 0.2
3 680 t-3 0.1
4 655

None
 Exponential Smoothing Method
• The forecaster allows sales in certain periods to influence
the sales forecast more than sales in other periods
Equation used:
Sales forecast for next period=(L)*(actual sales of this
year)+(1-L)*(this year’s sales forecast), where (L) is a
smoothing constant, ranging greater than zero and less
than 1
• Advantages: simple method, forecaster’s knowledge
used, low cost, less time, good accuracy for short term
forecast
• Disadvantages: smoothing constant is arbitrary, not used
for long-term and new product forecast

None
Decomposition Method
• Process includes breaking down the company’s previous periods’
sales data into components like trend, cycle, seasonal, promotional
reasons.
• Advantages: Conceptually sound, fair to good accuracy, low cost, less
time
• Disadvantages: complex statistical method, historical data needed,
used for short-term forecasting only

Naive / Ratio Method

• Assumes: what happened in the immediate past will happen in immediate future
Actual sales of this year
• Simpleforecast
Sales formula for
used:
next year  Actual sales of this year 
Actual sales of last year

• Advantages: simple to calculate, low cost, less time, accuracy good for short-term
forecasting
• Disadvantages: less accurate if past sales fluctuate
None
 Regression Analysis Method
• It is a statistical forecasting method
• Process consists of identifying causal relationship
between company sales (dependent variable, y) and
independent variable (x), which influences sales
• If one independent variable is used, it is called linear (or
simple) regression, using formula; y=a+bx, where ‘a’ is
the intercept and ‘b’ is the slope of the trend line
• Advantages: Objective, good accuracy, predicts upturn /
downturn, short to medium time, low to medium cost
• Disadvantages: technically complex, large historical data
needed, software packages essential

None
 Econometric Analysis Method
• Procedure includes developing many regression
equations representing (i) relationships between
sales and independent variables which influence
sales and (ii) interrelationships between variables.
Forecast is prepared by solving these equations
• Computers and software packages are used
• Advantages: Good accuracy of forecasts of economic
conditions and industry sales
• Disadvantages: need expertise & large historical data,
medium to long time, medium to high cost

None
 Unit III: Plant Location & Plant
layout. Introduction to Method
Study and Work Study.
 Location Strategy

The Objective of “Location Strategy” is to

maximize the benefit of location to the firm

None
 Location and Costs
 Location decisions based on low cost
require careful consideration
 Once in place, location-related costs are
fixed in place and difficult to reduce
 Determining optimal facility location is a
good investment

None
 Location and Innovation
 Cost is not always the most important
aspect of a strategic decision
 Four key attributes when strategy is based
on innovation
 High-quality and specialized inputs
 An environment that encourages investment
and local rivalry
 A sophisticated local market
 Local presence of related and supporting
industries
None
 Location Decisions

 Long-term decisions
 Decisions made infrequently
 Decision greatly affects both fixed and
variable costs
 Once committed to a location, many
resource and cost issues are difficult to
change

None
 Location Decisions

1. Political risks, government rules

2. Cultural and economic issues
3. Location of markets
4. Labor talent, costs
5. Availability of supplies, communications,
energy
6. Corporate desires
None
 Location Decisions

7. Costs and availability of utilities

8. Environmental regulations
9. Government incentives
10. Proximity to raw materials and customers
11. Land/construction costs
12. Air, rail, highway and waterway systems
13. Cost of land
None
 Ranking Corruption
Rank Country 2009 Score (out of 10)
1 New Zealand 9.4 Least
2 Demark 9.3 Corrupt
3 Singapore, Sweden 9.2
5 Switzerland 9.0
8 Australia, Canada, Iceland8.7
12 Hong Kong 8.2
14 Germany 8.0
17 Japan, UK 7.7
19 USA 7.5
37 Taiwan 5.6
39 South Korea 5.5
56 Malaysia 5.4
57 Turkey 4.5Most
79 China 3.6 Corrupt
89 Mexico 3.3
146
None
Russia 2.2
 Factor-Rating Method
Steps:
1. Develop list of relevant factors (key success
factors)
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor for each
location
6. Recommend location with highest point score

None
 Factor-Rating Example
Key Scores
Success (out of 100) Weighted Scores
Factor Weight Place 1 Place 2 Place 1 Place 2
Labor
availability
in area .25 70 60 (.25)*(70) = 17.5 (.25)*(60) = 15.0
Availability
of Transport .05 50 60 (.05)*(50) = 2.5 (.05)*(60) = 3.0
Availability of
Raw Material .10 85 80 (.10)*(85) = 8.5 (.10)*(80) = 8.0
Tax structure .39 75 70 (.39)*(75) = 29.3 (.39)*(70) = 27.3
Cost of
Land .21 60 70 (.21)*(60) = 12.6 (.21)*(70) = 14.7
Total 1.00 70.4 68.0

None
 Cont… (Hypothetical)
Two potential refinery sites (A and B) are assigned the following
range of point values and respective points, where the more points
the better for the site location.
Sites
Major factors for site location A B
Pt. Range
Fuels in region 0 to 330 123 156
Power availability and reliability 0 to 200 150 100
Labor climate 0 to 100 54 63
Living conditions 0 to 100 24 96
Transportation 0 to 50 45 50
Water supply 0 to 10 4 5
Climate 0 to 50 8 4
Supplies 0 to 60 5 50 Better
Better
Tax policies and laws 0 to 20 5 20 Site
SiteisisBB
None Total points 418 544
 Locational
Break-Even Analysis
 Method of cost-volume analysis used for
industrial locations
 Three steps in the method
1. Determine fixed and variable costs for each
location
2. Plot the cost for each location
3. Select location with lowest total cost for
expected production volume
None
 Locational Break-Even Analysis -
Practice
Three locations: A, B, C
Selling price / Unit = Rs. 120
Expected volume = 2000 units
Fixed Variable Total
City Cost Cost / UnitCost
Place A Rs. 70000 Rs. 45$180,000
Place B Rs. 60000 Rs. 50150,000
Place C Rs. 40000 Rs. 60160,000

None
 Locational Break-Even Analysis
Example
–
Rs.180,000 –
–
Rs. 160,000 –
Rs. 150,000 –
– 3
Rs. 130,000 – Place
–
Annual cost

Rs. 110,000 –
– 2
ce
– Pla
Rs. 80,000 –
–
Rs. 60,000 – 1
e
ac
– Pl
–
Rs.30,000 –
–
Rs. 10,000 –
| | | | | | |
–
0 500 1,000 1,500 2,000 2,500 3,000
Volume
None
 Clustering of Companies
Industry Locations Reason for Clustering
Wine making Napa Valley (US) Natural resources of
Bordeaux region land and climate
(France)
Software firms Silicon Valley, Talent resources of
Boston, Bangalore bright graduates in
(India) scientific/technical
areas, venture
capitalists nearby

None
 Clustering of Companies
Industry Locations Reason for clustering
Theme parks Orlando, Florida A hot spot for
(Disney World, entertainment, warm
Universal weather, tourists, and
Studios) inexpensive labor
Electronics Northern Mexico NAFTA, duty free
firms export to US

Computer Singapore, Taiwan High technological

hardware penetration rate and
manufacturers per capita GDP,
skilled/educated
workforce with large
pool of engineers

None
 Summary : Location Decisions
• Market Proximity
• Integration with other parts of Organisation
• Availability of Labour / Skills
• Site Cost
• Availability of Amenities
• Availability of Transportation
• Availability of Inputs
• Availability of Services
• Suitability of Land / Climate
• Regional Regulations
• Room for Expansion
• Safety Requirements
• Political, Cultural and Economic Situation
•NoneImport / Export Barriers, Regional Taxes.
 Facility Layout
• Plant Layout planning includes decisions regarding
physical allocation of machinery and equipments in a
factory.
• Idea is to have a more effective work flow at the facility,
allowing workers and equipment being more productive.
• A Facility Layout is an arrangement of everything
needed for production of goods or delivery of services.
A facility is an entity that facilitates the performance of
any job. It may be a machine tool, a work centre, a
manufacturing cell, a machine shop, a department, a
warehouse etc.

None
 Objectives of Layout
• Providing enough production capacity.
• Reducing material handling costs.
• Reducing accidents and hazards.
• Reducing congestion and utilising space efficiently.
• Elimination of unnecessary areas.
• Efficient utilisation of labour.
• Easy maintenance.
• Better adjustment to changing conditions.
• Reduction in delays and manufacturing time as
well as increase in production capacity
• Can all these factors achieved simultaneously?
None
 Cont…
• Most layouts are designed properly for initial
conditions of business, but as the company grows, a re-
layout is necessary.
• Reasons for a Re-Layout are based on 3 types of
changes:
– Changes in production volumes.
– Changes in processes and technology.
– Changes in the product.
• Frequency of the re-layout will depend on the
requirements of change in the process.

None
 Criteria for a good layout
• Maximum flexibility
• Maximum coordination
• Maximum visibility
• Maximum accessibility
• Minimum distance
• Minimum handling
• Minimum discomfort
• High levels of safety
• Efficient process flow
•NoneEasy Identification of material
 Factors affecting Plant Layout
• Plant Layout has to take into account a balance among all
factors affecting plant layout in order to get maximum
advantages.
• Factors affecting plant layout can be grouped into 8
categories:
– Materials
– Machinery
– Labor
– Material Handling
– Waiting Time
– Auxiliary Services
– Building
– Future Changes
None
 Factors affecting Plant Layout
– Materials
• Layout of productive equipment will depend on
characteristics of the product to be managed as
well as different parts and materials to work upon.
• Main factors to be considered: size, shape,
volume, weight and the physical-chemical
characteristics since they influence the
manufacturing methods, storage and material
handling processes.
• Sequence and order of the operations will affect
plant layout as well taking into account variety and
quantity to produce.
None
 Factors affecting Plant Layout
– Machinery
• Machinery, tools and necessary equipment as
well as their use and requirements is essential to
design a correct layout.
• Regarding machinery, we have to consider the
type, total available for each type, as well as type
and quantity of tools and equipment.
• It’s essential as well to know about space
required, shape, height, weight, number and
type of workers required, risks for the personnel,
requirements of auxiliary services etc.

None
 Factors affecting Plant Layout
– Labor
• Environment considerations: employees’ safety,
light conditions, ventilation, temperature, noise etc.
• Process considerations: personnel qualifications,
flexibility, number of workers required at a given
time as well as the type of work to be performed by
them.
– Material Handling
• Material handling does not add value to the
product; it’s just waste.
• Minimize material handling when possible,
eliminating unnecessary and costly movements.

None
 Factors affecting Plant Layout
– Waiting time - Stock
• Objective: Continuous Material Flow through the
facility avoiding cost of waiting time that happen when
the flow stops.
• On the other hand, the material waiting to flow
through the facility not always represents a cost to
avoid. As stock sometimes provides safety to protect
production, improving customer service, allowing
more economic batches etc.
– It’s necessary then to consider space for the
required stock at the facility when designing the
layout

None
 Factors affecting Plant Layout
– Building
• If it has been already selected, its characteristics
maybe a constraint at time of designing the layout,
which is different if the building has to be built.
– Future Changes
• It’s important to forecast the future changes to
avoid having an inefficient plant layout in a short
term.
• Flexibility can be reached keeping the original
layout as free as possible allowing the adjustment
to emergencies and variations of the normal
process activities.
None
 Basic Layout Formats
• Product / Line Layout
• Process / Functional Layout
• Fixed Position Layout
• Combination / Hybrid Layout

None
 Product / Line Layout
• Processing equipment and machines are arranged
according to the sequence of operations of the
product
• Only one product of one type of products is
produced in an operating area.
• This product must be standardized and produced in
large quantities in order to justify the product
layout.
• Raw material is supplied at one end of the line and
goes from one operation to the next quite rapidly
with a minimum work in process, storage and
Nonematerial handling.
 Cont…

Flow of Material

None
 Advantages
• Lowers total material handling cost.
• There is less work in processes.
• Better utilization of men and machines.
• Less floor area is occupied by material in
transit and for temporary storages.
• Greater simplicity of production control.
• Total production time is also minimized.

None
 Limitations
• No flexibility which may be generally required
• The manufacturing cost increases with a fall in
volume of production
• If one or more lines are running light, there is
a considerable machine idleness
• A single machine break down may shut down
the whole production line.
• Specialized and strict supervision is essential.

None
 Process / Functional Layout
• Useful where low volume of production is needed.
• If products are not standardized, the process layout
is more desirable because it has process flexibility.
• Machines are arranged according to nature or type
of the operations.
• This layout is commonly suitable for non repetitive
jobs.
• Same type of operation facilities are grouped
together such as lathes will be placed at one place,
all drill machines are at another place and so on.

None
 Cont…

None
 Advantages
• There will be less duplication of machines. Total
investment in equipment purchase will be reduced.
• It offers better and more efficient supervision
through specialization at various levels.
• There is a greater flexibility in equipment and man
power thus load distribution is easily controlled.
• Better utilization of equipment available is possible.
• Break down of equipment can be easily handled by
transferring work to another machine/work station.

None
 Limitations
• There are long material flow lines and hence expensive
handling is required.
• Total production cycle time is more owing to long
distances and waiting at various points.
• Since more work is in queue and waiting for further
operation hence bottle necks may occur.
• Generally, more floor area is required.
• Since work does not flow through definite lines,
counting and scheduling is more tedious.
• Specialization creates monotony and there will be
difficult for the laid workers to find job in other
Noneindustries.
 Fixed Position Layout
• In this type of layout, major component
remains in a fixed location with other
materials, parts, tools, machinery, man power
and other supporting equipment’s are brought
to this location.
• The major component or body of the product
remains in a fixed position because it may be
too heavy or too big.
• Example: Aircrafts, Ships
None
 Advantages
• Production centers are independent of each
other. Hence, effective planning and loading
can be made.
• It offers greater flexibility and allows change in
product design, product mix and production
volume.

None
 Limitations
• Highly Skilled Manpower is required.
• Movement of machines equipment’s to
production centre may be time consuming.
• Complicated fixtures may be required for
positioning of jobs and tools. This may
increase the cost of production.

None
 Combination Layout
• Now a days in pure state any one form of layouts
discussed above is rarely found.
• Therefore, generally the layouts used in industries are
the compromise of the above mentioned layouts.
• Every layout has got certain advantages and
limitations.
• Flexibility is a very important factory, so layout should
be such which can be molded according to the
requirements of industry, without much investment.
• If the good features of all types of layouts are
connected, a compromise solution can be obtained
which will be more economical and flexible.
None
 Material Handling Principles
• Materials handling can be also as ‘the function
dealing with preparation, placing and
positioning of materials to facilitate their
movement or storage’.
• Material handling is the art and science
involving the movement, handling and
storage of materials during stages of
manufacturing.

None
 Cont…
• Material handling does not add any value to
the product but adds to the cost of the
product and probably will cost the customer
more.
• So the handling should be kept at minimum.
• Material handling in Indian industries
accounts for nearly 40 % of cost of production
(As per some surveys)

None
 Objectives of Material Handling
• Minimise Cost of Handling
• Minimise delays and interruptions by making
material available at right place in right
quantity at right time
• Maximum utilization of handling equipment
• Prevention of damages
• Lower investment in process inventory
• Safety in material handling
None
 Principles of Material Handling
• Planning principle: All handling activities should be
planned.
• Systems principle: Plan a system integrating as many
handling activities as possible (receiving, storage,
production, inspection, packing, warehousing, supply
and transportation).
• Space utilization principle: Make optimum use of cubic
space.
• Unit load principle: Increase quantity, size, weight of
load handled as far as possible.
• Gravity principle: Utilize gravity to move a material
wherever possible (Liquids).
None
 Cont…
• Material flow principle: Plan an operation
sequence and equipment arrangement to
optimize material flow.
• Simplification principle: Reduce combine or
eliminate unnecessary movement and/or
equipment.
• Safety principle: Provide for safe handling
methods and equipment.
• Mechanization principle: Use mechanical or
automated material handling equipment.
None
 Cont…
• Flexibility principle: Use methods and
equipment that can perform a variety of task
and applications.
• Equipment selection principle: Consider all
aspect of material movement and methods to
be utilized.
• Idle time principle: Reduce idle
time/unproductive time of both equipment
and man power.
None
 Cont…
• Maintenance principle: Plan for preventive
maintenance or scheduled repair of all
handling equipment.
• Obsolescence principle: Replace obsolete
handling methods/equipment when more
efficient method/equipment will improve
operation.
• Performance principle: Determine efficiency
of handling performance in terms of cost per
unit handled which is the primary criterion
None
 Classification of Material Handling Systems

• Conveyors
• Industrial Trucks
• Cranes
• Lifts
• Containers
• Robots

None
 Conveyors
• Conveyors are useful for moving material
between two fixed workstations.
• Are suitable for most operations where the
flow is more or less steady.
• They are usually costly to install; moreover,
they are less flexible.

None
 Industrial Trucks
• Industrial trucks are more flexible in use than
conveyors since they can move between
various points and are not permanently fixed
in one place.
• They are most suitable for intermittent
production and for handling various sizes and
shapes of material.

None
 Cranes
• The major advantage of cranes is that they can
move heavy materials through overhead
space.
• However, they can usually serve only a limited
area

None
 Containers
• These are either dead containers (e.g. Cartons,
barrels, skids, pallets) which hold the material to be
transported but do not move themselves, or live
containers (e.g. wagons, wheelbarrows or computer
self-driven containers).
• Handling equipments of this kind can both contain
and move the material, and is usually operated
manually.

None
 Robots
• While many robots are used for handling and
transporting material, others are used to perform
operations such as welding or spray painting.
• An advantage of robots is that they can perform in a
hostile environment such as unhealthy conditions or
carry on arduous tasks such as the repetitive
movement of heavy materials.

None
Selection of Material Handling Equipment

• Properties of the Material

• Layout and characteristics of building
• Production Flow
• Cost considerations
• Nature of Operations
• Engineering Factors
• Equipment Reliability

None
 Cont…
Properties of the Material :
• Whether it is solid, liquid or gas, and in what
size, shape and weight it is to be transported
are main factors to be taken into
consideration.
• If a material is fragile, corrosive or toxic this
will imply that certain handling methods and
containers will be preferable to others.

None
 Cont…
Layout and characteristics of the building :
• Another limiting factor is the space for handling.
• Low-level ceiling may exclude the use of cranes.
• If the building is multi-storeyed, ramps for
industrial trucks may be used.
• Layout itself will indicate the type of production
operation (continuous, intermittent, fixed position
or group) and can suggest some items of
equipment that will be more proper than others.

None
 Cont…
Production Flow:
• If the flow is properly constant between two
immovable positions, fixed equipment such as
conveyors can be effectively used.
• If the flow is not continuous and direction
changes rarely from one point to another
because several products are being produced
simultaneously, moving equipment such as
trucks would be desirable.
None
 Cont…
Cost Considerations :
• Previous factors can help to limit the range of
suitable equipment, while costing can help in
taking a final decision.
• Several cost features need to be taken into
consideration. Initial investment and
operating as well as maintenance costs are
the major costs to be measured.

None
 Cont…
Nature of Operations:
• Equipment Selection also depends on mode of
operations like whether handling is temporary or
permanent.
Engineering Factors:
• Selection of equipment also depends on engineering
factors like door and ceiling dimensions, floor space,
floor conditions and structural strength.
Equipment Reliability:
• Reliability of equipment and supplier reputation (of
equipment) and after sale service also plays an
important role in selecting material handling equipment
None
 Job Design
• Job design (also referred to as work design or task
design) is a function of HRM and is related to
specification of contents, methods and relationship of
jobs in order to satisfy organizational requirements as
well as the social and personal requirements of the job
holder
• Its principles are geared towards how the nature of a
person's job affects their attitudes and behavior at work,
particularly relating to characteristics
• Aim of a job design is to improve job satisfaction, to
improve through-put to improve quality and to reduce
employee problems (e.g., grievances, absenteeism).
None
 Job Dimensions
• Variety
• Responsibility
• Autonomy
• Task identity
• Feedback
• Participation in decision making
• Recognition and Support
• Working environment and Safety

None
 Variety
• Greater variety in a job can improve the interest,
challenge and commitment.
• Doing the same repetitive tasks may offer little
challenge and can lead workers to lose interest or
becoming dissatisfied.

• However, too much variety can also be frustrating

and a source of conflict and dissatisfaction.
• Optimum amount of variety will differ from person
to person and will depend on the level of the
position, and the needs of job.
None
 Responsibility
• Individuals need to feel responsible for the
work they are doing, either individually or as
part of a team.
• Their work should be clearly identified so they
can see that they are personally responsible
for the outcomes (successes and failures).
• If the responsibilities are clear, then the
worker will be better able to know if the
accountabilities of the position are being
delivered.
None
 Autonomy
• Autonomy means giving more scope to
individuals to regulate and control their own
work within the parameters set for the job.
• The role holder will need to have some areas
of decision-making that they can call their
own, within the overall framework of their
job.

None
 Task Identity
• Individuals often receive more satisfaction
from doing a ‘whole’ piece of work.
• It is highly desirable that people see the end
results of the work they have produced, either
on their own or as a part of a team.

None
 Feedback
• Everyone benefits from information on how
they are doing and this helps role holders feel
motivated and contribute to their
development in the role.
• Providing feedback is primarily the
responsibility of the line manager.
• Colleagues and customers should be
encouraged to give appropriate feedback,
recognition and support to members of staff.

None
 Participation in Decision Making
• Most people want to take part in decision
making about matters that directly affect their
work.
• Interchange of ideas is better and unless people
can participate in the discussion of matters that
affect their work, they may not be satisfied in
their job, or contribute to their full potential.
• Participation and contribution to wider-ranging
issues can be encouraged through meetings

None
 Recognition and Support
• People usually aspire to have jobs that
contribute to self-respect, particularly through
acceptance and recognition by fellow workers
and their supervisors.
• Jobs need to encourage sound working
relationships between individuals, provide
clearly defined areas of responsibility and
where possible, support team working.

None
 Working Environment
• A job must be designed to support a safe and
healthy working environment that is inclusive,
non-discriminatory, free from harassment,
occupational health and safety hazards.

None
 Summary
• How suitable is the amount of variety in the position?
• How much responsibility is there in the position?
• How much opportunity does the position give for
autonomy?
• To what extent are the duties and tasks to be performed
‘whole’ tasks?
• How much feedback is provided about performance?
• How much opportunity is provided for participating in
decisions?
• To what extent does the position provide for support and
recognition?
• Is there a safe and healthy work environment?
None
 Techniques of Better Job Design
• Job Rotation
• Job Enlargement
• Job Enrichment
• Scientific management
• Human Relations School
• Socio-technical systems
• Work reform
• Motivational work design
None
 Job Rotation
• Job Rotation is a technique used by some
employers to rotate their employees' assigned
jobs throughout their employment.
Objectives
• Employee Learning
• Employer Learning
• Employee Motivation

None
 Job Rotation
• It enhances motivation, develops workers'
outlook, increases productivity, improves the
organization's performance on various levels
by its multi-skilled workers, and provides new
opportunities to improve the attitude,
thought, capabilities and skills of workers.
• When an individual experiences different
posts and responsibilities in an organization,
ability increases to evaluate his capabilities in
the organization.
None
 Job Enlargement
• Job enlargement means increasing scope of a job
through extending the range of its job duties and
responsibilities generally within the same level and
periphery.
• Job enlargement involves combining various
activities at the same level in the organization and
adding them to the existing job.
• Also called the horizontal expansion of job activities.
• Example: A bank teller not only handles cash but
also distributes traveller cheques and certificates of
deposits
None
 Job Enlargement
• Process of allowing individual workers to serve
as their own inspectors by giving them
responsibility.
• Thus, job enlargement seeks to motivate
workers through reversing the process of
specialisation.
• But it requires the management of organization
to provide their support in providing
appropriate training to the employees to make
them able to adapt to the enlarged job scope
None
 Job Enrichment
• Job enrichment can be described as a medium
through which management can motivate self-driven
employees by assigning them additional
responsibility normally reserved for higher level
employees.
• By doing this, employees feel like their work has
meaning and is important to the company.
• When these type of workers aren't being challenged,
they tend to slack off and not give their best effort
because they view their task to be below their skill
set.
None
 Job Enrichment
Advantages Disadvantages
Learn New Skills Lack of preparation
Reduce Boredom Heavier Workload
Creates Better working Worker may not cope up
environment

None
 Job Enrichment
• Job enrichment increases the employees’
autonomy over the planning and execution of
their own work.
• Job enrichment has the same motivational
advantages of job enlargement, however it has
the added benefit of granting workers autonomy.
• It is 'vertical job loading' because it also includes
tasks formerly performed by someone at a higher
level where planning and control are involved.

None
 Scientific Management
• In scientific management people would be directed
by reason and the problems of industrial unrest
would be appropriately (i.e., scientifically)
addressed.
• This philosophy is oriented toward the maximum
gains possible to employees.
• Managers would guarantee that their subordinates
would have access to the maximum of economic
gains by means of rationalized processes.

None
 Human Relation School
• Human Relations School takes the view that businesses are
social systems in which psychological and emotional
factors have a significant influence on productivity.
Common elements in human relations theory are beliefs that
• Performance can be improved by good human relations
• Managers should consult employees in matters that affect
staff
• Leaders should be democratic rather than authoritarian
• Employees are motivated by social and psychological
rewards and are not just "economic animals"
• The work group plays an important part in influencing
performance
None
 Work Reform
• Work reform states about the workplace
relation and the changes made which are
more suitable to management and employee
to encourage increased workforce
participation.

None
 Motivational Work Design
• Job design can influence satisfaction, motivation and job
performance. It influences employees primarily because it
affects the relationship between the employee's expectancy
that increased performance will lead to rewards.
The overall concept consists of:
• Making larger work units by combining smaller, more
specialized tasks.
• Having employee evaluations done frequently in order to
provide feedback for learning.
• Allowing workers to be responsible for their job by giving them
authority and control.
• Financial incentives can work as well, more so in lower level of
employees
None
 Work Measurement
• Work measurement refers to the estimation of
standard time for an activity, that is the time
allowed for completing one piece of job by
using the prescribed method.
• It can be defined as the time taken by an
average experienced worker for the job with
provisions for delays beyond the worker's
control.
• It may not be possible to introduce incentive
schemes and standard costs for budget control
without Work Measurement
None
 Objectives
• Comparing alternative methods.
• Assessing the correct initial manning
(manpower requirement planning).
• Planning and control.
• Realistic costing.
• Financial incentive schemes.
• Delivery date of goods.
• Cost reduction and cost control.
• Identifying substandard workers.
• Training new employees.
None
 Techniques
• Time study (stop watch technique)
• Synthesis
• Work sampling
• Predetermined motion and time study
• Analytical estimating

None
 Time Study
• It records the times and rates of working for
the elements of a specified job carried out
under specified conditions and for analyzing
the data so as to determine the time
necessary for carrying out the job at the
defined level of performance.
• In other words measuring the time through
stop watch is called time study.

None
 Cont…
Time Study is conducted on a job
• which has not been previously time-studied.
• for which method change has taken place
recently.
• for which worker(s) might have complained as
having tight time standards.

None
 Cont…
Selection of Worker for Time Study
If there is only one person on the job, then there is no choice. But
if more than one person is performing the same operation, the
time study may time one or more of the workers. The worker
on which time study should be conducted must
• have necessary skill for the job.
• have sufficient experience with the given method on the job
(that is, he should have crossed the learning stage).
• be an ‘average' worker as regards the speed of working.
• be temperamentally suited to the study (those who can't work
in normal fashion when watched, are not suitable for the
study).
• have knowledge about the purpose of study.
None
 Work Sampling
• Work sampling is the statistical technique for
determining the proportion of time spent by
workers in various defined categories of
activity (e.g. setting up a machine, assembling
two parts, idle etc).
• Other names used for it are 'activity sampling',
'occurrence sampling', and 'ratio delay study'.

None
 Work Sampling
• A large number of observations are made over
a period of time of one or group of machines,
processes or workers.
• Each observation records what is happening at
that instant and the percentage of
observations recorded for a particular activity,
or delay, is a measure of the percentage of
time during which that activities delay occurs.

None
 Capacity

• Maximum output of a system in a given

period (general definition)
– Example: Tons of steel per month
• Effective capacity: Maximum output given
standards, product mix etc.
• Rated capacity: Maximum usable output
given utilization & efficiency
RC = (Capacity)*(Utilization)*(Efficiency)

None
 Capacity

• How would you define capacity for the

following firms (e.g., steel mill, tons of
steel per day):
– Beer brewery
– Auto plant
– Restaurant
– Warehouse

None
 Utilization

• Measure of planned or actual capacity usage

of a facility, work center, or machine

Expected capacity
Utilization 
Capacity
Planned hours to be used

Total hours available
 Efficiency
• Measure of how well a facility or machine is
performing when used

Actual output
Efficiency 
Effective capacity
Actual output in units

Standard output in units
Average actual time

Standard time
 Utilization Example

You’re owner of a small florist shop. Normally, your

shop is open 8 hr./day Monday to Friday & 4 hr. on
Saturday. During the summer, you’re closed on
Monday & Saturday. What is your capacity, expected
capacity & utilization during the summer?
 Capacity Planning Process
Develop Q uantitative
Forecast
Alternative Factors
Dem and
Plans (e.g., Cost)

Com pute Evaluate Q ualitative

Rated Capacity Factors
Capacity Plans (e.g., Skills)

Com pute Select Best

Im plem ent
Needed Capacity
Best Plan
Capacity Plan
None
 Managing
Existing Capacity
Demand Management Capacity Management
 Vary prices • Vary staffing
 Vary promotion • Change equipment
 Change lead times & processes
(e.g., backorders) • Change methods
 Offer complementary • Redesign the product
products
for faster processing

None
Unit 4: Material Management and
Inventory Control

None
 Inventory Management
• Inventory is the stock of any item or
resource used in a firm and can include raw
materials, finished products, component
parts, work-in-process, finished packaging
etc.
• An Inventory system is the set of policies
and controls that monitor levels of
inventory and determines what levels
should be maintained, when stock should
be replenished, how large orders should be
None
 Purpose of Carrying Inventory
1. To meet variation in product demand
2. To allow flexibility in production scheduling
3. To provide a safeguard for variation in good
delivery time
4. To take advantage of economic purchase-order
size (Economies of Purchase)
5. Serve to isolate the supplier, producer and
consumer on a daily basis
 Scope of Inventory Management
Inventory Management is concerned about:
• Lead time
• Inventory carrying costs and ordering / set
up costs
• Inventory forecasting
• Inventory valuation
• Inventory visibility

None
 Scope of Inventory Management
Inventory Management is concerned about:
• Future inventory price forecasting
• Physical Inventory vs Inventory as per
books
• Available physical space
• Replenishment
• Returns and defective goods
• Demand forecasting
None
 Cont…
• Inventory Management involves
development and administration of
policies, systems and procedures which
shall minimise total costs related to
Inventory decisions and related functions
like production scheduling, purchasing,
logistics.

None
 Benefits of Inventory Management
• Ensures adequate supply of materials,
minimises stock outs and shortages.
• Avoids costly interruptions in operations.
• Keeps down Investment in Inventory.
• Facilitates purchasing economies.
• Permits better utilisation of available stock.
• Provides a check against the loss of
materials through pilferage.
None
 Process of Inventory Management

• Determination of optimum Inventory levels

and procedures.
• Determination of degree of control.
• Planning and design of Inventory control
system (Fixed Order Quantity or “Q”
System, Fixed Order Period of “P” System)
• Planning of Inventory Control Organisation.

None
 Inventory Costs
• Holding (or carrying) Costs
– Costs for Obsolescence, Change in Technology,
Deterioration, Pilferage, Damages, Handling,
Insurance or Security, Interest etc.
• Setup (or production start/change) Costs
– Costs for arranging specific equipment setups
etc
• Ordering Costs
– Preparing a purchase order, processing
payments, receiving and inspecting material.
• Out of Stock Cost
– Costs of Canceling an order, Lost Sales etc
None
 Inventory Control Techniques
• ABC Classification
• HML Classification
• VED Classification
• SDE Classification
• FSN Classification
• Economic Order Quantity (EOQ)
• 2 Bin System
• JIT

None
 ABC Classification
Based on Annual Consumption Value (Rs), you
need to
• Select top 10 percent of all items that have
highest rupee percentages : A
• Select next 20% : B
• Select next 70% : C
• Principle: Strict control is needed in case of “A”
category products with frequent ordering and
maximum follow up, efforts to reduce lead
time, immediate control systems.
None
 HML Classification
Classification is carried out on Unit Value basis
not on Annual Consumption Value.
• H-High
• M-Medium
• L-Low

• Principle:

None
 VED Classification
Classification is carried out on criticality of the
product.
• V - Vital
• E - Essential
• D - Desirable

• Principle:

None
 SDE Classification
Classification is carried out on ease of
availability of procuring the product
• S – Scarce Items
• D – Difficult to Procure
• E – Easily Available

• Principle:
None
 FSN Classification
Classification is carried out on basis of
frequency of use of the product

• F-Fast moving items

• S-Slow moving items
• N-Non moving items

• Principle:

None
 Inventory Systems
• Single-Period Inventory Model
– One time purchasing decision (Example: vendor selling t-
shirts at a cricket match)
– Seeks to balance the costs of inventory overstock and under
stock
• Multi-Period Inventory Models
– Fixed-Order Quantity Models
• Event triggered (Example: running out of stock)
– Fixed-Time Period Models
• Time triggered (Example: Monthly sales call by sales
representative)

None
 Single-Period Inventory Model
This model states that we

Cu should continue to increase

the size of the inventory so
P long as the probability of
Co  Cu selling the last unit added is
equal to or greater than the
ratio of : Cu/(Co+Cu)
Where :
Co Cost per unit of demand over estimated
Cu Cost per unit of demand under estimated
P Probability that the unit will be unsold
None
 Single Period Model Example 1
• Our college basketball team is playing a game this
weekend. Based on our past experience we sell on an
average 2,400 shirts with a standard deviation of 350.
We make $10 on every shirt we sell at the game, but
lose $5 on every shirt not sold. How many shirts
should we make for the game?
Cu = $10 and Co = $5; P ≤ $10 / ($10 + $5) = .667
Z.667 = .432 (use NORMSINV(.667))

So we need 2,400 + 0.432*(350) = 2,551 shirts

None
 Multi-Period Models:
Fixed-Order Quantity Model

• Demand for the product is constant and

uniform throughout the period
• Lead time is constant
• Price per unit of product is constant
• Inventory holding cost is based on average
inventory
• Ordering or setup costs are constant
• All demands for the product will be satisfied
(No back orders are allowed)
None
 Basic Fixed-Order Quantity Model
and Reorder Point Behavior
1. You receive an order quantity Q. 4. The cycle then repeats.

Number
of units
on hand Q Q Q

R
L L
2. You start using
them. Time
3. When you reach down
R = Reorder point to a level of inventory of R,
Q = Economic Order Quantity you place your next Q sized
L = Lead time order.
None
 Cost Minimization Goal
By adding holding and ordering costs together, we
determine total cost curve, which is used to find the Qopt
inventory order point that minimizes total costs

Total Cost
C
O
S
T
Annual Cost of
Items (DC) Holding
Costs

Ordering Costs

QOPT

None
Order Quantity (Q)
 Basic Fixed-Order Quantity (EOQ) TC =Total annual cost
Model Formula D =Demand (Annual)
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
per lot
R =Reorder point
L =Lead time
D Q H=Annual holding
TC = DC + S + H and Storage cost per
Q 2 unit of inventory

None
 Cont…
2DS 2 * (Annual Demand) * (Order or Setup Cost)
Q OPT = =
H Annual Holding Cost per unit
_
Reorder point, R = d L
_
d = average daily demand (constant)
L = Lead time (constant)

We also need a reorder point to tell us

when to place an order

None
 EOQ Problem - 1
A confectioner buys plastic boxes for packaging
purpose. His monthly requirement is 100 boxes.
Cost of each box is Rs. 30. Cost for ordering is
Rs. 2 (Per Phone call). Transportation Cost per
lot is Rs. 8. Carrying Cost of Inventory is 1.5% of
goods on a monthly basis.
Determine EOQ so as to minimise Inventory Cost

None
 Quiz: EOQ Problem
A retailed buys cartons for packaging purpose. His
quarterly requirement is 12000 boxes. Cost of
each carton is Rs. 60. Cost for ordering is Rs. 100
per order. Transportation Cost per lot is Rs. 500.
Holding Cost of Inventory is 12.0% on a yearly
basis.
Determine EOQ

None
 EOQ Problem - 2

Annual Demand = 1000 units

Days per year considered in average daily
demand = 365
Cost to place an order = Rs.10 per lot
Holding cost per unit per year = Rs. 2.50
Lead time = 7 days
Cost per unit = Rs. 15

Determine EOQ

None
 EOQ Problem - 2 - Solution
QQOPT =
√
OPT =
22DS
DS =
√
2∗(1,000
2∗(1,000
HH = 2.50
2.50
1,000 units / year
)∗(10)
)∗(10) = 89.443 units or 90 units
= 89.443 units or 90 units

d = = 2.74 units / day

365 days / year

_
Reorder point, R = d L = 2.74 * (7days) = 19.18 or 20 units

In summary, you place an optimal order of 90

units. In the course of using the units to meet
demand, when you only have 20 units left, place
the next order of 90 units.
None
 Quiz: EOQ Problem
Average Yearly Demand = 10000 units
Days per year considered in average daily demand = 365
Cost to place an order = Rs.10 per lot
Holding cost per unit per year = 10% of cost of a unit
product
Lead time = 10 days
Cost per unit = Rs.15

Determine EOQ

None
 EOQ Problem - 3 - Solution
2DS 2 * (10000) * (10)
Q OPT = = = 366 units
H 1.50

10,000 units/year
d= = 27.39 units/day
365 days/year
_
R = d L = 27.39 units/day (10 days) = 273.9 or 274 units

Place an order for 366 units. When in the

course of using the inventory you are left with
only 274 units, place the next order of 366
units.
None
 Weakness of EOQ
• Erratic Usages (Demand is usually not linear
in reality)
• Ordering Cost per lot may change over a
period of time
• Holding Cost may change over a period of
time
• Formula not a substitute for experience

None
 Miscellaneous Systems:
Optional Replenishment System
Maximum Inventory Level, M

q=M-I

Actual Inventory Level, I

M

Q = minimum acceptable order quantity

If q > Q, order q, otherwise do not order any.

None
 Miscellaneous Systems:
Bin Systems
Two-Bin System

Order One Bin of

Inventory
Full Empty
One-Bin System

Order Enough to
Refill Bin
Periodic Check
None
 Quantity Discounts vs EOQ
A confectioner buys plastic boxes for packaging
purpose. His monthly requirement is 100 boxes.
Cost of each box is Rs. 30. Cost for ordering is Rs. 2
(Per Phone call). Transportation Cost per lot is Rs.
8. Carrying Cost of Inventory is 1.5% on monthly
basis.
EOQ = 67 units
Trader from whom I purchase offers me discount of
X% to take 200 units per lot (Instead of 67).
Determine X so that I accept the offer
None
 Quantity Discounts vs EOQ
A trader buys laptops for purpose of selling. His
monthly requirement is 2000 units. Cost of
each unit is Rs. 30000. Cost for ordering is Rs.
5000 per lot (Transportation Cost). Carrying
Cost of Inventory is 6.0% on monthly basis.
Vendor from whom the trader purchases offers
him a discount of X% to take 3 times more
than the EOQ. Determine X so that the offer
is accepted
None
 Quiz: Quantity Discounts vs EOQ
A trader buys laptops for purpose of selling. His
monthly requirement is 3000 units. Cost of
each unit is Rs. 40000. Cost for ordering is Rs.
6000 per lot (Transportation Cost). Carrying
Cost of Inventory is 9.0% on monthly basis.
Vendor from whom the trader purchases offers
him a discount of X% to take 3 times more
than the EOQ. Determine X so that the offer
is accepted
None
 Purchasing
• Purchasing refers to a firm acquiring
goods or services to accomplish its goals.
• May include purchase of raw materials,
spare parts, components etc.
• Main function of Purchasing Manager is
to satisfy requirement of materials and
supplies.
 Objectives of Purchasing Department
 Purchase of materials
 Negotiations with suppliers
 Co-ordination with other departments
 Timely deliveries
 Continuous and regular supply
 Minimum wastages
 Desired Quality
 Inventory Control
 Information about new material and processes
which may reduce cost of production
None
Principles of Purchasing
 Location and Choice of Suppliers

• Reliability of Supply
• Assurance of timely delivery
• Credit Terms
• After sales service
• Technical assistance
• Other Terms and Conditions
• Relations
 Functions of Purchasing Department

Processing the Requisition

Purchase Requisition
No……….
Date………..
S.No Qty Qty. and Price Suggested Balance
Reqd Other details Supplier in stores
of the item

Required By……… Authorized By...…

 Cont…
Placing orders
• All purchases should be made through a purchase order in a
specified form and duly signed by some authorized person.
PURCHASE ORDER

To
_____________ Date……
Order No……

Description of item ……………….

Price ………………….
Date of Supply……
Signature…………….

As a norm, original copy is to be send to supplier, one copy is retained by the

purchase department and one copy is sent to the concerned department
requiring the ordered items.
 Cont…
Follow-up or progressing the purchase orders
Receiving ordered material at right time is
important for a firm.
Late deliveries can lead to problems. For this,
follow up the purchase order.
Invoices received from suppliers are checked
and verified with order specifications.
 Cont…
• Delay in availability of requisitioned material
should be conveyed to concerned
departments in time.
• Take action regarding outdated and scrapped
items.
• Control Store Operations of receiving the
items and issuing it to concerned department.
• To handle and take proper action regarding
damages.
 Methods of Purchasing
1. Purchasing only according to requirements
2. Purchasing for some definite future period
3. Market Purchasing
4. Speculative Purchasing
5. Contract Purchasing
Purchasing Only According to Requirements
• Appropriate for those items which are not of regular
and common use in the production process
• These items are generally not stored in inventories
• Purchasing department should keep a record of
reliable and trustworthy suppliers so that they can
supply when needed all of a sudden
Purchasing for Definite Future Period
• Generally used for those items which are
regularly consumed but the consumption is
comparatively low and price changes for
these items are not much.
Market Purchasing
• Refers to buying goods for taking advantages
of favourable market situations.
• Purchases are not made to meet immediate
needs but are acquired as per the future
requirements.
• The advantages of this method may be lower
purchase prices
Speculative Purchasing
Purchasing at lower prices with a view to sell
them at higher prices in future. The aim is to
earn profits out of price rises later on.
The purchases are not made as per the
production needs of the plant, rather these
are far in excess of such requirements.
A cloth mill may purchase cotton in the market when
prices are low with the attention of earning profits
out of its sales when prices go up.
Contract Purchasing

• Purchase department enters into agreement

with suppliers to supply the items at some
future period periodically at a price fixed
earlier.
• Even though the goods are procured in future
but the price and other terms and conditions
are fixed at the time of contract.
 Choosing Vendor(s)
• Supplier Evaluation is a term used in business
and refers to the process of evaluating and
approving potential suppliers by quantitative
assessment.
• Purpose of supplier evaluation is to ensure a
portfolio of best in the class suppliers is
available for use.
 Factors Critical for Vendor Success
• Competency: Managerial, technical, administrative and
professional competence of the supplying firm.
• Capacity: Supplier's ability to meet physical, intellectual and
financial requirements.
• Commitment: Supplier's willingness to commit physical,
intellectual and financial resources.
• Control: Effective management control and information systems.
• Cash resources: Financial resources and stability of the supplier.
Includes Profit, ROI, ROE, Asset-Turnover Ratio etc.
• Cost: Total acquisition cost, not just selling price.
• Consistency: Supplier's ability to exhibit quality/reliability over
time.
 Vendor Rating
S Parameter Score (Vendor 1) Score (Vendor 2)
No
1 Price (Accuracy, Stability,
Advance Notice for Changes)
2 Delivery (Lead time, As per
communication, Emergency
delivery, Packaging)
3 Quality (As per order, Reliability,
Reliability of Repairs, Warranty)
4 Credit Terms

5 Billing Accuracy,
Documentation, Technical
Support, Problem Resolution
Total Score
 Benefits of Vendor Rating
• Helps minimize subjectivity in judgment and
makes it possible to consider all relevant
criteria in assessing suppliers.
• Providing feedback and thereby better
control.
• Requiring specific action to correct identified
performance weaknesses.
 Benefits of Vendor Rating
• Facilitating better communication with
vendors.
• Establishing continuous review standards for
vendors, thus ensuring continuous
improvement of vendor performance.
• Building vendor partnerships, especially with
suppliers having strategic links.
• Developing a performance-based culture.
Four Stages of Vendor Development
Stage Name Development

Identifying the potential sources of suppliers.

1st Survey stage Seeking information.
Provisional vendors list.
Analysis of information in standard enquiry
nd
2 Enquiry stage format.
Accreditation, FDA approval, ISO certification.
Personal visits.
Negotiations and Quality control specifications, clarification,
3rd selection stage credit, quantity discounts.

Experience and
th
4 evaluation stage Performance appraisal, Quality, delivery time.
 1) Survey Stage

The following sources are considered for information

• Trade directories. e.g. Yellow pages
• Trade journals
• Telephone directories
• Supplier’s catalogue
• Salesmen
Other ways are like interchanging of information
with other companies, tracing of public tenders and
advertisements in the press.
 2) Enquiry Stage
After getting the information of the suppliers,
detailed analysis of the supplier is being
carried out. A comparison is being made
between the different suppliers on basis of
following points:
a. Technological competition
b. Service competition
c. Price competition
d. Delivery time
 3) Negotiation and Selection Stage

• The vendors who clear the enquiry stage are selected

and negotiations are being carried out with them.
• The various aspects such as credit, quantity discount,
quality specifications are being discussed.
• Buyer evaluates and appraises the performance of
the vendor.
• Objective is to improve the performance of the
vendors.
 4) Experience and Evaluation

Factors Always Usually Seldom Never

9 8 7 6 5 4 3 2 1 0

Supplies are as per

quantity selected
Deliveries are on
time

Rigorous follow up
is not necessary
Willing to
accommodate when
production schedules
are suddenly
changed
How is purchasing done –
Outside Regular Vendors?
• Quotations:- It is a kind of an inquiry done to know
whether the vendor can supply the desired material
and at what price.
• They are not the purchase order. They just contain
all the details including freight, taxes and many
other costs.
Highly used quotation techniques are:
• Spot quotations
• Floating a limited enquire
 Cont…
• Spot quotations:- The prospective buyer
goes to the market and gets the quotations
from different suppliers.

• Floating a limited enquire:- In this

technique the reliable vendors are called
upon and asked to provide the quotations.
 Cont…
Tenders:-
• It is a written letter or a published document that
is aimed at finding the price for procuring certain
materials.
• Tenders are invited from recognized firms.

Few types of tenders are:

# Single tender
# Open tender
 How is the purchasing done?
• Single tender:- It is invited from one reliable
supplier. This kind of tender is floated only when
the items are required urgently.

• Open tender:- Also known as ‘press tender’. This

is used when the value of item to be purchased is
very high. It is used to locate more suppliers.
In this tender procured, a small amount of the
deposit money may be taken from the supplier so
that they do not withdraw from the submitted rates.
 Negotiation Variables
• Prices are related to large volumes or to a large
value.
• Terms and conditions are required for large
volumes.
• Contract is desired for a longer period.
• Variations in quantity to be purchase are possible.
• When supplies or services may be obtained from
only one source.

None
 How is the purchasing done?
Process of negotiations:- It is a kind of
win-win situation. Both the parties try to
benefit to the maxima through the
negotiation.
It is not a kind of bargaining but a mutual
understanding between the two parties.

None
How is the purchasing done????
• Discounts:- They are cash concessions offered by the vendor to
the buyer, in order to enhance the volume of the business
opportunities.
Reasons for offering discounts
When there is a bulk purchase.
When the bills are cleared immediately.
Maintain the good relation with the buyer
Types of discounts:
1) Volume contracts
2) Deals
3) Discounts
4) Consignment terms

None
 How is the purchasing done?
# Volume contracts:- This kind of discount is offered
proportionate to the volume of material ordered.

# Cash discount:- Cash discount is given on the basis of

the time of the payment done by the purchaser. The
normal credit period is 15-21 days (Generally).

# Cumulative discount:- It is a method of offering the

discount on the basis of actual purchases and appropriate
to the quantity range in a year.

None
 Purchasing cycle and procedure
• The purchasing department of the company is
responsible for the purchase of all the raw materials as
well as the requirements.
Following steps are followed in the purchasing cycle.
1) Recognition of need and receipt of requisition: The
requisition includes the following information:-
- Name
- Quality and quantity specifications
- Date by which material is required
- Place at which material is to be delivered

None
 Purchasing cycle and procedure
2) Selection of potential sources of supply
3) Making request for quotation
4) Receipt and analysis of quotations
- material specifications and quality
- price of the material
- taxes
- terms of payment
- place of delivery
- delivery period
- guarantee period
- validity of tender
None
 Purchasing cycle and procedure
5) Selection of right source of supply
6) Issuing the purchase order
7) Follow-up of the order
8) Receipt of materials, reports and analysis
9) Checking and approving of vendor’s invoice for
payment
10) Closing of completed order
11) Maintenance of record and file
Purchasing cycle flow chart has been given in the
following slide.
None
 Warehousing
• Part of “logistics system” of the firm that stores products
at and between point of origin and point of consumption.

• Term “Warehousing” is referred as transportation at zero

miles per hour

• Warehousing provides time and place utility for raw

materials, industrial goods and finished products, allowing
firms to use customer service as a dynamic value-adding
competitive tool.

None
 ROLE OF WAREHOUSING
• Warehouse is where the supply chain holds or
stores goods
• Functions of warehousing include
– Transportation consolidation
– Product mixing
– Docking
– Protection against contingencies

None
 PRINCIPLES OF WAREHOUSE
LAYOUT DESIGN
• Use one-storey facilities (If possible) -
Saves Cost.
• Move goods in a straight line.
• Use efficient materials-handling
equipment.
• Use an effective storage plan.
• Minimize space required.
• Use maximum height of the building as
far as possible.
 RECEIVING
•Schedule
INP Carrier
UT •Unload Vehicle
•Inspect for
damage
WAREHOUSE PROCESS
Put-away Storage
•Identify Product •Equipment
•Identify Product •Stock Location
Location – Popularity
•Move Products – Unit Size
•Update Records – Cube

Shipping
Order Picking
Preparation •Information
•Packing
•Walk & Pick
•Labeling
•Batch Picking
•Stacking

Shipping
•Schedule Carrier
•Load Vehicle OUT
PUT
None
•Bill of Loading
•Record Update
 OBJECTIVES OF EFFICIENT
WAREHOUSE OPERATIONS
• Provide timely customer service.
• Keep track of items so they can be found readily
& correctly.
• Minimize the total physical effort & thus the
cost of moving goods into & out of storage.
• Provide communication links with customers
 Cont…
 Provide a place to store & protect
inventory
 Reduce transportation costs
 Improve customer service levels

• Complexity of warehouse operation depends

on the number of SKUs handled & number
of orders received & filled.
• Most Common activity in a warehouse is
“material handling”.
None
 WAREHOUSE ACTIVITIES
• Receive goods
• Identify the goods
• Dispatch goods to storage
• Hold goods
• Pick goods
• In house Shipment
• Dispatch shipment
• Operate an information system

None
eceive goods
• Accepts goods from
‒ Outside transportation or attached factory & accept
responsibility
• Check the goods against an order & the bill
• Check the quantities
• Check for damage & fill out damage reports if
necessary
• Inspect goods if required
None
entify the goods
‒ Items are identified with the appropriate
stock-keeping unit (SKU) number (part
number) & the quantity received

patch recorded
goods to storage
‒ Goods are sorted & put away

Hold goods
‒ Goods are kept in storage & under proper
None protection until needed
Pick goods
‒ Items required from stock must be
selected from storage & brought into
production / value adding zone

house shipment
‒ Goods making up a single order are
brought together & checked for
omissions or errors; order records are
updated
None
spatch the shipment
‒ Orders are packaged, shipping
documents are prepared, & goods loaded
on the vehicle

rate an information system

‒ A record must be maintained for each
item in stock showing the quantity on
hand, quantity received, quantity issued,
& location in the warehouse
None
 Objective: Maximize
Productivity & Minimize Cost
• Maximize use of space
– space is the largest capital cost

• Effective use of labor & equipment

– labor is the largest operating cost
– material handling equipment is the second

None
largest capital cost
 Costs of Operating a Warehouse
• Capital costs
—Costs of space & materials handling equipment
• Operating costs
—Cost of labor
—Cost of electricity / running expenses
Measure of labor productivity is the number of
units that an operator can move in a day
None
 Factors Influencing Effective
Use of Warehouses
• Cube utilization and accessibility
• Stock location
• Order picking and assembly
• Physical Control & Security - Elements

None
 Cube utilization and
accessibility
‒ Goods stored not just on the floor, but in the cubic
space of the warehouse; warehouse capacity
depends on how high goods can be stored
‒ Accessibility means being able to get at the goods
wanted with a minimum amount of work

None
 Cube utilization and
accessibility continued…

None
 Stock
• Objectives
Location
– To provide required customer service
– To keep track of where items are stored
– To minimize efforts to receive and
retrieve items
• Basic Stock Locating Systems
– Group functionally related items together
– Group fast-moving items together
– Group physically similar items together
– Locate working stock and reserve stock
separately
None
 Stock
• FixedLocation
Location
– SKUcontinued…
assigned a permanent location, & no other items are stored
there
– Fixed-location systems usually have poor cube utilization
– Usually used in small warehouses; throughput is small, & there
are few SKUs
• Floating (Random) Location
– Goods stored wherever there is appropriate space
– Advantage is improved cube utilization
– It requires accurate and up-to-date information
– Warehouses using floating-location systems are usually
computer-based
None
 Stock
Location
continued…storage
Point-of-use
• Inventory stored close to where it will be
needed
• Used in repetitive manufacturing & JIT
systems
Central storage
• Contains all inventory in one central location

None
 Order Picking and
Assembly
• When an order is received, items must be
obtained from the warehouse, grouped, &
prepared for shipment, systems used
– Area system
– Zone system
– Multi-order system

None
 Order Picking and
Assembly continued…
• Area system
– Order picker circulates throughout warehouse selecting
items on an order -- order is ready to ship when order
picker is finished
• Zone system
– Warehouse is divided into zones, & each picker works
only in an assigned zone -- order is divided by zone, &
the items from each zone are sent to the marshaling
area
• Multi-order system
– Same as the zone system, except that each picker
collects items for a number of orders at the same time

None
 PHYSICAL CONTROL & SECURITY - ELEMENTS

• Goods part numbering system

• Simple, well-documented transaction system
– Identify the item
– Verify the quantity
– Record the transaction
– Physically execute the transaction
• Limited access
– Inventory must be kept in a safe, secure (locked)
place with limited general access
•NoneWell-trained workforce
 Material Requirement Planning
• Materials requirements planning (MRP) is the logic
for determining the number of parts, components,
and materials needed to produce a product.
• MRP provides time scheduling information
specifying when each of the materials, parts and
components should be ordered or produced.
• Dependent demand drives MRP.
• MRP is a software system.

None
Example of MRP Logic and Product Structure
Tree
Given the product structure tree for “A” and the lead time and demand
information below, provide a Materials Requirements Plan that defines
the number of units of each component and when they will be needed.
Lead Times
Product Structure Tree for Assembly A 1 day
A B 2 days
A C 1 day
D 3 days
E 4 days
B(4) C(2)
F 1 day
Demand
D(2) E(1) D(3) F(2) Day 10: 50 A (Finished Goods)
Day 8: 20 B (Spare / Extra)
Day 6: 15 D (Spare / Extra)
None
 First, the number of units of “A” are scheduled backwards
to allow for their lead time. So, in the materials requirement
plan below, we have to place an order for 50 units of “A” in
the 9th week to receive them in the 10th week.

Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50

LT = 1 day

None
Next, we need to start scheduling the components that make up “A”. In
the case of component “B” we need 4 B’s for each A. Since we need 50
A’s, that means 200 B’s. And again, we back the schedule up for the
necessary 2 days of lead time.
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50
B Required 20 200
Order Placement 20 200

LT = 2
Spares
A 4x50=200

B(4) C(2)

D(2) E(1) D(3) F(2)

None
Finally, repeating the process for all components,
we have the final materials requirements plan:
Day: 1 2 3 4 5 6 7 8 9 10
A Required 50
LT=1 Order Placement 50
B Required 20 200
LT=2 Order Placement 20 200
C Required 100
LT=1 Order Placement 100
D Required 55 400 300
LT=3 Order Placement 55 400 300
E Required 20 200
LT=4 Order Placement 20 200
F Required 200
LT=1 Order Placement 200

A
Part D: Day 6
40 + 15 spares
B(4) C(2)

None
D(2) E(1) D(3) F(2)
 MRP System
• Based on a master production schedule, a
material requirements planning system:
– Creates schedules identifying the specific
parts and materials required to produce end
items.
– Determines exact unit numbers needed.
– Determines the dates when orders for those
materials should be released, based on lead
times.
 MRP Reports
• Planned orders to be released at a future time.
• Order release notices to execute the planned
orders.
• Changes in due dates of open orders due to
rescheduling.
• Cancellations or suspensions of open orders
due to cancellation or suspension of orders on
the master production schedule.
• Inventory status data.
 Lot Sizing in MRP Programs
• Lot-for-lot (L4L)
• Economic order quantity (EOQ)
• Least total cost (LTC)
• Least unit cost (LUC)
 Production Objectives
High
Profits

Low High
Costs Sales

Low Unit Quality High Customer

Costs Product Service

High High Low Fast Many

Throughput Utilization Inventory Response products

Less Short High More

Variability Cycle Times Inventory Variability
 Objectives and importance
• Efficient use of the working capital.
• Lowering inventory investment and increasing
the inventory turnover.
• Responding to the market changes related to
any product.
• Ensuring the cooperation of all departments.
• Providing best services to the customer.
 Value Analysis
• It is one of the techniques of cost reduction
and control. It is an approach which
ensures the necessary functions for the
minimum cost without diminishing quality,
reliability, performance, appearance.
Benefits:
i. Decrease existing cost of the product or service.
ii. Unnecessary expenditure is identified and
eliminated.
iii. More profits.

None
 Value Ratio
Reasons for unnecessary costs:
i. Lack of information
ii. Lack of ideas
iii. Changed circumstances
iv. Wrong beliefs, habits and attitudes leading to
wrong practices

None
 Value Analysis Technique

You need to ask yourself:

o What must I do?
o What else can be done?
o What does it cost?
o Who else will the job do?
o What will be the alternative costs?

None
 Materials Management
• Materials management is a core function of
supply chain management, involving
planning and execution of supply chains to
meet material requirements of a company.
• These requirements include controlling and
regulating the flow of material while
simultaneously assessing variables like
demand, price, availability, quality and
delivery schedules.
None
 Cont…
• Idea is to determine the amount of material
required and held in stock, plan for the
replenishment, create inventory levels for
each type of item and communicate
information and requirements to
procurement department.
• Materials management involves assessing
material quality to make sure it meets
customer demands in line with a production
schedule and at the least feasible cost.
None
 Objectives: Materials Management
• The right material
• At the right time
• In the right amount
• At the right price
• Having right quality
• From the right sources

None
Types of Materials Management
Material Requirements Planning
• Reducing material overspend has caused some
companies to consider ‘Just in Time (JIT)’ strategies
that require very small levels of inventory. However,
this still requires careful planning to maintain
without impacting production schedules.
Purchasing
• Purchasing should be done economically and on time
to maintain material supplies and increase final
profits by lowering expenses.

None
 Cont…
Inventory Control
• Many firms try to time purchasing so that materials enter
stores just ahead of production, although there is also a need
to gauge supplier levels so items can be stocked before they
become unavailable.
Material Supply Management
• SCM can require materials to be distributed to different sites or
production centres, each of which needs to be continuously
supplied. Lack of stock can lead to financial losses through
having to source replacement production materials or having to
halt production schedules.
• Poor storage can also lead to material supply

None
 Cont…
Quality Control
• Factors such as durability, performance,
reliability and aesthetics can all be
important quality factors for materials
management, depending upon the
applications.

None
 Cont…
Inventory management can be broken down into three factors:
Maximum Stock
• This is the maximum amount of material that is held in stock at
any given time.
Minimum Security Stock
• As stock levels fluctuate during production, there is also a need to
ascertain a minimum stock level, bearing in mind supplier
delivery times, cost of the orders and production requirements.
Re-Order Point
• This is the point at which orders should be made so as to keep
warehouse supplies aligned with supplier delivery times and
production schedules.
None
Automated Storage and Retrieval Systems

• Automated storage and retrieval systems

(AS/RS) are computer and robot aided
systems that can retrieve items or store
them in specific locations.
• The system is usually comprised of
predefined locations where machines
can follow established routes to get
items.
None
 Advantages
• Reduced labor costs
• Improved accuracy, efficiency and
productivity
• Reduced safety risks for employees. Like
working in freezer storage areas or they
can function at heights that are difficult
for human workers to navigate

None
Unit V: Quality Control &
Management
 Defining Quality

The totality of features and

characteristics of a product or service
that bears on its ability to satisfy stated
or implied needs of customers

None
 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

None
 Key Dimensions of Quality

 Performance  Durability
 Features  Serviceability
 Reliability  Aesthetics
 Conformance  Perceived quality
 Value

None
 Cont...

Sales Gains via

 Improved response
 Flexible pricing
Improved  Improved reputation Increased
Quality Profits
Reduced Costs via
 Increased productivity
 Lower rework and scrap costs
 Lower warranty costs
None
 Costs of Quality
 Cost of Quality is defined as a methodology
that allows a firm to determine the extent to
which its resources are used for activities that
prevent poor quality, that appraise the
quality of the organization’s products or
services and that results from internal and
external failures.

None
 Costs of Good Quality
Appraisal Costs
Appraisal costs are associated with measuring and
monitoring activities related to quality. These costs are
associated with the suppliers’ and customers’ evaluation of
purchased materials to ensure that they conform to
specifications. They could include:
Verification: Checking of incoming material and products
against agreed specifications
Quality audits: Confirmation that the quality system is
functioning correctly
Supplier rating: Assessment and approval of suppliers of
products
None and services
 Costs of Good Quality
Prevention Costs
They are incurred to prevent or avoid quality problems.
These costs are associated with the design,
implementation, and maintenance of the quality
management system. They are planned and incurred
before actual operation, and they could include:
Quality planning: Creation of plans for quality, reliability,
operations, production, and inspection
Quality assurance: Creation and maintenance of
systems
Training: Development and maintenance of programs
None
 Costs of Bad Quality
Internal failure Costs
Internal failure Costs are incurred to remedy defects discovered
before the product or service is delivered to the customer. These
costs occur when the results of work fail to reach design quality
standards and are detected before they are transferred to the
customer. They could include:
Waste: Performance of unnecessary work or holding of stock as a
result of errors, poor organization or communication
Scrap: Defective product or material that cannot be repaired,
used, or sold
Rework or rectification: Correction of defective material or errors
Failure analysis: Activity required to establish the causes of
internal product or service failure
None
 Costs of Bad Quality
External failure Costs
External failure Costs are incurred to remedy defects discovered by
customers. These costs occur when products or services that fail to
reach design quality standards are not detected until after transfer to
the customer. They could include:
Repairs and servicing: Of both returned products and those in the
field
Warranty claims: Failed products that are replaced or services that
are re-performed under a guarantee
Complaints: All work and costs associated with handling and
servicing customers’ complaints
Returns: Handling and investigation of rejected or recalled products,
including transport costs
None
 Costs of Quality

Total Total Cost

Cost
External Failure

Internal Failure

Prevention

Appraisal
Quality Improvement

None
 Implications of Quality
1. Company reputation
 Perception about new products
 Supplier relations
2. Product liability
 Reduce risk
3. Global implications
 Improved ability to compete

None
 Ethics and Quality Management
 Operations managers must deliver
healthy, safe, quality products and
services
 Poor quality risks injuries, lawsuits,
recalls, and regulation
 Organizations are judged by how they
respond to problems
 All stakeholders much be considered
None
 TQM
Encompasses entire organization, from
supplier to customer
Stresses a commitment by management to
have a continuing, companywide drive
towards excellence in all aspects of
products and services that are important
to the customer

None
 Seven Concepts of TQM
1. Continuous improvement
2. Six Sigma
3. Employee empowerment
4. Benchmarking
5. Just-in-time (JIT)
6. Taguchi concepts
7. Knowledge of TQM tools
None
 Continuous Improvement

 Represents continual improvement of

all processes
 Involves all operations and work
centers including suppliers and
customers
 People, Equipment, Materials,
Procedures

None
 Six Sigma
 Two meanings
Statistical definition of a process
that is 99.9997% capable, 3.4
defects per million opportunities
(DPMO)
A program designed to reduce
defects, lower costs and improve
customer satisfaction
None
 Six Sigma
Lower limits Upper limits
 Two meanings
2,700 defects/million
 Statistical definition of a process that is
3.4 defects/million
99.9997% capable, 3.4 defects per million
opportunities (DPMO)
 A program designed to reduce defects,
lower costs, and improveMeancustomer
satisfaction
±3
±6
Figure 6.4

None
 Employee Empowerment
 Getting employees involved in product
and process improvements
 85% of quality problems are due to process and material

 Techniques
 Build communication networks that include employees
 Develop open, supportive supervisors
 Move responsibility to employees
 Build a high-morale organization
 Create formal team structures
None
 Benchmarking
Selecting best practices to use as a standard
for performance
rna l
1. Determine what to i nte ng if
e
Us marki
benchmark b ench re big
’
you ough
2. Form a benchmark team en
3. Identify benchmarking partners
4. Collect and analyze benchmarking
information
5. Take action to match or exceed the
benchmark
None
 Just-In-Time (JIT) Example

Work in process
inventory level
(hides problems)

Unreliable Capacity Imbalances

Vendors Scrap

None
 Just-In-Time (JIT) Example

Reducing inventory reveals

problems so they can be solved

Unreliable Capacity Imbalances

Vendors Scrap

None
 Taguchi Concepts
 Engineering and experimental design
methods to improve product and process
design
 Identify key component and process
variables affecting product variation
 Taguchi Concepts
 Quality robustness
 Target-oriented quality

None
 Quality Robustness

 Ability to produce products uniformly

in adverse manufacturing and
environmental conditions
 Remove the effects of adverse
conditions
 Small variations in materials and
process do not have an impact on
product quality
 Tools of TQM
 Tools for Generating Ideas
Check sheets
Scatter diagrams
Cause-and-effect diagrams
 Tools to Organize the Data
Pareto charts
Flowcharts
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 Tools of TQM
 Tools for Identifying Problems
Histogram
Statistical process control chart

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 Seven Tools of TQM
(a)Check Sheet: An organized method of
recording data
Hour
Defect 1 2 3 4 5 6 7 8
A /// / / / / /// /
B // / / // ///
C / // // ////

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 Seven Tools of TQM
(b) Scatter Diagram: A graph of the value of one
variable vs. another variable
Productivity

Absenteeism
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 Seven Tools of TQM
(c) Cause-and-Effect Diagram: A tool that identifies
process elements (causes) that might effect an
outcome
Cause
Materials Methods
Effect

Manpower Machinery
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 Cause-and-Effect Diagrams
Material Method
(ball) (shooting process)
Grain/Feel Aiming point
(grip)
Size of ball
Air pressure Bend knees
Hand position
Balance
Lopsidedness
Follow-through
Missed
Training
free-throws
Rim size

Conditioning Motivation Rim height

Consistency Rim alignment Backboard

stability
Concentration

Machine
Manpower
(hoop)
(shooter)
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 Seven Tools of TQM
(d) Pareto Chart: A graph to identify and plot problems
or defects in descending order of frequency
Frequency

Percent
A B C D E

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 Pareto Charts
Data for October
– 100
70 – – 93
– 88
60 – 54
– 72
Frequency (number)

Cumulative percent
50 –
40 –
Number of
30 – occurrences
20 –
12
10 –
4 3 2
0 –
Room svc Check-in Pool hours Minibar Misc.
72% 16% 5% 4% 3%
Causes and percent of the total

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 Seven Tools of TQM
(e)Flowchart (Process Diagram): A chart that
describes the steps in a process

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 Flow Charts
MRI Flowchart
1. Physician schedules MRI 7. If unsatisfactory, repeat
2. Patient taken to MRI 8. Patient taken back to room
3. Patient signs in 9. MRI read by radiologist
4. Patient is prepped 10. MRI report transferred to
5. Technician carries out MRI physician
6. Technician inspects film 11. Patient and physician discuss
8
80%
1 2 3 4 5 6 7 11
9 10
20%

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 Seven Tools of TQM
(f) Histogram: A distribution showing the
frequency of occurrences of a variable
Distribution
Frequency

Repair time (minutes)

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 Seven Tools of TQM
(g)Statistical Process Control Chart: A chart with
time on the horizontal axis to plot values of a
statistic

Upper Control Limit

Target Value
Lower Control Limit

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 Statistical Process Control (SPC)
 Uses statistics and control charts to tell
when to take corrective action
 Four key steps
 Measure the process
 When a change is indicated, find assignable cause
 Eliminate or incorporate the cause
 Restart the revised process

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 An SPC Chart
Plots the percent of free throws missed

20% Upper control limit

10% Coach’s target value

| | | | | | | | |
0% Lower control limit
1 2 3 4 5 6 7 8 9

Game number
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 Cont…
• Statistical Process Control uses sampling and
statistical methods to monitor the quality of an
ongoing process.
• A graphical display referred to as a control chart
provides a basis for deciding whether variation in the
output of a process is due to common causes
(randomly occurring) or to out-of-the-ordinary
assignable causes.
• Whenever assignable causes are identified, a decision
can be made to adjust the process in order to bring
the output back to acceptable quality levels.
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 SPC Process
• 1.Identify the processes: Identify the key
process that impacts the output of or the
process that is very critical. Example: If plate
thickness impacts the product’s performance
in a manufacturing company, then consider it.
• 2. Determine measurable attributes of the
process: Identify the attributes that need to
be measured during the production. From the
above example, consider the plate thickness
as a measurable attribute.
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 Cont…
• 3. Determine the measurement
method: Create a measurement method
work instructions or procedure including
the measuring instrument.
• Define the amount of variation in the
measurement data

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 Cont…
• 4. Develop a subgroup strategy and
sampling plan: Determine the sample
size based on the product’s criticality and
determine the frequency.
• 5. Collect the data and plot SPC
chart: Collect the data as per sample size
and select an appropriate SPC chart

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 Cont…
• 6. Describe natural variation of
attributes: Calculate the control limits. From
the above example, calculate the upper
control limit (UCL) and lower control limit
(LCL)
• 7. Monitor process variation: Interpret the
control chart and check whether any point is
out of control and the pattern.

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 Producer’s Risk
• Producer's risk is the probability that a
good product will be rejected as a bad
product by the consumer.
• This may happen as the samples taken
for study may not be of good quality

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 Consumer’s Risk
• Consumer's risk or Consumer risk is a
potential risk found in all
consumer products, that a product not
meeting quality standards will pass
undetected through the
manufacturer's quality control system and
enter the consumer marketplace.

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 Attributes Versus Variables
 Attributes
 Items are either good or bad, acceptable or
unacceptable
 Does not address degree of failure
 Variables
 Measures dimensions such as weight, speed,
height or strength
 Falls within an acceptable range

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 What to do: Inspection
 Involves examining items to see if an item is
good or defective
 Detect a defective product
 Does not correct deficiencies in process or
product
 It is expensive
 Issues
 When to inspect?
 Where in process to inspect?
 When and Where to Inspect
1. At supplier’s plant while the supplier is producing
2. At your facility upon receipt of goods
3. Before costly or irreversible processes
4. When production is complete
5. Before delivery to your customer
6. At the point of customer contact

Different impact if inspected at different points.

 Problems during Inspection
Worker fatigue
Lapse in concentration
Measurement error

Robust design, empowered

employees and sound processes are
better solutions
 Maintenance
• Maintenance of a desired level of quality in a
service or product, especially by means of
attention to every stage of the process of
delivery or production is Quality Assurance.
• Quality Assurance (QA) is a way of preventing
mistakes and defects in manufactured
products and avoiding problems when
delivering products or services to customers.
• It is also known as Quality Testing
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 Process
• Plan - Organization should plan and establish the
process related objectives and determine
processes that are required to deliver a high-
Quality end product.
• Do - Development and testing of Processes and
also carry out minor changes.
• Check - Monitoring of processes, modify the
processes and check whether it meets the
predetermined objectives.
• Act - Implement actions that are necessary to
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 Quality Control
• It is a process used to ensure quality in the final
product or a service.
• It does not deal with the processes used to
create a product; rather it examines the quality
of the "end products" and the final outcome.
• Aim is to check whether the products meet the
specifications and requirements of the customer.
If an issue or problem is identified, it needs to be
fixed before delivery to the customer.
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 QC vs QA
Quality Control Quality Assurance
• Product Based • Process Based
• Reactive • Proactive
• Detect Defects • Prevent Defects

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 Quality Assurance Certifications
• There are several certifications available in the
industry to ensure that Organizations follow
Standards Quality Processes.
• The relevant organisations certify that a
particular firm follow the quality assurance
norms

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 ISO
• International Organization for
Standardization (ISO) is an international
standard-setting body composed of
representatives from various national
standards organizations.
• Founded on 23 February 1947, the
organization promotes worldwide
proprietary, industrial and commercial
standards.
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 What ISO looks for
• Firms need to focus on Customer
• Firms need to have good Leadership
• Firms to have engagement of people
• Firms to follow good Processes
• Firms should seek continuous Improvement
• Firms should follow Evidence-based decision-
making (Scientific techniques)
• Firms to follow a good Relationship
management system
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 ISO Certifications
• Third Party Agencies provide you with
certificate that you are following ISO norms.
• It ensures quality of products and services of a
company.
• Increased consistency means your customers
are getting the same service or same products
every time they are making business with you
and hence they shall believe you more (Brand
image).
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 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
 Quality Circles
• A Quality Circle or Quality Control Circle is a
group of workers who meet regularly to
identify, analyze and solve work-related
problems.
• This leads to improvement in Quality and
some topics may involve improving
occupational safety and health, improving
product design, improvement in workplace
and manufacturing processes.
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 Objectives
• To improve quality, productivity, safety and
cost reduction.
• To give chance to the employees to use their
creativity.
• To encourage team spirit, cohesive culture
among different levels and sections of the
employees.
• To promote self and mutual development
including leadership quality.
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 Characteristics
• Quality circles built mutual trust and create
greater understanding between the
management and the workers.
• Cooperation and not confrontation is the key
element in its operation.
• Quality Circles aims at building people,
developing them, arousing genuine interest
and dedication to their work to improve
quality, productivity, cost reduction etc.
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 TQM In Services
 Service quality is more difficult to
measure than the quality of goods
 Service quality perceptions depend on
 Intangible differences between products
 Intangible expectations customers have of
those products

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 Service Quality
The Operations Manager must recognize

1. The tangible component of services is

important
2. The service process is important
3. The service is judged against the customer’s
expectations
4. Exceptions will occur
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 Determinants of Service Quality
Reliability Consistency of performance and dependability
Responsiveness Willingness or readiness of employees to react
Competence Required skills and knowledge
Access Approachability and ease of contact
Courtesy Politeness, respect, consideration, friendliness
Communication Keeping customers informed
Credibility Trustworthiness, believability, honesty
Security Freedom from danger, risk, or doubt
Understanding/
Understand the customer’s needs
knowing the customer
Tangibles Physical evidence of the service

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