COURSE MATERIAL

IV Year B. Tech I- Semester

MECHANICAL ENGINEERING
AY: 2024-25

PRODUCTION AND OPERATIONS

MANAGEMENT
(R20A0334)

Prepared by:
Ms. S. Deepthi
Assistant Professor

MALLA REDDY COLLEGE OF ENGINEERING & TECHNOLOGY

DEPARTMENT OF MECHANICAL ENGINEERING
(Autonomous Institution-UGC, Govt. of India)
Secunderabad-500100, Telangana State, India.
www.mrcet.ac.in
B. Tech (ME) R-20

MALLA REDDY COLLEGE OF ENGINEERING AND TECHNOLOGY

IV Year B.Tech. ME- I Sem L/T/P/C
3/-/-/3

(R20A0334) PRODUCTION AND OPERATIONS MANAGEMENT

(PROFESSIONAL ELECTIVE VI)

COURSE OBJECTIVES:

1. To create a comprehensive exposure to and its significance of POM in Industries.

2. To understand students with various activities of scheduling and control operation to
give insight into the ongoing & futuristic trends in the control of inventory.
3. To analyze and apply techniques to quality control
4. To remember the importance of material management.
5. To understand and to apply various analyze in cost reduction in production.

UNIT–I
Introduction to Operations Management: Role of Operations Management in total
management System- Process planning and process design, Production Planning and
Control: Basic functions of Production Planning and Control, Production Cycle Project, Job
Shop, Assembly, batch and Continuous - Inter Relationship between product life cycle and
process life cycle.
UNIT–II
Scheduling and control of production operations: Aggregate planning, Master Production
schedule (MPS), Product sequencing: Sequencing of products in multi- product multi-stage
situations - Plant Capacity and Line Balancing. Maintenance Management: Objectives –
Failure Concept, Reliability, Preventive and Breakdown maintenance, Replacement policies
UNIT–III
Forecasting: Importance of forecasting–Types of forecasting and its uses– General
principles of forecasting– Forecasting techniques – qualitative methods and quantitive
methods.
UNIT–IV
Resource requirement planning: Resource requirement planning, material requirement
planning-manufacturing resource planning (MRP)-general overview of MRP- definitions of
terms used in MRP systems-MRP outputs and inputs-MRP computational procedure-
Enterprise Resource planning- scope, Benefits, applications.

Malla Reddy College of Engineering and Technology (MRCET)

B. Tech (ME) R-20

UNIT–V
Stores Management and materials handling: Stores management –nature of stores- store
lay out-stock verification-classification and codification - safety stock Inventory Control.
Material handling: -organization of material handling-factors affecting the selection of
material handling equipment- types of material handling system-selection of handling
system.

TEXT BOOKS:

1. Aswathappa K. and Sridhara Bhat, “Production and Operations Management”, 2010,

HPH.
2. Mahadevan. B, “Operations Management”, 2010, Pearson Education.
3. Paneer Selvam - Production and Operations Management, PHI 2006

REFERENCE BOOKS:

1. Buffa E, Modern Production and Operations Management, John wiley 2007

2. Chary SN, Production and Operations Management, TMH,2009
3. Rama Murty-Production and Operations Management,New Age International,2005

COURSE OUTCOMES:

1. The understand significance of POM, students able to Illustrate production planning

functions and manage manufacturing functions in a better way.
2. Memorable competency in scheduling and sequencing in manufacturing operations
and effect affordable manufacturing lead time.
3. To apply the techniques of quality control and control inventory with cost
effectiveness.
4. Get conversant with various documents procedural aspects and preparation of
orders for various MRP and stores management.
5. Analyzed and applied various techniques in cost reduction.

Malla Reddy College of Engineering and Technology (MRCET)

UNIT I
INTRODUCTION TO OPERATIONS
MANAGEMENT
PRODUCTION MANAGEMENT
 Planning, organising, directing and controlling of production activities. Production
management deals with converting raw materials into finished goods or products.
 It brings together the 6M's i.e. men, money, machines, materials, methods and
markets to satisfy the wants of the people.

Fig 1.1 – 6M’s for Production Management

OPERATIONS MANAGEMENT
 Operations management is chiefly concerned with planning, organizing and
supervising in the contexts of production, manufacturing or the provision of services.
 As such, it is delivery-focused, ensuring that an organization successfully turns inputs
to outputs in an efficient manner.
 The inputs themselves could represent anything from materials, equipment and
technology to human resources such as staff or workers.
 Operation Management is understood as the process where by resources or inputs
are converted in to more useful products.

Key Points

 Operations management is the administration of business practices to create the

highest level of efficiency possible within an organization.
 Operations management is concerned with converting materials and labor into
goods and services as efficiently as possible.
 Corporate operations management professionals try to balance costs with revenue
to maximize net operating profit.
Difference between OM and PM

 It is accepted norm that OM includes techniques which enable the achievement of

operational objectives in an operation system
 The operation system includes both manufacturing sector as well as service
sector, but when you use the word PM, you should be careful to note that it
refers to the manufacturing sector but not the service sector.
 Suppose, you are designing a layout for the hospital you should say that you are
applying Operations Management Technique not the Production Management
Technique

Two distinct points between PM and OM

1. The term PM is used for a system where tangible goods are produced whereas OM is
frequently used where various inputs are transformed in to intangible services. That
is OM cover service organizations such as banks, airlines, utilities, super bazars,
educational institutions, consultancy firms, police department in addition to
manufacturing enterprises.
2. The term OM is evolved from PM. OM is the term used now a days, PM precedes
OM in the historical growth of the subject.
So it can be concluded that PM is subset of OM

Components of Operations Management

Fig 1.2 – Foundational Components of Operations Management

Operation managers are concerned with planning, organizing, and controlling the
activities which affect human behavior through models.

1. Planning
 Activities that establishes a course of action and guide future decision-making
is planning.
 The operations manager defines the objectives for the operations subsystem
of the organization, And the policies, and procedures for achieving the
objectives.
 This stage includes clarifying the Role and focus of operations in the
organization’s overall strategy.
 It also involves product Planning, facility designing and using the conversion
process.
2. Organizing
 Activities that establishes a structure of tasks and authority.
 Operation managers establish a Structure of roles and the flow of information within
the operations subsystem.
 They determine The activities required to achieve the goals and assign authority and
responsibility for carrying Them out.
3. Controlling
 Activities that assure the actual performance in accordance with planned
performance.
 To Ensure that the plans for the operations subsystems are accomplished, the
operations manager Must exercise control by measuring actual outputs and
comparing them to planned operations Management.
 Controlling costs, quality, and schedules are the important functions here.
4. Behavior
 Operation managers are concerned with how their efforts to plan, organize, and
control affect Human behavior.
 They also want to know how the behavior of subordinates can affect Management’s
planning, organizing, and controlling actions.
 Their interest lies in decision- making behavior.

The combination of understanding and coordinating the work of a company are central to
becoming a successful operations manager.

Objectives Of Operations Management

Objectives of operations management can be categorized into customer service and
resource Utilization.
Customer service
 The first objective of operating systems is the customer service to the
satisfaction of customer Wants.
 Therefore, customer service is a key objective of operations management.
 The operating System must provide something to a specification which can
satisfy the customer in terms of cost And timing.
 Thus, primary objective can be satisfied by providing the ‘right thing at a right
price at the right time’.
Resource utilization
 Another major objective of operating systems is to utilize resources for the
satisfaction of Customer wants effectively, i.e., customer service must be provided
with the achievement of Effective operations through efficient use of resources.
 Inefficient use of resources or inadequate Customer service leads to commercial
failure of an operating system.
 Operations management is concerned essentially with the utilization of resources,
i.e., obtaining Maximum effect from resources or minimizing their loss,
underutilization or waste.
 The extent Of the utilization of the resources’ potential might be expressed in terms
of the proportion of Available time used or occupied, space utilization, levels of
activity, etc.
 Each measure indicates The extent to which the potential or capacity of such
resources is utilized. This is referred as the Objective of resource utilization

Special Considerations

 A critical function of operations management relates to the management of

inventory through the supply chain.
 To be an effective operations management professional, one must be able to
understand the processes that are essential to what a company does and get them
to flow and work together seamlessly.
 The coordination involved in setting up business processes in an efficient way
requires a solid understanding of logistics.
 An operations management professional understands local and global trends,
customer demand and the available resources for production.
 Operations management approaches the acquisition of materials and the use of
labor in a timely, cost-effective manner to deliver customer expectations. Inventory
levels are monitored to ensure excessive quantities are on hand.
 Operations management is responsible for finding vendors that supply the
appropriate goods at reasonable prices and have the ability to deliver the product
when needed.
 Another large facet of operations management involves the delivery of goods to
customers. This includes ensuring products are delivered within the agreed time
commitment. Operations management also typically follows up with customers to
ensure the products meet quality and functionality needs.
 Finally, operations management takes the feedback received and distributes the
relevant information to each department to use in process improvement.
 Operations managers are involved in coordinating and developing new processes
while reevaluating current structures.
 Organization and productivity are two key drivers of being an operations manager,
and the work often requires versatility and innovation.
ROLE OF OPERATIONS MANAGEMENT IN TOTAL MANAGEMENT SYSTEM

 Operations Management concern with the conversion of inputs into outputs, using
physical resources, so as to provide the desired utilities to the customer while
meeting the other organizational objectives of effectiveness, efficiency and
adoptability.
 It distinguishes itself from other functions such as personnel, marketing, finance, etc.
by its primary concern for ‘conversion by using physical resources’.

Fig 1.3 – Role of Operations

Fig 1.4 – Input and Output of Operations Management

Operations Management Functions:
1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management.

Fig 1.5 – Production and Operations Management

1. Location of facilities

 Location of facilities for operations is a long-term capacity decision which

involves a long term Commitment about the geographically static factors that
affect a business organization.
 It is an Important strategic level decision-making for an organization. It deals
with the questions such as ‘Where our main operations should be based?’
 The selection of location is a key-decision as large investment is made in
building plant and Machinery.
 An improper location of plant may lead to waste of all the investments made
in plant and machinery equipment’s.
 Hence, location of plant should be based on the company’s expansion.
2. Plant layout and material handling

 Plant layout refers to the physical arrangement of facilities.

 It is the configuration of departments, Work centres and equipment in the
conversion process.
 The overall objective of the plant layout Is to design a physical arrangement
that meets the required output quality and quantity most Economically.

3. Product design
 Product design deals with conversion of ideas into reality. Every business
organization have to Design, develop and introduce new products as a
survival and growth strategy.
 Developing New products and launching them in the market is the biggest
challenge faced by the organizations.
 The entire process of need identification to physical manufactures of product
involves three Functions: marketing, product development, manufacturing.
 Product development translates the Needs of customers given by marketing
into technical specifications and designing the various Features into the
product to these specifications.
 Manufacturing has the responsibility of selecting the processes by which the
product can be manufactured.
 Product design and development provides link between marketing, customer
needs and expectations and the activities required to manufacture the
product.

Fig 1.6 – Steps in Product Design

4. Process design
 Process design is a macroscopic decision-making of an overall process route
for converting the Raw material into finished goods.
 These decisions encompass the selection of a process, choice of technology,
process flow analysis and layout of the facilities.
 Hence, the important decisions In process design are to analyze the workflow
for converting raw material into finished product and to select the
workstation for each included in the workflow.

5. Production Planning And Control

 Production planning and control can be defined as the
 process of planning the production in advance,
 setting the exact route of each item,
 fixing the starting and finishing dates for each item,
 to give production orders to shops and to follow up the progress of
products according to orders.
 The principle of production planning and control lies in the statement ‘First
Plan Your Work and then Work on Your Plan’.

Fig 1.7 – Functions of PPC

Main functions of production planning and control includes Planning,

routing, scheduling, dispatching and follow-up.

6. Quality Control
 Quality Control (QC) may be defined as ‘a system that is used to maintain a
desired level of Quality in a product or service’.
 It is a systematic control of various factors that affect the quality of the product.
 Quality control aims at prevention of defects at the source, relies on effective
Feedback system and corrective action procedure.
 Quality control can also be defined as ‘that industrial management technique by
means of which Product of uniform acceptable quality is manufactured’.
 It is the entire collection of activities which ensures that the operation will
produce the optimum quality products at minimum cost.

7. Materials Management
Materials management is that aspect of management function which is
primarily concerned with the acquisition, control and use of materials
needed and flow of goods and services connected with the production
process having some predetermined objectives in view.
The main objectives of materials management are:
 To minimize material cost.
 To purchase, receive, transport and store materials efficiently
and to reduce the related cost.
 To cut down costs through simplification, standardization,
value analysis, import substitution, etc.
 To trace new sources of supply and to develop cordial
relations with them in order to Ensure continuous supply at
reasonable rates.
 To reduce investment tied in the inventories for use in other
productive purposes and to Develop high inventory turnover
ratios.
8. Maintenance Management
 In modern industry, equipment and machinery are a very
important part of the total productive Effort.
 Therefore, their idleness or downtime becomes are very
expensive.
 Hence, it is very Important that the plant machinery should be
properly maintained.
The main objectives of maintenance management are:
 To achieve minimum breakdown and to keep the plant in good
working condition at the Lowest possible cost.
 To keep the machines and other facilities in such a condition that
permits them to be used At their optimal capacity without
interruption.
 To ensure the availability of the machines, buildings and services
required by other sections Of the factory for the performance of
their functions at optimal return on investment.
Fig 1.8 – Functions of Operation Management

PROCESS PLANNING AND PROCESS DESIGN

PROCESS PLANNING

 In companies, planning processes can result in increased output, higher precision, and
faster turnaround for vital business tasks.
 A process is described as a set of steps that result in a specific outcome. It converts input
into output.
 Process planning is also called manufacturing planning, material processing, process
engineering, and machine routing.
 It is the act of preparing detailed work instructions to produce a part. It is a complete
description of specific stages in the production process.
 Process planning determines how the product will be produced or service will be
provided.
 Process planning converts design information into the process steps and instructions to
powerfully and effectively manufacture products.
 As the design process is supported by many computer-aided tools, computer-aided
process planning (CAPP) has evolved to make simpler and improve process planning and
realize more effectual use of manufacturing resources.

It has been documented that process planning is required for new product and services. It is the
base for designing factory buildings, facility layout and selecting production equipment. It also
affects the job design and quality control.

Objective of Process Planning:

 The chief of process planning is to augment and modernize the business methods of a
company. Process planning is planned to renovate design specification into
manufacturing instructions and to make products within the function and quality
specification at the least possible costs.
 This will result in reduced costs, due to fewer staff required to complete the same process,
higher competence, by eradicating process steps such as loops and bottlenecks, greater
precision, by including checkpoints and success measures to make sure process steps are
completed precisely, better understanding by all employees to fulfil their department
objectives.
 Process planning deals with the selection of the processes and the determination of
conditions of the processes.
 The particular operations and conditions have to be realised in order to change raw
material into a specified shape.
 All the specifications and conditions of operations are included in the process plan.
 The process plan is a certificate such as engineering drawing. Both the engineering
drawing and the process plan present the fundamental document for the manufacturing of
products.
 Process planning influences time to market and productions cost.
 Consequently the planning activities have immense importance for competitive
advantage.

Fig 1.9 - Effect of process planning on competitive advantage

Principles of Process Planning

General principles for evaluating or enhancing processes are as follows:
1. First define the outputs, and then look toward the inputs needed to achieve those outputs.
2. Describe the goals of the process, and assess them frequently to make sure they are still
appropriate. This would include specific measures like quality scores and turnaround times.
3. When mapped, the process should appear as a logical flow, without loops back to earlier steps
or departments.
4. Any step executed needs to be included in the documentation. If not, it should be eliminated or
documented, depending on whether or not it's necessary to the process.
5. People involved in the process should be consulted, as they often have the most current
information.
Major steps in process planning:
Process planning has numerous steps to complete the project.
Process planning in manufacturing may include the following activities:

 Analysis of the product print and specifications

 Improvement of the specifications
 Make or buy decision
 Selection of the Basic Manufacturing Process
 Determine the sequence of operations
 Combine the operations
 Prepare the list or raw materials
 Selection of the Machine Tools and Equipment
 Inspection
 Requirement of Tools, Gauges etc
 Labour Requirements
 Time Standards
 Cost of Production
 Prepare the operation sheet and route sheet

PROCESS DESIGN

 Process design is concerned with the overall sequence of operations required to achieve
the product specifications.
 It specifies the type of work stations that are to be used, the machines and equipment
necessary and the quantities in which each are required.
The sequence of operations in the manufacturing process is determined by
1. The nature of the product
2. The materials used
3. The quantities being produced
4. The existing physical layout of the plant.

Fig 1.10– Steps in Design Process

Fig 1.11 – Process Design
PRODUCTION PLANNING AND CONTROL

 Production planning and control is the process of planning the production in advance.
 Setting the exact route of each item and fixing the starting and finishing date for each
item is the key operation.
 Giving the production orders to different shops and observing the progress of products
according to order.
 Main functions of production planning and control includes Planning, routing,
scheduling, dispatching and follow-up.
Fig 1.12 – Functions of Production Planning and Control

Fig 1.13 – PPC System

The Various Functions of PPC:

Fig 1.14 – Functions of Production Planning and Control

The main functions of PPC are the coordination of all the activities, which exist during
production or manufacturing.

Some of the important functions of production planning and control are listed
below:

1. Materials Function:
 Raw materials, finished parts and bought out components should be made available in
required quantities and at required time to ensure the correct start and end for each
operation resulting in uninterrupted production.

 The function includes the specification of materials (quality & quantity) delivery dates,
variety reduction (standardisation) procurement and make or buy decisions.
2. Machines and Equipment:
 This function is related with the detailed analysis of available production facilities,
equipment down time, maintenance policy procedure and schedules.

 Concerned with economy of jigs and fixtures, equipment availability.

 Thus the duties include the analysis of facilities and making their availability with
minimum down time because of breakdowns.

3. Methods:
 This function is concerned with the analysis of alternatives and selection of the best
method with due consideration to constraints imposed.

 Developing specifications for processes is an important aspect of PPC and determination

of sequence of Operations.

4. Process Planning (Routing):

It is concerned with selection of path or route which the raw should follow to get transformed in
to finished product.

The duties include:

(a) Fixation of path of travel giving due consideration to layout.

(b) Breaking done of operations to define each operation in detail.

(c) Deciding the set up time and process time for each operation.

5. Estimating:
 Once the overall method and sequence of operations is fixed and process sheet for each
operation is available, then the operations times are estimated.

 This function is carried out using extensive analysis of operations along with methods and
routing and standard times for operation are established using work measurement
techniques.

6. Loading and Scheduling:

 Scheduling is concerned with preparation of machine loads and fixation of Starting and
completion dates for each of the operations.

 Machines have to be loaded according to their capability of performing the given task and
according to their capacity.

Thus, the duties include:

(a) Loading the machines as per their capability and capacity.

(b) Determining the start and completion times for each operation.
(c) To Co-ordinate with sales department regarding delivery schedules.

7. Dispatching:
 This is the execution phase of planning.

 It is the process of setting production activities in motion through release of orders and
instructions.

 It authorises the start of Production activities by releasing materials, components, tools,

fixtures and instruction sheets to the operator.

The activities involved are:

(a) To assign definite work to definite machines, work centres and men.

(b) To issue required materials from stores.

(c) To issue jigs, fixtures and make them available at correct point of use.

(d) Release necessary work orders, time tickets etc. to authorise timely start of operations.

(e) To record start and finish time of each job on each machine or by each man.

8. Expediting:

 This is the control tool that keeps a close observation on the progress of the work.
 It is a logical step after dispatching which is called “follow-up” or “Progress”.
 It co-ordinates extensively to execute the production plan.
 Progressing function can be divided in to three parts, i.e. follow up of materials,
follow up of work in process and follow up of assembly.

The duties include:

1. Identification of bottlenecks and delays and interruptions because of which the

production schedule may be disrupted.

2. To devise action plans (remedies) for correct the errors.

3 To see that production rate is in line with schedule.

9. Inspection:
 It is a measure control tool.
 Though the aspects of quality control are the separate function, this is of very
much important to PPC both for the execution of the current plans and in scope
for future planning.
 This forms the basis for knowing the limitations with respects to methods,
processes etc. which is very much useful for evaluation phase.
10. Evaluation:
 This stage though neglected is a crucial to the improvement of productive
efficiency.
 A thorough analysis of all the factors influencing the production planning and
control helps to identify the weak spots and the corrective action with respect to
preplanning and planning will be effected by a feed back.
 The success of this step depends on the communication, Data and information
gathering and analysis.

PRODUCTION CYCLE
 The production cycle is comprised of all activities related to the conversion of raw
materials into finished goods.
 The cycle is comprised of several distinct components, involving the design of
products, their incorporation into a production schedule, manufacturing activities,
and a cost accounting feedback loop.

Fig 1.15 – Components of Production Cycle

Production Cycle Activities

• The four basic activities in the production cycle are: (1) product design; (2) planning
and scheduling; (3) production operations; and (4) cost accounting.
• Accountants are primarily involved in the fourth activity (cost accounting) but must
understand the other processes well enough to design an AIS (Accounting
Information System) that provides needed information and supports these activities.
Fig 1.16 – Activities in Production Cycle

Product Design
• The objective of product design is to design a product that strikes the optimal balance
of meeting customer requirements for quality, durability, and functionality; and
minimizing production costs. Simulation software can improve the efficiency and
effectiveness of product design.
• Key documents and forms in product design:
– Bill of Materials: Lists the components that are required to build each
product.
– Operations List: Lists the sequence of steps and the equipment and time
required to produce each product.
• The accountant participates in product design, because 65-80% of product cost is
determined at this stage. The accountant can add value by designing an AIS that
measures and collects the needed data and by helping the design team use that data to
improve profitability.
Planning and Scheduling

• The objective of the planning and scheduling activity is to develop a production plan
that is efficient enough to meet existing orders and anticipated short-term demand
while minimizing inventories of both raw materials and finished goods. There are
two common approaches to production planning:
– Manufacturing Resource Planning (MRP-II)--An extension of MRP
inventory control systems. Seeks to balance existing production capacity and
raw materials needs to meet forecasted sales demands. Often referred to as
push manufacturing.
– Lean Manufacturing--An extension of just-in-time inventory systems. Seeks
to minimize or eliminate inventories of raw materials, work in process, and
finished goods. Theoretically produces only in response to customer orders,
but in reality, there are short-run production plans. Often referred to as pull
manufacturing.
• Key documents and forms:
– Master production schedule—specifies how much of each product is to be
produced during each period and when.
– Production order—authorizes production of a specified quantity of a product.
– Materials requisition—authorizes movement of materials to the factory floor.
– Move ticket—documents transfer of parts and materials through the factory.
• Role of the accountant is to ensure the AIS collects and reports costs in a manner
consistent with the company’s production planning techniques.
Production Operations
• Production operations vary greatly across companies, depending on the type of
product and the degree of automation. The use of various forms of IT, such as robots
and computer-controlled machinery is called computer-integrated manufacturing
(CIM). Accountants must understand how the CIM affects the AIS.
• In a lean manufacturing environment, a customer order triggers several actions. The
system first checks inventory on hand for sufficiency, then calculates labor needs and
determines whether overtime or temporary help will be needed. Based on the bill of
materials, the system determines what components need to be ordered and transmits
necessary purchase orders via EDI (Electronic Data Interchange). The master
production schedule is adjusted to include the new order.
• Sharing information across cycles helps companies be more efficient by timing
purchases to meet the actual demand.
• While the nature of production processes and the extent of CIM vary, all companies
need data on: raw materials used; labor hours expended; machine operations
performed; and other manufacturing overhead costs incurred.

Cost Accounting
• The objectives of cost accounting are: (1) to provide information for planning,
controlling, and evaluating the performance of production operations; (2) to provide
accurate cost data about products for use in pricing and product mix decisions; and (3)
to collect and process information used to calculate inventory and COGS values for
the financial statements.
• Types of cost accounting systems:
– Job order costing—assigns costs to a particular production batch or job.
– Process costing--assigns costs to each process or work center in the
production cycle and calculates the average cost for all units produced.
• Accounting for Fixed Assets:
– The AIS must collect and process information about the property, plant, and
equipment used in the production cycle. These assets represent a significant
portion of total assets for many companies and need to be monitored as an
investment. The purchase of fixed assets follows the same processes as other
purchases in the expenditure cycle (order à receive à pay). But the amounts
involved necessitate competitive bidding, involvement of more people,
differences in payment approaches (e.g., installments), more elaborate
controls, and formal approval for disposal.
• Both job-order and process costing systems require that data be accumulated about
raw materials, direct labor, machinery and equipment usage, and manufacturing
overhead. The choice of method does not affect how data are collected but does
affect how costs are assigned to products.
• Raw Material Usage Data--When production is initiated, the issuance of a materials
requisition triggers a debit (increase) to work in process and a credit (decrease) to raw
materials inventory. Work in process is credited and raw materials are debited for any
amounts returned to inventory. Bar-coding of raw materials or RFID (radio frequency
identification) tags can improve efficiency.
• Direct Labor Costs--Historically, job time tickets were used to record the time a
worker spent on each job task. Currently, workers may enter the data on online
terminals or use coded ID badges swiped through a badge reader.
• Machinery and Equipment Usage--Data about machinery and equipment are
collected at each production step, often with data about labor costs.
• Manufacturing Overhead Costs--Include costs that can’t be easily traced to jobs or
processes, such as utilities, depreciation, and supervisory salaries. Accountants help
control overhead by assessing how product mix changes will affect overhead costs.

TYPES OF PRODUCTION PROCESSES

Fig 1.17 - Volume vs Variety for different Production Processes

Fig 1.18 – Production Systems

Fig 1.19 – Types of Production Systems

Fig 1.20 – Difference between Continuous and Intermittent Systems

PROJECT
 A Project is a temporary endeavour (attempt with lot of effort) undertaken to create
a unique product, service or result.
 Temporary means having a definite beginning and end.
 The end is reached when the project’s objectives have been achieved, or if the
project is terminated for any reason.
 Temporary does not mean short in nature, and it could well be a mammoth project –
like a 10 year project – for example, sending a man to moon, sending Curiosity to
Mars, Building the Taj Mahal or the Pyramids
 Secondly, each project creates a unique product, service or result.
 Sure, there may be some repetitive elements present in each project, but the output
must be unique – like similar housing projects in the same area with the same design
may be similar, but each will have unique challenges, different contractors, issues,
etc. that will make them each unique.
Fig 1.21 – Tasks in a Project

 Simply put, a project is a series of tasks that need to be completed in order to reach
a specific outcome.
 A project can also be defined as a set of inputs and outputs required to achieve a
particular goal.
 Projects can range from simple to complex and can be managed by one person or a
hundred.
 Projects are often described and delegated by a manager or executive.
 They go over their expectations and goals and it's up to the team to manage logistics
and execute the project in a timely manner.
 Sometimes deadlines can be given or a time limitation.
 For good project productivity, some teams break the project up into individual tasks
so they can manage accountability and utilize team strengths.

JOB SHOP

 A job shop is a type of manufacturing process in which small batches of a variety of

custom products are made.
 In the job shop process flow, most of the products produced require a unique set-up
and sequencing of process steps.
 Examples of job shops include a wide range of businesses—a machine tool shop, a
machining center, a paint shop, a commercial printing shop, and other
manufacturers that make custom products in small lot sizes.
 Volume and standardization is low and products are often one of a kind.

Characteristics of a Job Shop

Layout
 In the job shop, similar equipment or functions are grouped together, such as all drill
presses in one area and grinding machines in another in a process layout.
 The layout is designed to minimize material handling, cost, and work in process
inventories.
 Job shops use general purpose equipment rather than specialty, dedicated product-
specific equipment.
 Digital numerically controlled equipment is often used to give job shops the
flexibility to change set-ups on the various machines very quickly.
 Job shops compete on quality, speed of product delivery, customization, and new
product introduction, but are unlikely to compete on price as few scale economies
exist.

Routing

 When an order arrives in the job shop, the part being worked on travels throughout
the various areas according to a sequence of operations.
 Not all jobs will use every machine in the plant. Jobs often travel in a jumbled routing
and may return to the same machine for processing several times.
 This type of layout is also seen in services like department stores or hospitals, where
areas are dedicated to one particular product (men's clothing) or one type of service
(maternity ward)

Employees

 Employees in a job shop are typically highly skilled craft employees who can operate
several different classes of machinery.
 These workers are paid higher wages for their skill levels. Due to their high skill level,
job shop employees need less supervision.
 Workers may be paid a standard hourly wage or by an incentive system.
 The role of management is to bid on jobs and to establish prices for customer orders.
The key activity in a job shop is processing information.

Information

 Information is the most critical aspect of a job shop.

 Information is needed to quote a price, bid on a job, route an order through the
shop, and specify the exact work to be done.
 Information begins with quoting, then a job sheet and blueprint are prepared before
the job is released to the floor.
 Once on the production floor, employees complete job sheets and time cards for
labor cost calculations and to update records for quoting future jobs when variances
are present.
 While it is often easy to bid on jobs the shop has manufactured before, new jobs
require accurate costing of labor, materials, and equipment as well as accurate
assigning of overhead to the job.
 Tickets follow each job through the shop, where time and activities are recorded.
Because the job shop makes specialty, custom items, it competes on quality and
customer service and not on price.
 The job shop has little if any raw materials inventory because customers bring in the
parts and materials to be worked on.
 The job shop has work-in-process inventory while jobs are being completed, but
typically the customer is waiting on the order and expects prompt delivery, so there
is no finished goods inventory in this make-to-order environment.
 Some job shops, like many small businesses, thrive on managing cash flow.
 They may work on small jobs to complete them by the end of the month so they can
bill customers for the work.

Scheduling

 A job is characterized by its route, its processing requirements, and its priority.
 In a job shop the mix of products is a key issue in deciding how and when to schedule
jobs.
 Jobs may not be completed based on their arrival pattern in order to minimize costly
machine set-ups and change-overs.
 Work may also be scheduled based on the shortest processing time.

Capacity

 CAPACITY is difficult to measure in the job shop and depends on lot sizes, the
complexity of jobs, the mix of jobs already scheduled, the ability to schedule
work well, the number of machines and their condition, the quantity and quality
of labor input, and any process improvements.

Fig 1.22 – Layout of a Job shop

BATCH PRODUCTION
 Batch production is a method of manufacturing where identical or similar items are
produced together for different sized production runs.
 The method allows for products to be mass-produced in batches with small to major
changes to the product, from car doors through to children's toys.
 Batch production is a method of manufacturing where the products are made as
specified groups or amounts, within a time frame.
 A batch can go through a series of steps in a large manufacturing process to make
the final desired product.

Fig 1.28 – Layout of Batch Production

 Batch production pertains to repetitive production. It refers to the production of

goods, the quantity of which is known in advance. It is that form of production
where identical products are produced in batches on the basis of demand of
customers’ or of expected demand for products.
 This method is generally similar to job production except the quantity of production.
Instead of making one single product as in case of job production, a batch or group
of products are produced at one time. It should be remembered here that one batch
of products may not resemble with the next batch.
 Under batch system of production the work is divided into operations and one
operation is done at a time. After completing the work on one operation it is passed
on to the second operation and so on till the product is completed. Batch production
can be explained with the help of an illustration.
 An enterprise wants to manufacture 20 electric motors. The work will be divided into
different operations. The first operation on all the motors will be completed in the
first batch and then it will pass on to the next operation. The second group of
operators will complete the second operation before the next and so on. Under job
production the same operators will manufacture full machine and not one operation
only.
Fig 1.29 – Example of Batch Production

Fig 1.30 – Traditional Batch Production

Batch production can fetch the benefits of repetitive production to a large extent, if the
batch is of a sufficient quantity. Thus batch production may be defined as the manufacture
of a product in small or large batches or lots by series of operations, each operation being
carried on the whole batch before any subsequent operation is operated. This method is
generally adopted in case of biscuit and confectionery and motor manufacturing, medicines,
tinned food and hardware’s like nuts and bolts etc.

The batch production method possesses the following characteristics:

1. The work is of repetitive nature.

2. There is a functional layout of various manufacturing processes.

3. One operation is carried out on whole batch and then is passed on to the next operation
and so on.
4. Same type of machines is arranged at one place.

5. It is generally chosen where trade is seasonal or there is a need to produce great variety
of goods.

Changes may occur between different batches, such as products constructed in different
colours, sizes, and styles. If a product needs to be altered, this variation can be changed as
the production process switches from one batch style to the other.

Fig 1.31 – Characteristics of Batch Production Flows

Working of Batch Production Methodology

 The process of batch production occurs where the manufacturing process
channelizes as a whole in the form of batches.
 A particular batch which has been completed will be then moved from one
production stage to the other one until the whole process of manufacturing is
completed as a whole.
 The batch production process consists of the manufacturing of the identical items
which are then used when there is a pretty high demand for a particular product,
and the increase in the demand is consistent.
 The supplier needs to have products enough to supply to the growing demands of
the customers and hence this process is used to improve the efficiency and also
decrease the time needed for the whole manufacturing process to be completed.
 The products which are manufactured in the process of batch production are then
kept as batches or groups. This group doesn’t break and remains altogether as the
processing keeps on happening on it.
 After the completion of the entire process of manufacturing, the batch is then
dispatched and is ready to go into the stores. Don’t understand what we are trying
to tell you in here? Let us give you an example so that you have the concept all
cleared out
What makes this form of producing products different from larger types of manufacturing
such as mass production or continuous production?
It’s that the full process can be carefully quality controlled at different stages of the
production process. This is a key benefit of the production process where a batch can be
assessed to reduce the amount of wastage on a product.
Why do manufacturers use batch production?
 It’s recommended to use this form of manufacturing when producing in smaller
quantities because this can reduce waste and decrease lead times in production. As
these products are not continuously made, manufacturers can charge a premium
price for their product but still make them in some cases at relatively cheap prices
thanks to mass production of that batch.
 The ability of these mass-production orientated machinery systems includes
assembling product components, involving control and testing capabilities, and
building in a ‘no-faults forward’ mechanism. This ensures the level of incorrect
batches that might be pulled through to the next process are kept to a minimum.

What are examples of this manufacturing method?

Industries have used this type of manufacturing to make their overall process more
efficient. Dependant on your desired output rate, engineering experts are able to create
automated assembly systems to help meet the needs of your production process. Examples
of products created within the batch production process include:
 Flatpack furniture
 Electrical goods
 Clothing
 Baked goods
 Books/ newspapers
 Pharmaceuticals
 Fast food
Advantages
When examining the most suitable manufacturing process, it’s important to look at the
advantages and disadvantages of batch production. The advantages include:
 Cheaper to produce a whole batch of a product than a single item at a time
 Machinery can be utilised more efficiently, therefore saving money for the business
 Reduces the risk of concentrating on one product and allows for flexibility
 The overall wastage is reduced by creating the correct number of products required
 Helps with contingency planning (if one batch has been spoiled, the cost is lower to
discard that batch as opposed to thousands of products on a continuous cycle)
 Useful for seasonal items due to the ability to order more or less of a particular item
 The machinery isn’t continually active, allowing running costs to be reduced
Disadvantages
Batch production is not suitable for all types of manufacturing, which means the
disadvantages should be considered. The disadvantages include:
 Each batch can be subject to meticulous quality control and assurances, potentially
causing increased employee downtime
 Increased storage costs for large quantities of produced products
 Errors with the batch produced will incur wasted time and cost
 Periods of downtime where the specialist machinery must be altered. I.e. workers
sitting idle and can be considered inefficient if you’re solely relying on the machines
for this process
 The product cannot be personalised or unique to an individual customer due to
being a batch production process
Overall, when a company is searching for solutions on how to manufacture uniform
products that are made on-demand, batch production is a great solution. The
manufacturing process can help keep your capital costs low and ensures quality is
sustained through the production process.

CONTINUOUS FLOW PRODUCTION

 An important part of keeping your clients loyal is to deliver the right value at the
right time to them.
 Looking for a way to achieve this, in the middle of the 20th century, Toyota
developed a method called “continuous flow”.
 It is an alternative to the commonly accepted way of batching work when managing
a process.
 Continuous flow is a Lean method that allows you to move a single product through
every step of your process instead of grouping work items into batches.
 The method is called this way because it allows you to continuously send goods to
market.
 This provides you with the opportunity to deliver value more often to your
customers.
Fig 1.32 – Separately Positioned vs Continuous Flow Processing
 At first, the concept of continuous flow may sound less efficient than processing
work in batches because, with it, you are delivering smaller amounts of value to the
market at a time.
 However, it actually allows you to provide value to customers more often and reduce
the time they spend waiting to receive their order.
 In addition, it is a fantastic way to minimize the waste of your process. Continuous
flow is especially useful for reducing inventory costs and the wait time of your work
items.
 The aim of the continuous manufacturing flow is to produce a flow production to
manufacture, produce, or process materials uninterrupted.
 The reason it is called a continuous process is because the materials, which can also
be fluids, are being perpetually processed.
 It makes use of special purpose machines and produces standardized items in large
quantities. The examples are petrochemical, cement, steel, sugar and fertilizer
industries, etc
 In a Continuous Production System, the items are produced for the stocks and not
for specific orders.
 Before planning manufacturing to stock, a sales forecast is made to estimate the
likely demand of the product and a master schedule is prepared to adjust the sales
forecast based on past orders and level of inventory.
 Here, the inputs are standardized and a standard set of processes and sequence of
processes can be adopted.
 Due to this, routing and scheduling for the whole processes can be standardized.
 After setting out a master production schedule, a detailed planning is carried out.
 Basic production information and bill of materials are recorded.
 Information for the machine load charts, equipment, personnel and material needs
are tabulated.
 In continuous production, each production-run manufactures in lot sizes and the
production process is carried out in a definite sequence of operations in a
predetermined order.
 In process storage is not necessary, which in turn reduces material handling and
transportation facilities.
 First-in-First-out method is followed in the system.

Characteristics of Continuous Production System

1. Standard products are manufactured, which have large demand throughout the
year.
2. Standardized inputs and standardized sequence of operations, machine tools and
equipment are used.
3. Division of labour is made more efficient.
4. Minimum and constant material handling.
5. Minimum flow of work at any point of time.
6. Small work in progress is involved.
7. Use of productivity techniques is feasible.
8. Minimum cost of production per unit is possible.
9. Rigid quality control is exercised.
10. More maintenance is required.

Types of Continuous Production

There are three types of continuous production viz., mass production, process
production and assembly production.

1. Mass Production
 In this type of continuous production, only one type of product or a maximum of two
or three types are manufactured in large quantities, as much emphasis is not given
to orders of the consumers. Standardization of product, process, materials, machine
and uninterrupted flow of materials are the main characteristics of this system.

 Mass production system is employed in several industries where the production is

carried on without any interruption. Electronics, electrical, automobiles, bicycles and
container industries are a few examples of mass production industries.

 Mass production system offers economies of scale as the volume of output is large.
Quality of products tends to be uniform and high due to standardization and
mechanization. In a properly designed and equipped process; individual expertise
plays a less prominent role. Of course, the exact quality level depends upon the
quality control systems and management policy of the plant.

2. Process Production

 This system is used for the manufacture of those items whose demand is continuous
and high. Here, single raw material can be transformed into different kinds of
products at different stages of the production process e.g., processing of crude oil in
refinery — we get kerosene, gasoline, etc., at different stages of production. On the
basis of the nature of production process, flow of production may be classified into
i. Analytical process of production and
ii. Synthetic process of production.
 Analytical Process of Production: In analytical process of production, a raw material
is broken into different products. For example, crude oil is analyzed into gas,
naphtha, petrol, etc. Similarly, coal is processed to obtain coke, coal, gas, coal-tar,
etc.
 Synthetic process of production: Synthetic process of production, on the other hand,
involves the mixing of two or more materials to manufacture a product. For instance,
lauric acid, myristic acid, plasmatic acid, stearic acid, linoleic acid, etc., are
synthesized to manufacture soap.

3. ASSEMBLY LINE PRODUCTION

 An assembly line is a production process that breaks the manufacture of a good into
steps that are completed in a pre-defined sequence.
 Assembly lines are the most commonly used method in the mass production of
products.
 They are able to reduce labor costs because unskilled workers could be easily trained
to perform specific tasks.
 Rather than hire a skilled craftsman to put together an entire piece of furniture or
vehicle engine, companies would hire a worker to only add a leg to a stool or bolt to
a machine.
Fig 1.23 – Assembly of the order

Fig 1.24 – Example of an assembly

Principle of assembly line

The principle of an assembly line is that each worker is assigned one very specific task,
which he or she simply repeats, and then the process moves to the next worker who does
his or her task, until the task is completed and the product is made. It is a way to mass
produce goods quickly and efficiently.

Interchangeable parts, continuous flow, division of labor, and reducing wasted effort. Using
interchangeable parts meant making the individual pieces of the car the same every time.

Design for an assembly line

 The design for an assembly line is determined by analyzing the steps necessary to
manufacture each product component as well as the final product.
 All movement of material is simplified, with no cross flow, backtracking, or
repetitious procedure. Work assignments, numbers of machines, and production
rates are programmed so that all operations along the line are compatible.
 An automotive assembly line starts with a bare chassis.
 Components are attached successively as the growing assemblage moves along a
conveyor.
 Parts are matched into subassemblies on feeder lines that intersect the main line to
deliver exterior and interior parts, engines, and other assemblies.
 As the units move by, each worker along the line performs a specific task, and every
part and tool is delivered to its point of use in synchronization with the line.
 A number of different assemblies are on the line simultaneously, but an intricate
system of scheduling and control ensures that the appropriate body type and colour,
trim, engine, and optional equipment arrive together to make the desired
combinations.

Assembly Line Methods

 In most cases, a manufacturing assembly line is a semi-automated system through

which a product moves.
 At each station along the line some part of the production process takes place.
 The workers and machinery used to produce the item are stationary along the line
and the product moves through the cycle, from start to finish.
 Assembly line methods were originally introduced to increase factory productivity
and efficiency.
 Advances in assembly line methods are made regularly as new and more efficient
ways of achieving the goal of increased throughput (the number of products
produced in a given period of time) are found.
 While assembly line methods apply primarily to manufacturing processes, business
experts have also been known to apply these principles to other areas of business,
from product development to management.
 The introduction of the assembly line to American manufacturing floors in the early
part of the twentieth century fundamentally transformed the character of
production facilities and businesses throughout the nation.
 Thanks to the assembly line, production periods shortened, equipment costs
accelerated, and labor and management alike endeavored to keep up with the
changes.
 Today, using modern assembly line methods, manufacturing has become a highly
refined process in which value is added to parts along the line.
 Increasingly, assembly line manufacturing is characterized by "concurrent
processes"—multiple parallel activities that feed into a final assembly stage.
 These processes require sophisticated communications systems, material flow plans,
and production schedules.
 The fact that the assembly line system is a single, large system means that failures at
one point in the "line" cause slowdowns and repercussions from that point forward.
 Keeping the entire system running smoothly requires a great deal of coordination
between the parts of the system.
 Computer power has enabled tracking systems to become more sophisticated and
this, in turn, has made it possible to reduce the costs associated with holding
inventories.
 Just-in-time (JIT) manufacturing methods have been developed to reduce the cost of
carrying parts and supplies as inventory.
 Under a JIT system, manufacturing plants carry only one or a few days' worth of
inventory in the plant, relying on suppliers to provide parts and materials on an "as
needed" basis.
 Future developments in this area may include suppliers establishing operations
within the manufacturing facility itself or increased electronic links between
manufacturers and suppliers to provide for a more efficient supply of materials and
parts.
Variations in assembly line methodologies
 The passage of years has brought numerous variations in assembly line
methodologies.
 These new wrinkles can be traced back not only to general improvements in
technology and planning, but to factors that are unique to each company or industry.
 Capital limitations, for example, can have a big impact on a small business's blueprint
for introducing or improving assembly line production methods, while changes in
international competition, operating regulations, and availability of materials can all
influence the assembly line picture of entire industries.
Modular Assembly
 This is an advanced assembly line method that is designed to improve throughput by
increasing the efficiency of parallel subassembly lines feeding into the final assembly
line.
 As applied to automobile manufacturing, modular assembly would involve
assembling separate modules—chassis, interior, body—on their own assembly lines,
then joining them together on a final assembly line.
Fig 1.25 – Example of a Modular assembly

Team Production
 Team-oriented production is another development in assembly line methods.
 Where workers used to work at one- or two-person work stations and perform
repetitive tasks, now teams of workers can follow a job down the assembly line
through its final quality checks.
 The team production approach has been hailed by supporters as one that creates
greater worker involvement in the manufacturing process and knowledge of the
system.

Fig 1.26 – Example of a Team Production

U-shaped assembly "line"

 A line may not be the most efficient shape in which to organize an assembly line.
 On a U-shaped line, or curve, workers are collected on the inside of the curve and
communication is easier than along the length of a straight line.
 Assemblers can see each process; what is coming and how fast; and one person can
perform multiple operations.
 Also, workstations along the "line" are able to produce multiple product designs
simultaneously, making the facility as a whole more flexible.
 Changeovers are easier in a U-shaped line as well and, with better communication
between workers, cross-training is also simplified.
 The benefits of the U-shaped line have served to increase their use widely.
Fig 1.27 – Example of a U-shaped assembly "line"

Advantages
 Semi-finished products are reduced to a minimum, thereby, intermediate storage
are avoided largely.
 The consistent arrangement of the workplaces also saves space, transport routes are
shortened and transport costs are reduced
 Cost advantages through division of labor and specialization
 Low throughput times enable a reduction in the total production time
Disadvantages
 Low flexibility with fluctuations in employment, the adaptability of the company is
reduced
 High susceptibility to failure of the entire production in the event of machine or work
failures
 High system intensity
 Often little room for maneuver for workers
 Monotonous work creates alienation, dulling and motivation problems
 Lack of communication opportunities creates social problems for workers

Advantages of Continuous Production System

1. Reduced Labour cost,
2. High accuracy,
3. Reduced material handling,
4. Simple control process,
5. Minimum wastage,
6. Better materials /inventory control,
7. Higher return on investments.
Disadvantages of Continuous Production System
1. Heavy loss during slack demand period
2. Rigid maintenance and upkeep of machines
3. Customers’ tastes cannot be met as only one standard product is manufactured.
4. Difficult to adjust to new situations and specifications.
5. Special purpose machine tools are required.
Suitability of Continuous Production System
 Continuous system is best suited to organizations which intend to produce a
limited variety of products on a large scale. The heavy fixed costs of
specialized equipment that are utilized for operating at low cost per unit can
be distributed over a high volume of output.
 Continuous production system can be applied to those industries which
satisfy the following requirements:
i. Uniform demand,
ii. High volume of production,
iii. product standardization, and
iv. Process balancing.

LIFECYCLE MANAGEMENT (LCM)

 Lifecycle management (LCM) is an integrated and flexible approach to business
management that draws on the principles of lifecycle thinking (LCT) to help
businesses of all kinds – manufacturers, retailers, financial, professional –
understand their environmental impacts and where they occur within the lifecycle of
their operation, from raw materials through to end-of-life.
 For manufacturers it is important to note that more than 70% of the environmental
impacts, including resource use, of their products and of their operations have
already been locked in at the design stage i.e. when the product was designed or the
manufacturing process was designed.
 Therefore the most effective way to reduce impacts and resource use is the address
these at the design stage. This is called design for sustainability (D4S).
 Lifecycle management (LCM) can benefit your business financially by helping to
reduce resource (electricity, gas, water and materials) and waste costs, as well as
boosting your reputation by reducing the negative environmental impacts of your
business' operations.
PRODUCT LIFE CYCLE

Product life cycle (PLC) defines the stages that products moves through as they enter, get
established in and ultimately leave the market place.

The life cycle of a product is associated with marketing and management decisions within
businesses, and all products go through five primary stages: development, introduction,
growth, maturity, and decline. Each stage has its costs, opportunities, and risks, and
individual products differ in how long they remain at any of the life cycle stages.

1. Development

 The product development stage is often referred to as “the valley of death.”

 At this stage, costs are accumulating with no corresponding revenue.
 Some products require years and large capital investment to develop and then test
their effectiveness.
 Since risk is high, outside funding sources are limited.
 While existing companies often fund research and development from revenue
generated by current products, in startup businesses, this stage is typically funded by
the entrepreneur from their own personal resources.

2. Introduction

 The introduction stage is about developing a market for the product and building
product awareness.
 Marketing costs are high at this stage, as it is necessary to reach out to potential
customers.
 This is also the stage where intellectual property rights protection is obtained.
 Product pricing may be high to recover costs associated with the development stage
of the product life cycle, and funding for this stage is typically through investors or
lenders.

3. Growth

 In the growth stage, the product has been accepted by customers, and companies
are striving to increase market share.
 For innovative products there is limited competition at this stage, so pricing can
remain at a higher level.
 Both product demand and profits are increasing, and marketing is aimed at a broad
audience.
 Funding for this stage is generally still through lenders, or through increasing sales
revenue.

4. Maturity

 At the mature stage, sales will level off.

 Competition increases, so product features may need to be enhanced to maintain
market share.
 While unit sales are at their highest at this stage, prices tend to decline to stay
competitive.
 Production costs also tend to decline at this stage because of more efficiency in the
manufacturing process.
 Companies usually do not need additional funding at this stage.

5. Decline

 The decline stage of the product life cycle is associated with decreasing revenue due
to market saturation, high competition, and changing customer needs.
 Companies at this stage have several options: They can choose to discontinue the
product, sell the manufacturing rights to another business that can better compete
or maintain the product by adding new features, finding new uses for the product, or
tap into new markets through exporting.
 This is the stage where packaging will often announce “new and improved.”

Fig 1.33 – Product Life Cycle

Product Life Cycle Examples

The traditional product life cycle curve is broken up into four key stages. Products first go
through the Introduction stage, before passing into the Growth stage. Next comes Maturity
until eventually the product will enter the Decline stage. These examples illustrate these
stages for particular markets in more detail.

 3D Televisions: 3D may have been around for a few decades, but only after considerable
investment from broadcasters and technology companies are 3D TVs available for the
home, providing a good example of a product that is in the Introduction Stage.
 Blue Ray Players: With advanced technology delivering the very best viewing experience,
Blue Ray equipment is currently enjoying the steady increase in sales that’s typical of the
Growth Stage.
 DVD Players: Introduced a number of years ago, manufacturers that make DVDs, and the
equipment needed to play them, have established a strong market share. However, they
still have to deal with the challenges from other technologies that are characteristic of the
Maturity Stage.
 Video Recorders: While it is still possible to purchase VCRs this is a product that is
definitely in the Decline Stage, as it’s become easier and cheaper for consumers to switch
to the other, more modern formats.

Another example within the consumer electronics sector also shows the emergence and
growth of new technologies, and what could be the beginning of the end for those that have
been around for some time.

 Holographic Projection: Only recently introduced into the market, holographic projection
technology allows consumers to turn any flat surface into a touchscreen interface. With a
huge investment in research and development, and high prices that will only appeal to
early adopters, this is another good example of the first stage of the cycle.
 Tablet PCs: There are a growing number of tablet PCs for consumers to choose from, as
this product passes through the Growth stage of the cycle and more competitors start to
come into a market that really developed after the launch of Apple’s iPad.
 Laptops: Laptop computers have been around for a number of years, but more advanced
components, as well as diverse features that appeal to different segments of the market,
will help to sustain this product as it passes through the Maturity stage.
 Typewriters: Typewriters, and even electronic word processors, have very limited
functionality. With consumers demanding a lot more from the electronic equipment they
buy, typewriters are a product that is passing through the final stage of the product life
cycle.
Inter Relationship between product life cycle and process life cycle

 A process life cycle normally refers only to the development process for developing
and testing a product up to the point that the product is released to the market.
 Process Design is the act of transforming an organization’s vision, goals, and
available resources into a discernible, measureable means of achieving the
organization’s vision.
 Process design may start with process analysis; best practices from similar
organizations; process reference models from industry‐standards organizations (e.g.,
SCOR or eTOM) or third party consultants; or “green field” — ideas coupled with the
experience and insights of the process design team. Process design focuses on
defining what the organization will do to achieve its financial and other goals.
Fig 1.34– Process Life Cycle
➢ A product life cycle is much broader and covers the entire life of the product and all it’s
revisions and enhancements until the product is ultimately retired.

Fig 1.35– Interrelationship between Product & Process Design

The Product-Process Matrix

 The process life cycle has been attracting increasing attention from business
managers and researchers over the past several years. Just as a product and market
pass through a series of major stages, so does the production process used in the
manufacture of that product.
 The product-process matrix is a tool for analyzing the relationship between the
product life cycle and the technological life cycle. It was introduced by Robert H.
Hayes and Steven C. Wheelwright.
 A company can be characterized as occupying a particular region on the matrix (see
accompanying Figure).
 This region is determined by the firm's stage in the product life cycle and the firm's
choice of production process.
 At the upper left extreme, firms are characterized as process oriented or focused
while the lower right extreme holds firms that are said to be product focused.
 The decision of where a firm locates on the matrix is determined by whether the
production system is organized by grouping resources around the process or the
product.
 Note from the figure that the vertices of the matrix result in four distinct types of
operations (described by the appropriate process choice) located on the diagonal of
the matrix.

Fig 1.36– Product Process Matrix

Using The Matrix

 The product-process matrix can facilitate the understanding of the strategic options
available to a company, particularly with regard to its manufacturing function.
 A firm may be characterized as occupying a particular region in the matrix,
determined by the stages of the product life cycle and its choice of production
process(es) for each individual product.
 By incorporating this dimension into its strategic planning process, the firm
encourages more creative thinking about organizational competence and
competitive advantage.
 Also, use of the matrix provides a natural way to involve manufacturing managers in
the planning process so they can relate their opportunities and decisions more
effectively with those of marketing and of the corporation itself, all the while leading
to more informed predictions about changes in industry and the firm's appropriate
strategic responses.
 Each process choice on the matrix has a unique set of characteristics.
 Those in the upper-left quadrant of the matrix (job shop and batch) share a number
of characteristics, as do those in the lower-right quadrant (assembly line and
continuous).
 Upper-left firms employ highly skilled craftsmen (machinists, printers, tool and die
makers, musical instrument craftsmen) and professionals (lawyers, doctors, CPAs,
consultants).
 Hence upper-left firms can be characterized as labor intensive.
 Since upper-left firms tend to utilize general-purpose equipment, are seldom at 100
percent capacity, and employ workers with a wide range of skills, they can be very
flexible.
 However, there is a difficult trade-off between efficiency and flexibility of
operations.
 Most job shops tend to emphasize flexibility over efficiency.
 Since efficiency is not a strong point of upper-left firms, neither is low-cost
production.
 Also, the low volume of production does not allow upper-left firms to spread their
fixed costs over a wide enough base to provide for reduced costs.
 Finally, upper-left firms are also more likely to serve local markets.
 Lower-right firms require production facilities that are highly specialized, capital
intensive, and interrelated (therefore, inflexible).
 Labor requirements are generally unskilled or semi-skilled at most.
 Much of the labor requirement deals with merely monitoring and maintaining
equipment.
 Lower-right firms are also more likely to serve national markets and can be vertically
integrated.

Hayes and Wheelwright relate three areas affected by the use of the product-process
matrix: distinctive competence, management, and organization.

 Distinctive competence
Distinctive competence is defined as the resources, skills, and organizational
characteristics that give a firm a comparative advantage over its competitors. Simply
put, a distinctive competence is the characteristic of a given product that causes the
buyer to purchase it rather than the similar product of a competitor. It is generally
accepted that the distinctive competencies are cost/price, quality, flexibility and
service/time.
 Management
In general, the economics of production processes favor positions along the diagonal
of the product-process matrix. That is, firms operating on or close to the diagonal are
expected to outperform firms choosing extreme off-diagonal positions. Hayes and
Wheelwright provide the example of a firm positioned in the upper-right corner of
the matrix. This would appear to be a commodity produced by a job shop, an option
that is economically unfeasible. A firm positioned in the lower-left corner would
represent a unique one-time product produced by a continuous process, again not a
feasible option. Both examples are too far off the diagonal. Firms that find
themselves too far off the diagonal invite trouble by impairing their ability to
compete effectively. While firms operating in the near vicinity, but not exactly on the
diagonal, can be niche players, positions farther away from the diagonal are difficult
to justify. Rolls Royce makes automobiles in a job shop environment but they
understand the implications involved. Companies off the diagonal must be aware of
traps it can fall into and implications presented by their position.
 Organization

Firms organize different operating units so that they can specialize on

separate portions of the total manufacturing task while still maintaining overall
coordination. Most firms will select two or more processes for the products or
services they produce. For example, a firm may use a batch process to make
components for products, which are constructed on assembly lines. This would be
especially true if the work content for component production or the volume needed
was not sufficient for the creation of a dedicated line process. Also, firms may need
separate facilities for different products or parts, or they may simply separate their
production within the same facility. It may even be that a firm can produce the
similar products through two different process options. For example, Fender Musical
Instruments not only mass produces electric guitars (assembly line) but also offers
customized versions of the same product through the Fender Custom Shop (job
shop). Again, the matrix provides a valuable framework for diagnostic use in these
situations.

Other uses of the product-process matrix

Additional uses of the matrix include:

1. Analyzing the product entry and exit.

2. Determining the appropriate mix of manufacturing facilities, identifying the key
manufacturing objectives for each plant, and monitoring progress on those
objectives at the corporate level.
3. Reviewing investment decisions for plants and equipment in terms of their
consistency with product and process plans.
4. Determining the direction and timing of major changes in a company's production
processes.
5. Evaluating product and market opportunities in light of the company's
manufacturing capabilities.
6. Selecting an appropriate process and product structure for entry into a new market.
UNIT II
SCHEDULING AND CONTROL OF
PRODUCTION OPERATIONS
TYPES OF PLANNING LEVELS

1. Short – range plans

2. Intermediate – range plans
3. Long – range plans

Fig 2.1 – Planning Horizons

Fig 2.2 – Overview of Planning Levels

Fig 2.3 – Planning Sequence
AGGREGATE PLANNING
 Aggregate production planning is concerned with the determination of production,
inventory, and work force levels to meet fluctuating demand requirements over a
planning horizon that ranges from six months to one year
 Aggregate planning is a planning method in the production process which is also
considered a marketing activity used to determine the required resource capacity to
meet expected demand.
 The aggregate planning is done in advance of 6 – 18 months and includes a
combination of sub-contracting, sourcing, outsourcing, employment, labor overtime,
amount of inventory and planned output to match demand and supply cost-
effectively.
 Aggregate planning is critical to an organization which wants to optimize its
operational activity because it helps in balancing short term production plans and
long term strategic plans.
Fig 2.4 –Sequence for Aggregate Planning

Fig 2.5 – Aggregate Planning Inputs and Outputs

Importance of aggregate planning

Aggregate planning is a proven technique that brings an element of foresight and stability
into manufacturing. It helps the management to achieve the long-term objectives of a
company. The importance of aggregate planning include-

 Creates a satisfied and happy workforce

 Reduce changes in the levels of the workforce
 Helps to determine resources for the short-term
 Helps in maximum utilization of space
 Meets the overall goals and objectives of a company
 Helps to adjust capacity to meet demand
 Minimizes costs associated with inventory stocking
 Reduce investments related to various inventories
 Matching demand with supply and minimizing the waiting time for the customers to
maximize customer service
 Offers better customer value
 Proper utilization of production facilities
 Maximum usage of various types of equipment
 Reducing the changes in production rates
 Removes variable cost and improves the bottom line of the financial statement for
achieving the business goals of an organization

Fig 2.6 – Various Elements of Aggregate Planning

Fig 2.7 – Aggregate Planning Process
Aggregate Planning Strategies

There are two pure planning strategies available to the aggregate planner: a level strategy
and a chase strategy. Firms may choose to utilize one of the pure strategies in isolation, or
they may opt for a strategy that combines the two.

Level strategy.

 A level strategy seeks to produce an aggregate plan that maintains a steady

production rate and/or a steady employment level.
 In order to satisfy changes in customer demand, the firm must raise or lower
inventory levels in anticipation of increased or decreased levels of forecast demand.
 The firm maintains a level workforce and a steady rate of output when demand is
somewhat low.
 This allows the firm to establish higher inventory levels than are currently needed.
 As demand increases, the firm is able to continue a steady production rate/steady
employment level, while allowing the inventory surplus to absorb the increased
demand.
 A second alternative would be to use a backlog or backorder.
 A backorder is simply a promise to deliver the product at a later date when it is
more readily available, usually when capacity begins to catch up with diminishing
demand.
 In essence, the backorder is a device for moving demand from one period to
another, preferably one in which demand is lower, thereby smoothing demand
requirements over time.
 A level strategy allows a firm to maintain a constant level of output and still meet
demand.
 This is desirable from an employee relations standpoint.
 Negative results of the level strategy would include the cost of excess inventory,
subcontracting or overtime costs, and backorder costs, which typically are the cost of
expediting orders and the loss of customer goodwill.

Fig 2.8 – Level Strategy

Chase strategy

 A chase strategy implies matching demand and capacity period by period.

 This could result in a considerable amount of hiring, firing or laying off of employees;
insecure and unhappy employees; increased inventory carrying costs; problems with
labor unions; and erratic utilization of plant and equipment.
 It also implies a great deal of flexibility on the firm's part.
 The major advantage of a chase strategy is that it allows inventory to be held to the
lowest level possible, and for some firms this is a considerable savings.
 Most firms embracing the just-in-time production concept utilize a chase strategy
approach to aggregate planning.
 Most firms find it advantageous to utilize a combination of the level and chase
strategy.
 A combination strategy (sometimes called a hybrid or mixed strategy) can be found
to better meet organizational goals and policies and achieve lower costs than either
of the pure strategies used independently.
Fig 2.9 – Chase Strategy
Hybrid strategy

As the name indicates, the Hybrid strategy is an integration of both level and chase
strategies to get a better result.

 It maintains a sufficient balance between stock level, recruiting, termination and

production rate.
 In the hybrid strategy of aggregate planning, the organizations build up inventory
before rising demands. It uses backorders to level with high peak periods.
 It can easily cover short-term peaks by hiring workers temporarily or by
subcontracting production.
 Hiring, lay-off and reassigning workers is a normal part of the hybrid strategy.

Fig 2.10 – Level vs Chase Strategy

Techniques For Aggregate Planning

Techniques for aggregate planning range from informal trial-and-error approaches, which
usually utilize simple tables or graphs, to more formalized and advanced mathematical
techniques. William Stevenson's textbook Production/Operations Management contains an
informal but useful trial-and-error process for aggregate planning presented in outline form.
This general procedure consists of the following steps:

 Determine demand for each period.

Determine capacity for each period. This capacity should match demand, which
means it may require the inclusion of overtime or subcontracting.

Identify company, departmental, or union policies that are pertinent. For example,
maintaining a certain safety stock level, maintaining a reasonably stable workforce,
backorder policies, overtime policies, inventory level policies, and other less explicit
rules such as the nature of employment with the individual industry, the possibility
of a bad image, and the loss of goodwill.

 Determine unit costs for units produced.

These costs typically include the basic production costs (fixed and variable costs as
well as direct and indirect labor costs). Also included are the costs associated with
making changes in capacity. Inventory holding costs must also be considered, as
should storage, insurance, taxes, spoilage, and obsolescence costs. Finally, backorder
costs must be computed. While difficult to measure, this generally includes
expediting costs, loss of customer goodwill, and revenue loss from cancelled orders.
 Develop alternative plans and compute the cost for each.

If satisfactory plans emerge, select the one that best satisfies objectives. Frequently,
this is the plan with the least cost. Otherwise, return to step 5.

Advantages

Advantages for Management and Users

The advantages associated with aggregate planning include-

1. It helps the organization in dealing with production facilities in a lean manner. If a

manufacturing facility has an excess of finished products, then it is not suitable for it.
The chance of product damage before reaching the end target is higher and this
means loss. Moreover, excess inventory costs mean additional expense for the
company. The only way to minimize these costs is by implementing a proper
aggregate planning process.
2. The process helps to develop effective strategic plans as well as relationships with
distributors and suppliers. It also assists in making developing accurate market
research
3. The planning helps in the optimization of inventory. Carrying excessive inventory will
mean additional expenses for a manufacturing company. It also results in more
storage space to keep it properly because the chances of damage increase if the
storage space is not proper. The organization will also have to invest in more
resources, labor and equipment to manage the inventory and for its movement. The
process makes an adequate estimation for the anticipated inventory that will be
sufficiently able to meet projected demands.
4. An essential advantage is that it serves as a useful tool for making viable forecasts
about product demand. A business entity is now able to make predictions about staff
requirements, for instance, the number of additional workers it will need
temporarily or the number of employees it will need to lay-off. Proper forecasting
helps the company to fill the positions with temporary staff from agencies. The need
for additional hires is easily met without other expenses that are part of the full-time
workforce. The aggregate planning method helps the organization to make
considerable savings in terms of both money and time that would have to be spent
on the hiring and training process.
5. It helps to adjust capacity so that it can meet demands
6. The aggregate planning process helps to calculate capacity, for instance, how many
units can be produced daily or in a week or a month.
7. Production orders cannot be constant throughout the year. It will vary and this
makes it difficult for the business entities to keep up with a similar production plan
for all times. The aggregate planning process takes this thought into consideration
and allows for contingency measures. These are put in place so that the
manufacturing facilities can accommodate the changes that occur in production as
well as orders from the customers. The organization keeps shifting between the level
strategy, chase strategy and hybrid strategy to keep up with the changes.
8. It helps the organization to identify the best options so that it can meet the demands
easily.
9. It assists in knowing about the inefficiencies that exist within the organization
10. It helps to determine resources for instance amount of raw materials on hand,
availability of total machine hours and the total number of workers along with
products in progress, packaging materials, and tools required for manufacturing
finished goods
11. An advantage of the planning process is that it helps to project demand and figure
out the units in need for the short-term by factoring in advertising campaigns,
special pricing, and promotions.
12. It encourages the optimized utilization of space. The facilities that are used by
organizations for manufacturing purposes are too costly and it is not feasible to own
or rent it at all times. Besides paying for space, an organization also has to pay for
maintenance and utilities. The aggregate planning helps the company to avoid any
scenario where the space is unused for an extended period and it has to bear
unnecessary expenses
13. It helps to offer optimized value to both the direct buyers from which it is getting
raw materials etc. and end customers to which it will sell the products. The process
reduces the production costs and this helps them to pass on savings. Ultimately the
end consumer gets the best quality products at the minimum price levels

Disadvantages of Aggregate Planning

Data and Bias

Like with all plans, they are only as good as the people who make them. Planners often have
biases, prejudices and habituation that derive from their experience and education. These, if
unchecked, can lead to a plan that misreads economic indicators or relies on faulty data like
economic forecasting models. A production plan cannot take shocks into consideration,
such as a spike in oil prices, Federal Reserve policies, interest rate hikes or changes in
consumer confidence. As the name suggests, these plans can only deal with “aggregates” or
averages that are only a partially successful tool to predict fluctuations in demand.

Labor and Uncertainty

Labor remains one of the most serious problems of aggregate production planning. For
example, a company plans to increase overtime hours and hire part-time workers for peak
demand seasons. It will then cut hours and give unpaid furloughs during poor demand
seasons. This implies that workers, especially long-term ones, will become increasingly
dissatisfied and cynical about company policy and will not work up to capacity. Even more,
well-qualified workers will choose other companies because of the constant insecurity of
such a production policy. As most aggregate models forecast alternations in labor
conditions, this can cause problems among full-time workers. It introduces insecurities and
uncertainty into the workplace.

MASTER PRODUCTION SCHEDULE

 Master Production Scheduling is the process that helps manufacturers plan which
products and related quantities to produce during certain periods.
 MPS is proactive in that it drives the production process in terms of what is
manufactured and what materials are procured.

Master Production Schedule

 As the name implies, the MPS decides what products are manufactured and when.
 The required raw materials are then identified by the finished goods BOM, the data
from which is then integrated with current inventory data to create the MRP for raw
materials procurement.
 The Master Production Schedule forms the basis of communication between sales
and manufacturing.
 Using the MPS as a contract between sales and production means that sales can
make valid order promises. The MPS is not a rigid plan. MPS is a dynamic plan and
can be changed when there are changes in demand or capacity.

Fig 2.11 – Input to MPS

Fig 2.12 – MPS Inputs

Fig 2.13 – MPS Outputs

Fig 2.14 – Master Production Scheduling

Fig 2.15 – Example of MPS from Aggregate Plan

Main Functions of Master Production Scheduling
The MPS strives to form a detailed plan that fulfils the following objectives:

 Achieve desired customer service levels

 Make the most efficient use of resources
 Maintain a desirable level of inventory

Objectives of Master Production Scheduling (MPS)

The main objectives of Master Production Scheduling (MPS) include the following:

 Inventory Control - MPS oversees inventory and attempts to keep a desired level of
inventory available within the company. This is completed through making perfect
use of the resources available and minimizing overall cost and waste within the
operation. Inventory control is one of the main objectives of MPS and can benefit
the manufacturing operation immensely.
 Setting Up Due Dates - This objective pertains to setting up the due dates for
availability of end items and also providing information pertaining to resources and
materials. This objective acts as the foundation of aggregate planning within the
production facility.
 Customer Service - Delivery time is extremely important in ensuring for customer
service satisfaction - which MPS can help with. Master production scheduling helps
keep customer delivery promises through delivering in a timely and cost-effective
manner.
 Scheduling - MPS sets up particular schedules for production of parts and
components that are utilized as inputs to materials requirements planning. This
ensures for an optimized and efficient production schedule that will ensure for on-
time delivery and for the product to be completed in the time that it is given with
the available resources.

Parts of a Master Production Schedule

The correct procedure for developing a master production schedule is to include the
following elements:

— Product List — All product models you produce. After you have completed your ABC
analysis, you can order them by popularity, so the items you produce the most are at the
top of the list;

— Variation Sub-Lists for Each Product — Have a field for each product variation. One
for each SKU (Stock keeping unit). For example, you can split backpacks into S, M, and L
for size. You can further split these into other variations like color;
— Year, month, and week — This is useful for planning and keeping records, which is
necessary for accurate demand forecasting. Split up your schedule into months and
weeks. The aim is to have a solid plan of what you will produce for the next few months.
You can reassess your projected demand every few months. Don’t be afraid to make
adjustments sooner if the demand calls for it; and

— Production quantities — This is the number of units you decide to manufacture each
week. Say, after analyzing your demand plan, you decide to manufacture 200 units of
product in a week. You then add the number 200 to the bottom of each weekly column.
But don’t stop there, as you now need to allocate how many of each product variation
will make up the 200 total. This depends on what you already have in stock, and what
the projected demand is. For example, one week all 200 units could be of on e SKU,
whereas the next week the production could be more evenly distributed across product
models.

Different Master Production Scheduling techniques

The MPS needs to plan for what will be manufactured at the most efficient level. If the MPS
covers too many items, it will be difficult to put the plan into action, effectively. Whereas, if
the plan is not detailed enough, the production will suffer. As a general rule, master
scheduling should happen where the smallest number of product alternatives exists.

 In make-to-stock environments, a limited number of items are assembled from a larger

number of components, for example, video recorders or computers. The MPS should in this
case be a schedule of finished goods items.
 In a make-to-order environment, many different finished goods can be produced from a
relatively small number of raw materials. A great example of this process would be how cars
are manufactured. The subassemblies for many cars will be the same but the different
models of cars manufactured differ in specific options such as color, stereo, sunroof, and
electric windows. The MPS in a make-to-order environment is a schedule of the actual
customer orders.
 Assemble to order environments make use of raw materials to form basic components and
complete subassemblies. These components and subassemblies make up a variety of
finished products. The Master Production Schedule should therefore take place at the
subassembly level.

The Master Production Schedule requires a slightly different focus for each of these options.
In each case, it will base the schedule on the smallest number of product options, as
illustrated below:
Fig 2.15 – Techniques of MPS

The Benefits of MPS

Five key benefits of Master Production Scheduling
1. Can help to smooth the demand signal
 Most customer demand signals will contain peaks and troughs of demand –
this profile can result in planning problems and inefficiency for
manufacturers.
 A significant benefit of MPS is that since it decouples the customer demand
from what is manufactured – batch sizes can be tuned to optimize the
production process.
 Where demand is particularly spiky (ie. Peeks and troughs of demand) this
can be of enormous assistance producing a steady drum beat of manufacture
(taking advantage of batch sizes and minimal setup times) which can then
ripple through the supply chain.
2. Protects lead time and helps book future deliveries

 A common complaint for many organizations is that demand is loaded within lead
time – i.e. if a part takes 100 days to manufacture it’s no good taking a customer
demand for delivery in 50 days where there is no stock – you are struggling before
you’ve even started the manufacturing process.
 This can create panic amongst the staff – throwing existing priorities into disarray.
Whilst there are a variety of methods that can be used to stop this – MPS can be a
very effective method as it is the production schedule that drives the manufacturing
not the customer demand.
 This enables the organization to protect its lead time but also assists planning in
looking at when future customer requirement is best supported by manufacturing
output.
3. Acts as a single communication tool to the business
 A major benefit to any organization that adopts MPS is that it acts as a single
communication tool for the business regarding its manufacturing plans.
 The MPS schedule is typically available via the MRP system however whatever the
method it’s imperative that its communicated in an easily understandable form that
can be used throughout the organization.
4. Helps the Supply chain prioritize requirement
 Having a fixed schedule enables the supply chain team – in particular the
procurement function to communicate priorities and requirements effectively.
 One of the key problems many manufacturing organizations face where they are led
by changing customer requirement is where the supply chain gets reprioritized
depending on the “problem of the week”.
 Its no surprise that suppliers work best to regular smoothed demand – where that
demand in unstable it can often lead to missed deliveries (of what was planned) let
alone the detrimental affect to relationships with suppliers that struggle to keep up
with what’s really required.
5. Helps stabilize production
 Master production schedules are best reviewed as part of a formal business process
which includes the relevant stakeholders and often requires senior sign off before it
is either loaded into the MRP system or is passed to production for action.
 It’s common the production schedule to be outputted from a formal SIOP review.
 Typically master production schedules do not allow “planning in arrears” so where
failures have happened and product has not been manufactured as planned – these
items are re-planned to a relevant point in the future.

OPERATION SCHEDULING

 In the past, manufacturing operations struggled with the concept of keeping

production on time and efficient. As this problem became prevalent and technology
improved, operations scheduling became a viable option for manufacturers that
were seeking efficiency improvement.
 Operations scheduling pertains to establishing both timing and utilization of
resources within an organization. Within operations scheduling, scheduling coincides
with the utilization of equipment, scheduling of human labor, and materials receipt.
 Operations scheduling can enable production to have a schedule to follow and
ensure for accurate delivery times while also keeping an eye on inventory levels
PRODUCT SEQUENCING
 The order in which jobs pass through the machines or work stations is called
sequencing.
 Sequencing means grouping production operations into production batches and
arranging them by priority. ... By utilizing the lean philosophy, small quantities are
produced in chronologic order to reduce the inventories.
 Sequencing gives the idea of the order in which things happen or come in event.
Suppose there are ‘n’ jobs (1,2,3,……n) each of which has to be processed one at a
time at ‘m’ machine (A,B,C…..). The arrangement of these flows is called job
sequencing.

Priority Sequencing Rules

Priority sales are used to decide which job will be processed next at work centre, where
several jobs are waiting to be processed. The jobs waiting for processing are sequenced
using one of many priority sequencing rules. It is assumed that the work centre can
process only one job at a time. A large number of sequencing rules are used in research
and in practice to sequence the jobs waiting for processing at a work centre.

The relative priorities are based on certain rules as discussed in the following:

1. First Come, First Served (FCFS) rule: This is a fair approach particularly applicable to
people. In case of inventory management, it is First In First Out (FIFO). That means the 1st
piece of inventory at a storage area is the 1st one to be used.

2. The shortest processing time (SPT) rule: SPT rule sequences jobs in increasing order of
their processing times (including set up).

3. The Earliest Due Date (EDD) rule: Sequences jobs in order of their due dates, earliest first.

4. The critical ratio (CR) rule: Sequences jobs in increasing order of their critical ratio.
𝐷𝑢𝑒 𝐷𝑎𝑡𝑒−𝑇𝑜𝑑𝑎𝑦 ′ 𝑠𝐷𝑎𝑡𝑒
CR =
𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝑃𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔 𝑇𝑖𝑚𝑒

If CR>1 The job is ahead of schedule.

If CR<1 The job is behind schedule.

If CR=1 The job is exactly on schedule.

5. The Slack Time Remaining (STR) rule: It employs that the next job processed is the one
that has the least amount of slack time.

Slack = (Due date – Today’s date) – Remaining processing time

The job’s priority is determined by dividing the slack by the number of the operations that
remain including the operation which is being scheduled.

Fig 2.16 – Sequencing Rules

SEQUENCING OF PRODUCTS IN MULTI - PRODUCT MULTI - STAGE

Consider a problem with five jobs (A, B, C, D, and E) and two machines M1 and M2. All five
jobs consist of two operations each. The first operation of each job is processed on machine
M1; and the second operation is processed on machine M2.

Table 2.1 gives the machines required for each job and the processing times for each
operation of each job

Table 2.1 - Data for a 5-Job 2-Machine Flow Shop Problem

The scheduling objective is to find an optimal sequence that gives the order in which the
five jobs will be processed on the two machines to minimize make-span.

Let us find the make-span for one of the sequences, say, A–B–C–D–E, before attempting to
find the optimal answer. We will draw a Gantt chart to find make-span. The sequence A–B–
C–D–E tells us that A is the first job to be processed, B is the second job, and so on. E is the
last job to be processed. The Gantt chart for the sequence A–B–C–D–E is given in Figure
2.17. We must assume that the sequence is the same on both machines. This is also called
“no passing” in the scheduling literature. The value of make-span (time to complete all jobs)
is 36 days. Our objective is to identify the sequence that minimizes the value of make-span.

Fig 2.17 – Gantt chart for sequence A–B–C–D–E

Johnson’s Rule

Johnson’s rule is a proven method to give an optimal solution. There are five sequence
positions 1–5. Johnson’s rule assigns each job to one of these positions in an optimal
manner. This rule also requires that the same optimal sequence is used on both machines.
The rule also assumes that no preemption (no passing) is allowed which means that once a
job is started it cannot be interrupted.

We use the following four-step process to find the optimal sequence.

Step 1: Find the minimum processing time considering times on both machines.

Step 2: Identify the corresponding job and the corresponding machine for the minimum
time identified at Step 1.

Step 3: Scheduling rule

a. If the machine identified in Step 2 is machine M1, then the job identified in Step 2 will be
scheduled in the first available schedule position.

b. If the machine identified in Step 2 is machine M2, then the job identified in Step 2 will be
scheduled in the last available schedule position.

Step 4: Remove the job from consideration whose position has been fixed in Step 3 and go
to Step 1.

Continue this process until all jobs have been scheduled.

Fig 2.18 – Iteration 1

Iteration 1 (see Figure 2.18)

Step 1: The minimum time is 1.

Step 2: The job is D and the machine is M2.

Step 3: Since the machine identified at Step 2 is machine M2, the job D will be assigned to
the last available sequence position which is position 5; and the resulting partial sequence is
given below.

Step 4: Delete job D from consideration.

Fig 2.19 – Iteration 2

Iteration 2 (see Figure 2.19)

Step 1: The next minimum time is 3.

Step 2: The job is A and the machine is M2.

Step 3: The job A will be assigned to the last available schedule position, which is position 4.
After assigning job A to position 4, the partial sequence is given below.

Step 4: Delete job A from consideration

Fig 2.20 – Iteration 3

Iteration 3 (see Figure 2.20)

Step 1: The minimum time is 4.

Step 2: The job is E and machine is M1.

Step 3: The job E will be assigned to the first available schedule position, which is

position 1. The partial sequence after assigning job E to position 1 is given

below.

Step 4: Delete job E from consideration.

Fig 2.21 – Iteration 4

Iteration 4 (see Figure 2.21)

Step 1: The minimum time is 5.

Step 2: The job is B and machine is M1.

Step 3: The job B will be assigned to the first available schedule position, which is position 2.
The partial sequence after assigning job B to position 2 is given below.

Step 4: Delete job B from consideration

Fig 2.22 – Iteration 5

Iteration 5 (see Figure 2.22)

The only unscheduled job at this stage is C and it will be assigned to the remaining
unassigned position 3.

The final sequence is given below.

Finding Make-Span

The sequence E–B–C–A–D identified by Johnson’s rule guarantees the minimum value of
make-span. However, Johnson’s rule does not give the value of make-span. It only identifies
the best sequence. The value of make-span is obtained either by drawing the Gantt chart or
a computerized algorithm can be used. The Gantt chart for this optimal sequence is given in
Figure 2.23. The value of make-span is 31 days.

This is the optimal answer.

Fig 2.23 – Gantt chart for sequence E–B–C–A–D.

PLANT CAPACITY
Plant capacity (production capacity) refers to the volume or number of units that can be
manufactured during a given period.

➢ Factors affecting determination of Plant Capacity

a. Market demand for a product/service.
b. The amount of capital that can be invested.
c. Level of integration (i.e. vertical integration).
d. Type of technology selected.
e. Dynamic nature of all factors affecting determination of plant capacity, viz.,
changes in the product design, process technology, market conditions and
product life cycle, etc.
f. Difficulty in forecasting future demand and future technology.
g. Obsolescence of product and technology over a period of time.
h. Present demand and future demand both over short-range, intermediate-
range and long-range time horizons.
i. Flexibility for capacity additions.

Several factors have a bearing on the capacity decision.

1. Technological requirement
For many industrial projects, particularly in process type industries, there is certain
minimum economic size determined by the technological factor.

2. Input constraints
In a developing country like India, there may be constraints on the availability of
certain inputs. Power supply may be limited; basic raw materials may be scarce;
foreign exchange available for imports may be inadequate. Constraints of these
kinds should be borne in mind while choosing the plant capacity.

3. Investment cost
When serious input constrains does not obtain the relationship between capacity
and investment cost is an important consideration. Typically, the investment cost
per unit of capacity decreases as the plant capacity increases. This relationship
may be expressed as follows:

Examples suppose the known investment cost for 5,000 units of capacity for the
manufacture of a certain item is Rs 10, 00,000. What will be the investment cost for
10,000 units of capacity if the capacity – cost factor is 0.6.

The derived investment cost for 10,000 units of capacity may be obtained as follows:

 C1 = 10, 00,000 * (10,000/5,000)0.6 = Rs 15, 16,000

4. Market conditions
The anticipated market for the product or service has an important bearing on plant
capacity. If the market for the product is likely to be very strong, a plant of higher
capacity is preferable. If the market is likely to be uncertain, it might be
advantageous to start with a smaller capacity. If the market, starting from a small
base, is expected to grow rapidly, the initial capacity may be higher than the initial
level of demand- further additions to capacity may be affected with the growth of
market.

5. Resources of the firm

The resources, managerial and financial, available to a firm define a limit on its
capacity decision. Obviously, a firm cannot choose a scale of operations beyond its
financial resources and managerial capacity.
6. Government policy

The capacity level may be influenced by the policy of the government.

Fig 2.24 – Determination of Plant Capacity

LINE BALANCING

 A production line is said to be in balance when every worker’s task takes the same
amount of time.
 Line balancing is a manufacturing-engineering function in which whole collection
of production-line tasks are divided into equal portions. Well-balanced lines avoid
labour idealness and improve productivity.

Production Line Balancing

Line-balancing strategy is to make production lines flexible enough to absorb external and
internal irregularities. There are two types of line balancing, which we have explained as –

 Static Balance – Refers to long-term differences in capacity over a period of several

hours or longer. Static imbalance results in underutilization of workstations,
machines and people.
 Dynamic Balance – Refers to short-term differences in capacity, like, over a period of
minutes, hours at most. Dynamic imbalance arises from product mix changes and
variations in work time unrelated to product mix.

Example of line balancing:

 Everyone is doing the same amount of work

 Doing the same amount of work to customer requirement
 Variation is ‘smoothed’
 No one overburdened
 No one waiting
 Everyone working together in a BALANCED fashion

Fig 2.25 – Line Balance: Simple Example

 Here we see operator number 1 over-producing, thus creating the other 6 wastes.
 Re-balance the work content (Re distribute some of the work), using a Yamazumi
board as it is often known

Fig 2.26 – Line Balance: Simple Example

 Line balancing technique was used normally in assembly line of the automotive
industry which is called ALB.
 Most of the Small and Medium Industries do not use line balancing method in the
production line.

Line balancing operates under two circumstances:

1. Precedence Constraint: Products cannot progress to other station if it doesn’t complete

necessary task at that station. It should not across other station because certain part needs
to be performed before other activities.
2. Cycle time Restriction: Cycle time is maximum time for products spend in every
workstation. Different workstation has different cycle time.
Terms in Line Balancing Technique

There is range of terms used in assembly line balancing system. Each of them has their
meaning and purposes.

I. Cycle Time: Maximum amount of time allowed at each station. This can be found by
dividing required units to production time available per day. This is the time expressed in
minutes between two simultaneous products coming of the end of production line.
II. Lead Time: Summation of production times along the assembly line.
III. Bottleneck: Delay in transmission that slow down the production rate. This can be
overcome by balancing the line.
IV. Task Precedence: It is the sequence by which tasks are carried out. It can be represented
by nodes or graph. In assembly line the products have to obey this rule. The product cannot
be moved to the next station if it doesn’t complete at the previous station.
V. Idle time: A period when system is not in used but is available.
VI. Productivity: Defined as ratio of output over input. Productivity depends on several factors
such as workers skills, jobs method and machine used.
VII. Takt times: The time needed by competent worker or unattended machine to perform a
task. This is usually expressed in minutes. Takt time is pre-requisite procedure in doing line
balancing task. Takt time is the swiftness of production that aligns production with client
demand. It shows how fast the need to manufacture product in order to fill the customer
orders. Producing faster than takt time results in overproduction which is a type of waste
whereas producing slower than takt time results in bottlenecks where the customer orders
may not be fulfilled in time. There are numerous benefits of using takt time. These include,
i. Achieve a steady and continuous flow of production.
ii. Eliminate the waste of overproduction by producing actual customer demand.
iii. Improves accuracy of planning.
iv. Encourage the development of standardize work instructions, promoting quality and
efficiency.
v. Set real time targets for production that shows operators exactly where their work
output should be at any given point of time.
vi. Establish what-if scenario for customer demand based on flexible manning.

The TAKT Time Formula = (Net Time Available for Production)/(Customer’s Daily Demand).
VIII. Work station: A physical area where a worker with tools / one or more machines or
unattended machines such as robot perform specific task in a production line.
IX. Downtime: Downtime explained as the time that is non value added. It is often associated
with the seven wastes as under:
a. Defects: Defect is direct costs of a company.
b. Overproduction: One of the severe wastes discourages a smooth flow of goods and
services, which may lead to unnecessary lead and storage time. It will lead to the defects
which cannot be detected earlier and then the products may deteriorate. It will also lead
to excess work-in-progress stocks.
c. Waiting: It occur when the goods are not moving or being worked on. It affects both
goods and workforce where the waiting time should be used for some value added
activities such as training and maintenance.
d. Transportation: Any movement in factory can be considered as waste. Double handling
and excessive movements are likely to cause damage and deterioration with the
distance of communication between processes proportional to time taken. It takes to
feedback reports of poor quality and needs corrective action.
e. Unnecessary inventory: There is a problem with extra inventory. Inventory will increase
the lead time, preventing quick identification of problems and increasing space.
Significant storage costs are wasted which absolutely lower the competitiveness of the
organization of value stream.
f. Unnecessary motion: Involve the ergonomics of production where operation might have
to stretch, bend and pick up when these actions actually could be avoided. It not only
tires the workers but also leads to poor productivity.
g. Inappropriate processing: Over-complexity of a process discourages ownership and
encourages the employees to over produce to recover the large investment in the
complex machines. It encourages poor quality and takes corrective action.

Steps in Solving Line Balancing

There are four steps in solving line balancing described by G. Andrew (2006).

I. Drawing Precedence Diagram: Precedence diagram needs to be drawn to demonstrate a

relationship between workstations. Certain process begins when previous process was
done.
II. Determining Cycle Time: Cycle time is longest time allowed at each station. This can be
expressed by this formula:

This means the products needs to leave the workstations before it reaches its cycle time.

III. Assigning tasks to workstation: The tasks distributions should be taken after completing a
time cycle. It’s good to allocate tasks to workstation in the order of longest task times.
IV. Calculating an Efficiency Line: This is done to find effectiveness of the line. The formula is
given by:

MAINTENANCE MANAGEMENT

Maintenance Management is the process of maintaining a company's assets and resources

while controlling time and costs, ensuring maximum efficiency of the manufacturing
process.
Use of Maintenance Management

 The main aim of equipment maintenance is to maintain the functionality of the

equipment and to minimize its breakdowns.
 For mechanical equipment, the maintenance management will involve repair,
replacement, and serving of tools.
 It also ensures the proper working and to intercept fluctuations that occur in the
duration of the production process.
 The fact remains that, any kind of change even a minor downtime could reduce the
overall efficiency of machines which would lead to major production losses.
 Therefore, it is important for organizations today to get and implement a good
maintenance strategy.

Without or in the absence of equipment management, it might be possible to face some

consequences in revert of careless decisions. Some of them are:

 Production loss
 Rescheduling of whole projects
 Material wastage from resources that have not been used yet
 Over time of labor because of downtime
 Disposal of machinery and equipment before the end of its useful life
Importance of Maintenance Management

Many organizations still believe in the old methodologies which suggest to not to fix
anything unless it’s broken. But breaking this myth, we will suggest you, to go for
preventive maintenance management as it has many benefits:

 Operator and Machine Safety

By performing regular preventive maintenance, you will always be assured that your
equipment will operate under safe conditions, both for the machine and the
operators. Possible issues can be cut off before it tends to cause any harm, without taking
any chance.

 Machine Efficiency

With normal wear and tear, machines can cause lower efficiency. Proper preventive
maintenance management will assure you of the optimal working conditions of the
equipment and moreover, conserves its life span.

 Time Savings

Planned preventive maintenance management will reduce the actual downtime caused by
the breakdown and further enhance the products that too in less time, thereby, saving a lot
of time. Preventative maintenance will consume less time than the time taken in emergency
repairs and replacements.
FAILURE CONCEPT

 Event in which any part of an equipment or machine does not perform according to
its operational specifications.
 Failure is the termination of the ability of equipment to perform a required function
(function or combination of functions which are considered necessary for the
equipment to provide a given service).
 After a failure the equipment has a fault which may be complete or partial.
 Failures can occur for different reasons. A cause of failure can be one, or a
combination, of the following: design failure, manufacturing failure, installation
failure, mishandling failure and/or maintenance related failure.
 In addition to the cause, every failure has a mechanism, i.e. a physical, chemical or
other type of process which leads to the failure occurrence.
 Note that while the cause of failure shows “why” the equipment fails, the failure
mechanism shows “how” the equipment fails to perform the required function.

Failures can be discussed under two categories viz., Gradual Failures, and Sudden Failures.

Gradual failure

The mechanism under this category is progressive. That is, as the life of an item increases,
its efficiency deteriorates, causing:

 Increased expenditure for operating costs

 Decreased equipments‟ productivity
 Decrease in the value of the equipment

Example: bearings, pistons, piston rings, „Automobile Tyres‟, mechanical systems like
machines, machine tools, flexible manufacturing equipment etc. fall under this category.

Sudden failure

This type of failure is applicable to those items that do not deteriorate markedly with
service, but which ultimately fail after some period of using. For any particular type of
equipment the period from installation to failure is not equal but will follow some frequency
distribution which may be progressive, retrogressive, or random in nature‟.

a) Progressive failures: In this mechanism, probability of failure increases as the life of

equipment increases. Examples include: electric light bulbs, automobile tubes etc.,

b) Retrogressive failures: Some equipment may prone to failure with high probability in the
beginning of their life, and as the time progresses the probability of failure falls down. i.e.,
the capability of the equipment to survive in the beginning of life enhances its probable life.
Industrial equipments with this type of distribution of life span is exemplified by aircraft
engines.
c) Random failures: Under this failure, constant probability of failure is associated with the
equipment that fails from random causes such as physical shocks, not related to age. In such
a case, virtually all equipments fail prior to their expected life. Example: Electronic
components like transistors, semi conductor elements, glass made items, delicate or brittle
items, perishable items like fruits and vegetables‟ have been shown to fail at a rate
independent of the age.

RELIABILITY

 The ability of an apparatus, machine, or system to consistently perform its

intended or required function or mission, on demand and without degradation or
failure.
 The most known concept to define reliability is: “Probability that an asset or system
operates without failing during a given period of time under some operation
conditions previously established.”
 Reliability and maintenance improvement initiatives can deliver substantial financial
as well as other benefits to a company.
TYPES OF MAINTENANCE

Fig 2.27 – Maintenance Types

1. Break Down Maintenance or Corrective Maintenance

Drawbacks of Breakdown Maintenance:

1. Equipment’s operational availability will be less.

2. Components for repair or replacement might be unavailable sometimes with
maintenance stores.
3. Major loss of productive time of both machines and the work men, if there is any
delay in restoring the equipment’s to working condition.
4. Focus is on repairing and restoring the equipment to working condition but not on
knowing the reason for failure
5. Danger of recurrence of failures

This type of maintenance is economical for that equipment, whose breakdown time and
repair costs are less. However, there are several limitations with Breakdown maintained in
case of high cost production systems.

2. Planned Maintenance

Planned approach to maintenance reduces the maintenance or equipment down time,

reduces the cost of maintenance and increases productivity as compared to unplanned
maintenance.

3. Preventive Maintenance
 Preventive maintenance attempts to prevent any probable failures/breakdowns
resulting in production stoppages. It is said that Preventive maintenance is a stich in
time that saves time. So it follows a slogan that “prevention is better than cure”.
 Preventive maintenance refers to maintenance action performed to keep or retain a
machine/equipment or asset in a satisfactory operating condition through periodic
inspections, lubrication, calibration, replacements and overhauls.
 Preventive Maintenance Involves:
(i) Periodic inspection of equipment/machinery to uncover condition that lead to
production breakdown and harmful depreciation. Upkeeps of plant machinery to
correct such conditions while they are still in a minor stage.
(ii) The key to all good preventive maintenance programmes, however is inspection.
(iii) Regular cleaning, greasing and oiling of moving parts.
(iv) Replacement of worn out parts before they fail to operate,
(v) Periodic overhauling of the entire machine.
(vi) Machines or equipment’s which are liable to sudden failures should be installed
in duplicate e.g. motors, pumps, transformers and compressors etc.
 Preventive maintenance is subdivided into following two categories:
(i) Running.
(ii) Shut down.
Running maintenance means that maintenance work carried out even when machine
or equipment is in service, while shut down maintenance is concerned with
maintenance work carried out only when the machine/equipment is not in
operation.

Advantages of Preventive Maintenance:

(1) Reduction in breakdown time and associated breakdown elements.
(2) Reduces the odd time repairs and over time to the maintenance staff.
(3) Fewer large scale and repetitive repairs.
(4) Less member of standby equipment ad spare parts required.
(5) Greater safety to work force/employees due to reduced breakdowns.
(6) Increased life of equipment and machines.
(7) The work load of the maintenance staff can be properly planned.
(8) It improves the availability of facilities.
(9) Optimum production efficiency can be achieved by employing preventive
maintenance.
(10) Maintenance and repair cost reduce heavily.
(11) It improves the quality of product and reduces rejections.
(12) Production cost goes down by adopting RM.
(13) Regular planned servicing and adjustment maintains and provides a high level of
plant output, better equipment performance and better product quality.
(14) Healthy, hygienic, safe and an accident free work environment can be achieved
with the application of scientific preventive maintenance. This would promote
industrial relations since workers do not loose any type of incentive due to
breakdowns or accidents.
(15) Reduction in inventory of spare parts.
Limitations of Preventive Maintenance:
(1) When the cost of failure prevention is always greater than cost of failure
rectification the process of P.M is very costly e.g., batch production-bridge
construction.
(2) The type of maintenance requires extra facilities and lead to under/poor
utilization of basic facilities for RM.
(3) For small scale manufacturing units which are mainly undertaking job and batch
production, the P.M system is not suited and economically justified.

4. Predictive Maintenance
Predictive maintenance (PdM) is a type of condition-based maintenance that
monitors the condition of assets using sensor devices. These sensor devices supply
data in real-time, which is used to predict when the asset will require maintenance
and prevent equipment failure.

 Predictive maintenance workflow

The graphic below outlines the predictive maintenance workflow from start to finish.
The ultimate goal with predictive maintenance is to catch breakdowns before they
happen by monitoring equipment conditions.

Fig 2.28 – Predictive maintenance workflow

The goal of predictive maintenance is the ability to first predict when equipment failure
could occur (based on certain factors), followed by preventing the failure through regularly
scheduled and corrective maintenance.

Predictive maintenance cannot exist without condition monitoring, which is defined as the
continuous monitoring of machines during process conditions to ensure the optimal use of
machines. There are three facets of condition monitoring: online, periodic and remote.
Online condition monitoring is defined as the continuous monitoring of machines or
production processes, with data collected on critical speeds and changing spindle positions.

Periodic condition monitoring, which is achieved through vibration analysis, “gives insight
into changing vibration behavior of installations” with a trend analysis. Lastly, remote
condition monitoring, as its name suggests, allows equipment to be monitored from a
remote location, with data transmitted for analysis.

Technologies

 Infrared Thermography

 Acoustic Monitoring

 Vibration Analysis

 Oil Analysis

 Other Technologies

Along with these techniques, facilities may use other technologies such as motor
condition analysis, which details the operating and running condition of motors; and
eddy current analysis, which identifies changes in tube wall thickness within
centrifugal chillers and boiler systems. Borescope inspections, CMMS, data
integration and condition monitoring can also help facilitate predictive maintenance.
While there are several different technologies to aid in your PdM efforts, it is vital to
choose the right one to ensure success.

Advantages and Disadvantages of Predictive Maintenance

 The advantages of predictive maintenance are tremendous from a cost-
savings perspective and include minimizing planned downtime, maximizing
equipment lifespan, optimizing employee productivity and increasing
revenue.
 Another advantage of predictive maintenance is its ability to transform both
a maintenance team and an organization, as implementing PdM allows asset
managers to improve outcomes and better balance priorities such as
profitability and reliability.
 One of the main disadvantages of predictive maintenance is the amount of
time it takes to assess and implement a PdM schedule.
 With predictive maintenance being a complex initiative, plant personnel must
be trained on how to not only use the equipment but also how to interpret
the analytics (or data).
While many organizations choose to train existing employees on predictive
maintenance, there are condition-monitoring contractors who specialize in
performing the required labor and analyzing the results for a facility. In addition to
the training costs, predictive maintenance involves an investment in maintenance
tools and systems. This cost has decreased over time with the introduction of cloud-
based technology.

REPLACEMENT POLICIES

The replacement problems deal with deal with the situation that arise when some
components (men or machinery) requires replacement because of reduced efficiency, or
breakdown or complete failure. Such decreased efficiency or complete failure may be either
gradual or all of a sudden.

Objectives of replacement

The primary objective of replacement is to direct the organization towards

profit maximization or cost minimization. Deciding the replacement policy
that determines the optimal replacement age of equipment, instead of using
with higher maintenance costs for long time, is the main objective of
replacement problem. For instance, in order to replace an:
 item whether to wait till its failure or replacing at an early age with
higher cost.
 equipment whether to replace the inefficient equipment with a
similar type of equipment or with a modern one.

Replacement problems fall into the following categories depending upon the life pattern of
the equipment involved.

 Replacement of the equipment that wears out or becomes obsolete with time
(because of constant use or new technological developments)
 Replacement of the equipment that fails completely.
1. Individual Replacement Policy : Mortality Theorem
2. Group Replacement of items that fail completely
 Other replacement problems
1. Recruitment and Promotion Problems
2. Equipment Renewal Problems
 Miscellaneous problems

For items that wear out, the problem is to balance the cost of new equipment
against the cost of maintaining the efficiency on the old and / or cost due to the loss of
efficiency. Though, general solution is not possible, models have been constructed and
solutions have been derived using simplified assumptions about the conditions of the
problem.
UNIT III

FORECASTING
INTRODUCTION
Forecasting stands as a systematic effort to anticipate future events based on the patterns
and information available from past data. Within the domain of operations management,
forecasting takes a significant role, acting as an aiding tool for decision-making, strategic
planning, and efficient resource allocation. Proper forecasting can significantly reduce costs,
optimize processes, and pave the way for better organizational performance.

Forecasting the technique by which past and present data is analysed to plan for future.
There are various types and ways of carrying out business forecasts depending on the
objectives and desired outcome. It can be done to arrive at a general business forecast or can
be applied to forecast specifically to predict departmental outcomes. It can vary from
forecasting sales for a consecutive month to predicting the rate of demand during festive
seasons.

Companies use a wide range of techniques and methods to for business forecasting. It can be
predictions related to sales, expenses incurred, revenue or profits. These scientific
predictions will help the companies take strategic decisions on time and prevent losses in
advance.

Importance of Forecasting:

Importance of forecasting involves the following key points:

 Forecasting provides relevant and reliable information about the past and present
events and the likely future events. This is necessary for sound planning.
 It gives confidence to the managers for making important decisions.
 It is the basis for making planning premises, and.
 It keeps managers active and alert to face the challenges of future events and the
changes in the environment.

The importance is directly proportional to:

 [Results of an action based on forecast] -[Results of an action for the same situation
without any forecast].
 If the difference in positive and large then the importance is more, otherwise it is not
important.
 Importance of forecast and of ability of used statistical forecasting techniques to
generate reliable/accurate forecasts, are directly related.
 If in general forecasts are not accurate i.e. quantum of forecast error is more; then
difference of results of actions as discussed above may not be relevant.
 Because both become unreliable.
 Forecast Error can be explained as: Forecast Error = [value forecast - value actually
happening]
 The more sophisticated models of forecast often provide forecast with smaller error
but cost of development of the model, forecasting and maintaining tends to be high.
There has to be a trade off between choice of model and the cost. The following
figure clearly explains this trade off

Fig 3.1 – Cost and Accuracy Trade off in Choice of Forecasting Models

Table 1.1: Some typical applications of forecasting in Production/Operations

Management
Need Of Forecast in Production /operations Management

There are two basic reasons for the need for the forecast in any field more so in production/
operation management.
1) Purpose –
Any action/plan is contemplated/devised in the PRESENT to take care of some contingency
accruing out-of a situation/condition or set of conditions set in the future. These future
conditions offer a purpose/target to be achieved so as to take advantage of or to minimize
the impact of (if the foreseen conditions are adverse in nature) these fixture conditions. An
action or a plan cannot be taken/devised in void-without any purpose/objective/target. Any
plan of action is to achieve something This `something’ is a derived function of future
condition (s).
Example:
The action/plan to set up an additional plant to increase production capacity. How much
increased production and what should be the size of the new plant is dependent on the
future demand-supply gap. To take advantage of this future demand-supply gap, a target of
increased production is arrived at. To achieve this target a plan is prepared and put into
action.
2) Time –
To prepare a plan, organize resources for its implementation, implement; and complete the
plan; all these need time as a resource. Some situations need very little time; some other
situations need several years of time. Therefore, the future forecast is available in advance,
appropriate actions can be planned and implemented ‘in time’.
Example: Consider the same example discussed earlier -to take advantage of a future
demand-supply gap;

Limitations of Forecasting

Demerits, criticism or limitations of forecasting involves following points:-

1. The collection and analysis of data about the past, present and future involves a lot
of time and money. Therefore, managers have to balance the cost of forecasting
with its benefits. Many small firms don't do forecasting because of the high cost.
2. Forecasting can only estimate the future events. It cannot guarantee that these
events will take place in the future. Long-term forecasts will be less accurate as
compared to short-term forecast.
3. Forecasting is based on certain assumptions. If these assumptions are wrong, the
forecasting will be wrong. Forecasting is based on past events. However, history may
not repeat itself at all times.
4. Forecasting requires proper judgement and skills on the part of managers. Forecasts
may go wrong due to bad judgement and skills on the part of some of the managers.
Therefore, forecasts are subject to human error.

TYPES OF FORECASTS
 BY TIME HORIZON

Business forecasts are classified according to period, time and use. There are long term
forecasts as well as short term forecasts. Operation managers need long range forecasts to
make strategic-decisions about products, processes and facilities. They also need short term
forecasts to assist them in making decisions decisions about production issues that span,
only few weeks. Forecasting forms an integral part of planning and decision making,
production managers must be clear about the horizon of forecasts.
The three divisions of forecast are short range forecast, medium range forecast and long
range forecast.

1. Short range forecast: It is typically less than 3 months but has a time span of up-to 1
year. It is used in planning, purchasing for job schedules, job assignments, work force
levels, product levels.
2. Medium range forecast: It is typically 3 months to 1 year but has a time span from
one to three years. It is used for sales planning, production planning, cash budgeting
and so on.
3. Long range forecast: This has a time span of three or more years. It is used for
designing and installing new plants, facility location, capital expenditures, research
and development, etc.
Medium and Long range Forecasts deal with more comprehensive issues and support
management decisions regarding design and the development of new products, plants and
processes. Short range forecasts tend to be more accurate than the long range forecasts.

Application of Short Range forecasts

Short range forecasts provide operations managers with the information to make
important decisions such as the following:

 How much inventory of a particular product should be carried next month?

 How much of each product should be scheduled for production next week
 How much of each raw material should be ordered for delivery next week?
 How much workers should be scheduled to work on regular time basis and on
overtime basis next week?
 How many maintenance workers should be scheduled to work next week?

Application of Long Range forecasts

Long range forecasts provide, operations managers with information to make

important decisions such as the following:

 Selecting a product design. The final design is dependent on expected sales volume. If
the demand is high, the design should be such that the product can be mass produced
ton ensuring low costs manufacture.
 Selecting a production processing scheme
 Selecting a plan to supply scarce materials
 Selecting a long range production capacity plan
 Selecting a long range Financial Plan for acquiring funds for capital investment
 To build new buildings and to purchase new materials
 To develop new sources of materials and new source of capital funds(finance)
 ECONOMIC FORECASTS

o Address business cycle

o e.g., inflation rate, money supply etc.

Economists attempt to make forecasts for leading economic variables such as

 Inflation
 Economic growth
 House prices
 Exchange rates
 Population growth
The main importance of economic forecasts is to help policymakers make better decisions.
For example, if the economy was forecast to enter into a recession, the government could
consider implementing expansionary fiscal policy (higher spending financed by borrowing)
to maintain demand in the economy and prevent a sharp downturn in the economy.

Forecasts are important because policy changes take time. If you wish to increase demand
in the economy. There could be a time lag of up to 1 or 2 years for the change to have the
full effect. If you wait until after the event, the policy will be delayed and it will take up to
two years to have an effect.
There are three types of forecasting based on the economy:

i. Macro-level forecasting: It deals with the general economic environment relating to the
economy as measured by the Index of Industrial Production(IIP), national income and
general level of employment, etc.

ii. Industry level forecasting: Industry level forecasting deals with the demand for the
industry’s products as a whole. For example demand for cement in India, demand for
clothes in India, etc.

iii. Firm-level forecasting: It means forecasting the demand for a particular firm’s product.
For example, demand for Birla cement, demand for Raymond clothes, etc.

 TECHNOLOGICAL FORECASTS

o Predict technological change

o Predict new product sales

Technology forecasting is

 A group of techniques that predict the direction, character, rate,

implication and impact of technological advances.
 It is Indispensable.
 It improves the Quality of Decision Making
 Scanning the technological environment
 Anticipating emerging technological changes
 Identifying suitable technologies by evaluating various alternatives
 Planning for future technological needs
 DEMAND FORECASTS

Predict existing product sales

 It is a technique for estimation of probable demand for a product or services in the

future.
 It is based on the analysis of past demand for that product or service in the present
market condition.
 Demand forecasting should be done on a scientific basis and facts and events related to
forecasting should be considered.
 Therefore, in simple words, we can say that after gathering information about various
aspect of the market and demand based on the past, an attempt may be made to
estimate future demand. This concept is called forecasting of demand.
 For example, suppose we sold 200, 250, 300 units of product X in the month of January,
February, and March respectively. Now we can say that there will be a demand for 250
units approx. of product X in the month of April, if the market condition remains the
same.
Usefulness of Demand Forecasting

 Demand plays a vital role in the decision making of a business.

 In competitive market conditions, there is a need to take correct decision and make
planning for future events related to business like a sale, production, etc.
 The effectiveness of a decision taken by business managers depends upon the accuracy
of the decision taken by them.
 Demand is the most important aspect for business for achieving its objectives.
 Many decisions of business depend on demand like production, sales, staff
requirement, etc.
 Forecasting is the necessity of business at an international level as well as domestic
level.

Significance of Demand Forecasting:

 Fulfilling objectives of the business

 Preparing the budget
 Taking management decision
 Evaluating performance etc.
Moreover, forecasting is not completely full of proof and correct. It thus helps in evaluating
various factors which affect demand and enables management staff to know about various
forces relevant to the study of demand behavior.

The Scope of Demand Forecasting

 The scope of demand forecasting depends upon the operated area of the firm, present as
well as what is proposed in the future. Forecasting can be at an international level if the
area of operation is international. If the firm supplies its products and services in the
local market then forecasting will be at local level.

 The scope should be decided considering the time and cost involved in relation to the
benefit of the information acquired through the study of demand. Cost of forecasting and
benefit flows from such forecasting should be in a balanced manner.

GENERAL PRINCIPLES OF FORECASTING

Set the forecasting task clearly and concisely

 Care is needed when setting the forecasting challenges and expressing the
forecasting tasks.

 It is important that everyone be clear about what the task is.

 All definitions should be clear and comprehensive, avoiding ambiguous and vague
expressions.
 Also, it is important to avoid incorporating emotive terms and irrelevant
information that may distract the forecaster.

Implement a systematic approach

 Forecast accuracy and consistency can be improved by using a systematic

approach to judgmental forecasting involving checklists of categories of
information which are relevant to the forecasting task.

 For example, it is helpful to identify what information is important and how this
information is to be weighted.

 When forecasting the demand for a new product, what factors should we account
for and how should we account for them?

 Should it be the price, the quality and/or quantity of the competition, the
economic environment at the time, the target population of the product?

 It is worthwhile to devote significant effort and resources to put together decision

rules that will lead to the best possible systematic approach.

Document and justify

 Formalising and documenting the decision rules and assumptions implemented in

the systematic approach can promote consistency, as the same rules can be
implemented repeatedly.

 Also, requesting a forecaster to document and justify their forecasts leads to

accountability, which can lead to reduced bias.

 Furthermore, formal documentation aids significantly in the systematic evaluation

process.

Systematically evaluate forecasts

 Systematically monitoring the forecasting process can identify unforeseen

irregularities.

 In particular, keep records of forecasts and use them to obtain feedback when the
corresponding observations become available.

 The environment a forecaster operate should be dynamic.

 Changes occur, and forecaster need to monitor these in order to evaluate the
decision rules and assumptions.

 Feedback and evaluation help forecasters learn and improve their forecast
accuracy.

Segregate forecasters and users

 Forecast accuracy may be impeded if the forecasting task is carried out by users of
the forecasts, such as those responsible for implementing plans of action about
which the forecast is concerned.

 The forecasting is about predicting the future as accurately as possible, given all of
the information available, including historical data and knowledge of any future
events that may impact the forecasts.

 Forecasters and users should be clearly segregated.

 A classic case is that of a new product being launched.

 The forecast should be a reasonable estimate of the sales volume of a new

product, which may differ considerably from what management expects or hopes
the sales will be in order to meet company financial objectives.

 In this case, a forecaster may be delivering a reality check to the user.

 It is important that forecasters communicate forecasts to potential users

thoroughly.

 Users may feel distant and disconnected from forecasts, and may not have full
confidence in them.

 Explaining and clarifying the process and justifying the basic assumptions that led
to the forecasts will provide some assurance to users.

 The way in which forecasts may then be used and implemented will clearly
depend on managerial decision making.

 For example, management may decide to adjust a forecast upwards (be over-
optimistic), as the forecast may be used to guide purchasing and stock keeping
levels.

 Such a decision may be taken after a cost-benefit analysis reveals that the cost of
holding excess stock is much lower than that of lost sales.
 This type of adjustment should be part of setting goals or planning supply, rather
than part of the forecasting process.

 In contrast, if forecasts are used as targets, they may be set low so that they can
be exceeded more easily.

 Again, setting targets is different from producing forecasts, and the two should
not be confused.

General Steps in the Forecasting process

The general steps in the forecasting process are as follows:
1) Identify the General Need.
For example: in the present manufacturing business, unfulfilled demand might have been
observed. The manufacturer may have a feeling, “Why not expand production?” This should
constitute the identification of general need. Still, the manufacturer does not know for
certain whether expansion is really a wise decision? How much to expand? When to
expand?

2)Select the Period (Time Horizon) of Forecast:

Considering the same example: General estimate regarding time taken to erect the plant.
And beyond that the usual plant life. Thus, in this case long term forecast is needed. The
long term’ can be defined appropriately for each situation. In this case, if we consider time
for plant erection to be roughly 3 years-then we need a forecast spanning 5-10years beyond
3 years. That means a forecast covering a period of 5 years starting three years from now.

3)Select the Indicators Relevant to the Need:

Depending upon the product or product line, one or more of the following may be
identified:
i) Industry Sales
ii) Competitors (collective) present and projected capacity.
iii). Population projection (in case product is directly related to the population)
iv) Income levels

v) Economic development etc.

4)Select the Forecast Model to be Used:
For this, knowledge of various forecasting models, in which situations these are applicable,
how reliable each one of them is what type of data is required. On these considerations; one
or more models can be
5)Data Collection:
with reference to various indicators identified –collect data from various appropriate
sources –data which is compatible with the model(s)selected in steps(4).Data should also go
back that much in past , which meets the requirements of the model.
6) Prepare Forecast:
Apply the model using the data collected the value of the forecast.

7)Evaluate:
The forecast obtained through any of the models should not be used, as it is, blindly. It
should be evaluated in terms of ‘confidence interval’ –usually, all good forecast models have
methods of calculating upper value within which the given forecast is expected to remain
with a certain specified level of probability. It can also be evaluated from a logical point of
view whether the value obtained in logically feasible? It can also be evaluated against some
related variables or phenomena. Thus, it is possible, some times advisable to modify
the statistically forecasted’ value based on the evaluation.

Fig 3.2 – Steps in Forecasting

FORECASTING TECHNIQUES / METHODS

Fig 3.3 – Types of Forecasting Methods

 Quantitative method of forecasting uses numerical facts and historical data to

predict upcoming events.
The two main types of quantitative forecasting used by business analysts are the
explanatory method that attempts to correlate two or more variables and the time
series method that uses past trends to make forecasts.
 Qualitative method of forecasting is often employed where the key trends or
developments are hard to capture or where such data is not available. In such a case
business analysts used subjective information such as intuition or informed opinion
for forecasting the future results. This type of forecast is essential for new products
where no historical information is available and primarily used for medium & long
term planning.
Fig 3.4 – Qualitative Forecasting Methods

1. Delphi Method: The Delphi method involves collecting opinions from a panel of
experts individually. This helps to prevent bias and ensures that any consensus
about business predictions stems from expert opinions on their own. Other
employees analyze the experts' responses and return them with additional
questions until settling on a prediction that makes sense for the company.

2. Jury of Executive Opinion: This approach relies on judgments from experts in

sales, finance, purchasing, administration or production teams. Forecasting by
executive opinion can ensure that a team completes a forecast quickly and
considers multiple perspectives from different departments to inform their
forecast. Some companies might use executive opinion forecasting along with a
quantitative method.

3. Market Research: Market research evaluates the success of a company's

services or products by introducing them to potential customers and recording
details about how they react. Companies can conduct market research with the
help of their own employees or by hiring outside agencies that specialize in
market research activities. Some ways to conduct market research include focus
groups, consumer surveys or blind product testing, where a customer tries a
product without having heard of it before. Based on the reactions of
participants, companies can decide which products or services to continue
producing and which might need revision in the production stage.

4. Consumer Surveys: Consumer surveys ask customers of a business about their

experience as a consumer. Companies might send consumer surveys to
customers through mail-in questionnaires or forms sent through email. Other
options for conducting consumer surveys include cold-calling customers on the
phone and inviting customers into the office for personal interviews. After
collecting information from consumer surveys, employees can use the details
they learn to help inform their predictions about a company's future based on
the experience of their existing customers.

5. Sales Force Polling: Sales force polling involves speaking with sales staff who
work closely with customers and might have thorough information about their
satisfaction and experiences with the company. One advantage of sales force
polling is that it uses information from employees who are most frequently
involved in the actual business operations, which can ensure that the details are
correct and relevant. Sales force polling is also simple to conduct since it only
requires meeting with salespeople and focusing on the information they
provide.

QUANTITATIVE METHODS OF FORECASTING

 It is a statistical technique to make predictions about the future which uses

numerical measures and prior effects to predict future events.

 These techniques are based on models of mathematics and in nature are mostly
objective. They are highly dependent on mathematical calculations.

There are two types of quantitative forecasting methods which are listed below:

1. Time-series models – These models examine the past data patterns and forecast
the future on the basis of underlying patterns that are obtained from those data.
There are many types of time series models like Naïve Approach, Simple moving
average, trend projections, and exponential smoothing.

2. Associative models – are also known as casual models. The model assumes that
the variable that is being forecasted is associated with other variables. The
predictions are made based on these associations. The linear regression is one of the
simplest forms of an associative model of forecasting. This regression line forecasts
the dependent variable based on the selected value of the independent variable.

 Quantitative forecasting methods are very easy to predict based on the underlying
information.

 The data can be used to forecast automatically without many complications. Any
person can easily forecast on the basis of available data.

 One of the main disadvantages of this method is its dependence on the data.

 The entire forecasting depends on the data of the underlying model.

 An error in the available data can lead to wrong forecasting. These methods can
also be used only if the proper data is available. This method cannot also evaluate
the effect of changes in the other variables involved

Fig 3.5 – Quantitative Forecasting Methods

Fig 3.6 – Difference between Qualitative and Quantitative Forecasting Methods

Fig 3.7 – Approaches of Qualitative and Quantitative Forecasting Methods

UNIT IV
RESOURCE REQUIREMENT
PLANNING
RESOURCE REQUIEMENT PLANNING

Fig 4.1 – Resource Requirement Planning

Aggregate Planning

 Aggregate production planning is concerned with the determination of production,

inventory, and work force levels to meet fluctuating demand requirements over a
planning horizon that ranges from six months to one year
 Aggregate planning is a planning method in the production process which is also
considered a marketing activity used to determine the required resource capacity to
meet expected demand.

Master Production Schedule

 Master Production Scheduling is the process that helps manufacturers plan which
products and related quantities to produce during certain periods.

RESOURCE REQUIREMENT PLANNING

The process of converting the production plan or the master production schedule into the
impact on key resources, e.g., man hours, machine hours, storage, standard cost dollars,
shipping dollars and inventory levels.

 Resource requirement planning is directed at the determination of the amount and

timing of production resources such as personnel, materials, cash and production
capacity needed to produce the finished products or end items as per the master
production schedule.
 Resource requirements planning is also known as rough-cut capacity planning.
 It can be used to evaluate the feasibility of a trial master production schedule.
 It is an aggregate planning tool that is used to sum up and evaluate the workload that a
production plan (MPS) imposes either on all work centres or on only selected key
work centres where resources are limited, expensive or difficult to obtain from outside
sources (sub-contractors).
 This step ensures that a proposed MPS does not overload any key work centres or
departments or machines thus making the MPS unworkable.
 Rough-cut capacity planning is usually applied to the critical work centres which are
most likely to be bottlenecks.

Fig 4.2 – Resource Requirements Planning System Inputs and Outputs

Fig 4.3 – Flow Chart of Resource Requirements Planning System or Rough-cut Capacity
Planning Process

Steps involved in rough-cut capacity planning are:

1. Developing a trial production plan (or trial master production schedule) that indicates the
company’s products that are planned for production during each week or month of the
planning horizon.
2. Computing the work load that this production plan will impose on each key work centre
and key subcontractors for each period (week or month) of the planning horizon. The load
profile i.e., the load on each work centre over time, is evaluated for feasibility, by comparing
the load with the available capacity in each of the key work centres or key sub-contractors.
3. If the trial production plan does not appear to be feasible or does not make optimal use of
the resources in the key work centres, the plan may be revised.
4. The capacity requirements of the revised production plan (revised MPS) can then be
evaluated to determine the feasibility of the plan.
5. Step No. 4 and 5 are repeated until a plan considered to be satisfactory is developed.

There are two main elements of resource requirements planning systems namely
(a) Material requirements planning (MRP)
(b) Capacity requirements planning (CRP)
 Resource Requirements Planning is a long-run planning strategy. Resource
Requirements Planning is typically a long-term approach to capacity planning and
management – an early stage assessment of whether or not the company's production
resources are up to the tasks prescribed by the business plan. At this stage of the
planning process, the focus is primarily on labor, equipment, and other resources that
require a little time to acquire.
 Resource acquisition. If Resource Requirements Planning demonstrates that the
company has adequate resources to achieve the Sales & Operation Plan, no additional
action is required, at least at this stage of the capacity planning process. If RRP shows
that the company is under resourced, one possible response is to acquire additional
facilities, capital, equipment, or workers to achieve the necessary capacity. Since the
individuals involved with both Sales & Operation Planning and RRP are senior-level
staff, it's assumed they have the ability to approve the necessary resource
acquisitions.
 Scaling back. If capital acquisition is not a possibility, another response to a resource
shortfall is to scale back the Sales & Operations Plan or Aggregate Production Plan to
a level that can be achieved with current or prorated levels of resources.

MATERIAL REQUIREMENT PLANNING

“Materials Requirement Planning (MRP) is a technique for determining the quantity and
timing for the acquisition of dependent demand items needed to satisfy master production
schedule requirements.”
 For a manufacturing company to produce end items to meet demands, the
availability of sufficient production capacity must be co-ordinate with the availability
of all raw materials and purchased items from which, the end items are to be
produced.
 In other words, there is a need to manage the availability of dependent demand
items from which the products are made.
 Dependent-demand items are the components i.e. materials or purchased items,
fabricated parts or sub-assemblies that make up the end product.
 One approach to manage the availability of dependent-demand items is to keep a
high stock of all the items that might be needed to produce the end items and when
the on-hand stock dropped below a present re-order level, the items are produced
or bought as the case may be to replenish the stock to the maximum level.
 However, this approach is costly due to the excessive inventory of components,
fabricated parts and sub-assemblies to ensure high service level (i.e. availability of
dependent demand items at a short notice)
 An alternative approach to managing dependent-demand items is to plan for
procurement or manufacture of the specific components that will be required to
produce the required quantities of end products as per the production schedule
indicated by the master production schedule (MPS).
 The technique is known as material requirements planning (MRP) technique.

Objectives of MRP
1. Inventory reduction: MRP determines how many components are required when they
are required in order to meet the master schedule. It helps to procure the materials/
components as and when needed and thus avoid excessive build up of inventory.
2. Reduction in the manufacturing and delivery lead times: MRP identifies materials and
component quantities, timings when they are needed, availabilities and procurements
and actions required to meet delivery deadlines. MRP helps to avoid delays in production
and priorities production activities by putting due dates on customer job order.
3. Realistic delivery commitments: By using MRP, production can give marketing timely
information about likely delivery times to prospective customers.
4. Increased efficiency:
MRP provides a close coordination among various work centers and hence help to
achieve uninterrupted flow of materials through the production line. This increases the
efficiency of production system.
Why is MRP important?
 MRP helps ensure that the right inventory is available for the production process
exactly when it is needed and at the lowest possible cost.
 As such, MRP improves the efficiency, flexibility and profitability of manufacturing
operations. It can make factory workers more productive, improve product quality
and minimize material and labor costs.
 MRP also helps manufacturers respond more quickly to increased demand for their
products and avoid production delays and inventory stockouts that can result in lost
customers, which in turn contributes to revenue growth and stability.
 MRP is widely used by manufacturers and has undeniably been one of the key
enablers in the growth and wide availability of affordable consumer goods and,
consequently, has raised the standard of living in most countries.
 Without a way to automate the complex calculations and data management of MRP
processes, it is unlikely that individual manufacturers could have scaled up
operations as rapidly as they have in the half century since MRP software arrived.

It consists of three primary steps:

 taking inventory of the materials and components on hand,
 identifying which additional ones are needed
 and then scheduling their production or purchase.
MRP objectives
 The main theme of MRP is “getting the right materials to the right place at the right
time”.
 Specific organizational objectives often associated with MRP design and
implementation may be identified among three main dimensions, namely: inventory,
priorities and capacity:

Table 4.1: Three main dimensions of MRP design and implementation

Dimension Objective specifics
Inventory - Order the right part
- Order the right quantity
- Order at the right time
Priorities - Order with the right due date
- Keep the due date valid
Capacity - Plan for a complete load
- Plan for an accurate load
- Plan for an adequate time to view future
load

 Objectives of MRP should be identified with regard to inputs and outputs associated
with it.
 Inputs are delineated with master production schedule, bill of materials, etc.
 Therefore, a clear specification of MRP objectives should be associated with a
respectively clear description of objectives of MRP inputs as well as MRP outputs.

Benefits of MRP

The primary objective of MRP is to make sure that materials and components are available
when needed in the production process and that manufacturing takes place on
schedule. Additional benefits of MRP are as follows:

 Reduced customer lead times to improve customer satisfaction.

 Reduced inventory costs.

 Effective inventory management and optimization -- by acquiring or

manufacturing the optimal amount and type of inventory, companies can
minimize the risk of stock-outs, and their negative impact on customer
satisfaction, sales and revenue, without spending more than necessary on
inventory.
 Improved manufacturing efficiency by using accurate production planning and
scheduling to optimize the use of labor and equipment.

 Improved labor productivity.

 More competitive product pricing.

Disadvantages of MRP

MRP has drawbacks, including the following:

 Oversupply of inventory. While MRP is designed to ensure adequate inventory

levels at the required times, companies can be tempted to hold more inventory
than is necessary, thereby driving up inventory costs. An MRP system anticipates
shortages sooner, which can lead to overestimating inventory lot sizes and lead
times, especially in the early days of deployment before users gain the
experience to know the actual amounts needed.

 Lack of flexibility. MRP is also somewhat rigid and simplistic in how it accounts
for lead times or details that affect the master production schedule, such as the
efficiency of factory workers or issues that can delay delivery of materials.

 Data integrity requirements. MRP is highly dependent on having accurate

information about key inputs, especially demand, inventory and production. If
one or two inputs are inaccurate, errors can be magnified at later stages. Data
integrity and data management are thus essential to effective use of MRP
systems.

Fig 4.4 – Information flow for Planning and Controlling with MRP
Fig 4.5 – Operation of MRP System

The entire MRP system is driven by the MPS. The bill of materials file and inventory status
file are fed to the MRP computer program to generate the outputs.

How does MRP work?

 MRP uses information from the bill of materials (BOM), inventory data and the
master production schedule to calculate the required materials and when they will
be needed during the manufacturing process.

 The BOM is a hierarchical list of all the materials, subassemblies and other
components needed to make a product, along with their quantities, each usually
shown in a parent-child relationship. The finished good is the parent at the top of the
hierarchy.

 The inventory items in the BOM are classified as either independent

demand or dependent demand.

 An independent demand item is the finished good at the top of the hierarchy.

 Manufacturers determine its amount by considering confirmed orders and

examining market conditions, past sales and other indicators to create a forecast,
then decide how many to make to meet the expected demand.

 Dependent demand items, in contrast, are the raw materials and components
needed to make the finished product.

 For each of these items, demand depends on how many are needed to make the
next-highest component in the BOM hierarchy.
 MRP is the system most companies use to track and manage all of these
dependencies and to calculate the number of items needed by the dates specified in
the master production schedule.

 To put it another way, MRP is an inventory management and control system for
ordering and tracking the items needed to make a product.

 Lead time -- the period from when an order is placed and the item delivered -- is
another key concept in MRP.
 There are many types of lead times. Two of the most common are material lead time
(the time it takes to order materials and receive them) and factory or production
lead time (how long it takes to make and ship the product after all materials are in).
 Customer lead time denotes the time between the customer order and final
delivery. The MRP system calculates many of these lead times, but some are chosen
by the operations managers and entered manually.

Fig 4.5 – Multilevel bill of materials

MRP Inputs and Outputs

Fig 4.4 – Inputs and Outputs of MRP

MRP Inputs

There are a few key elements that you’ll need to consider when creating an MRP plan.
These elements include:

o Master Production Schedule (MPS): This schedule considers all outstanding

work orders and plans labor, machinery usage, and workstations
appropriately.

o Inventory Status File (ISF): This file includes information on all raw materials,
finished goods, and work-in-progress inventory.

o The Bill of Materials (BOMs): This lists the materials, components, and sub-
assemblies required to produce each product and is needed to accurately
forecast supply planning.

MRP Outputs

The MRP process generates a number of outputs that can be used to improve your
operations management. These outputs include:

o Purchase Orders: These orders are generated for the raw materials required
to produce a product.

o Production Plans: These plans outline the steps required to produce a

product.
o Inventory Reports: These reports show the quantities of each material that
are available.

Definitions of Terms used in MRP System

MRP in manufacturing
 MRP is essential to the efficiency, effectiveness and ultimately the profitability of a
manufacturing operation.

 Without the right raw materials and components on hand, manufacturers can't hope
to keep up with the demand for products at the optimal cost and quality.

 They will also be less able to respond to fluctuations in demand by adjusting

production.

 MRP can also make the later stages of production, such as assembly and packaging,
proceed more smoothly and predictably by removing most of the uncertainty over
inventory and minimizing the time needed to manage it.

 MRP is useful in both discrete manufacturing, in which the final products are distinct
items that can be counted -- such as bolts, subassemblies or automobiles --
and process manufacturing, which results in bulk products, including chemicals, soft
drinks and detergent, that can't be separately counted or broken down into their
constituent parts.
MRP COMPUTATIONAL PROCEDURE

Fig 4.5 –MRP System

MANUFACTURING RESOURCE PLANNING (MRP II)

Manufacturing Resource Planning (MRP II) is an integrated information system used by

businesses. Manufacturing Resource Planning (MRP II) evolved from early Materials
Requirement Planning (MRP) systems by including the integration of additional data, such
as employee and financial needs.

The system is designed to centralize, integrate, and process information for effective
decision making in scheduling, design engineering, inventory management, and cost
control in manufacturing.

Manufacturing resource planning is a system that is used to effectively plan the use of a
manufacturer’s resources. It enables manufacturers to develop a precise production
schedule for the future that minimizes costs and maximizes the use of the resources
available at their disposal.

Sales forecasting helps a manufacturer estimate the expected demand for a product so that
they can source the proper amount of raw materials and schedule deliveries and quantities
on time. It also provides a target production level to determine the number of machine
units and labor required during a given production cycle.

Manufacturing resource planning arrives at the optimal order quantity and frequency for
raw materials by adding the average use for a planned replenishment lead time with the
safety stock that is required to protect against stock-outs.

Thus, “When to Order” = Average Use Time + Safety Stock

The term manufacturing resource planning refers to an information system that is used by
businesses involved in manufacturing goods. The integrated information system facilitates
the decision-making process for management by centralizing, integrating, and processing
information related to the manufacturing process.

It enables management to make an accurate visualization of the scheduling and inventory

process and design engineering and to effectively employ cost-control measures.

The MRP II was developed in 1980 after a need for a software that integrates accounting
systems while making forecasts about inventory requirements. The earlier version, MRP I,
was developed in 1964, and the first company to use it was Black and Decker.
Fig 4.6 – MRP II – An Integrated System pf Planning and Control

Manufacturing Resource Planning (or MRP2) - Around 1980, over-frequent changes in sales
forecasts, entailing continual readjustments in production, as well as the unsuitability of the
parameters fixed by the system, led MRP (Material Requirement Planning) to evolve into a
new concept .
Benefits

MRP II systems can provide:

 Better control of inventories

 Improved scheduling
 Productive relationships with suppliers

For design / engineering:

 Improved design control

 Better quality and quality control

For financial and costing:

 Reduced working capital for inventory

 Improved cash flow through quicker deliveries

 Accurate inventory records

MRP I included the following three major functionalities:

 master production scheduling

 bill of materials
 inventory tracking

MRP II includes those three, plus the following:

 machine capacity scheduling

 demand forecasting
 quality assurance
 general accounting

Fig 4.7 – MRP I vs MRP II

ENTERPRISE RESOURCE PLANNING (ERP)

In today’s rapidly evolving business landscape, efficient operations management

is crucial for organizations to maintain a competitive edge. Enter Enterprise
Resource Planning (ERP) is a powerful technology that has revolutionized how
companies handle their operational processes. ERP in operations management
refers to integrating various business fu nctions, such as manufacturing, supply
chain, finance, and human resources, into a unified digital ecosystem.

This integration enables seamless communication, data sharing, and

streamlined workflows, enhancing productivity, better decision -making, and
improved overall efficiency. In this blog, we will delve into the pivotal role of
ERP in optimizing operations management strategies and propelling businesses
toward sustained success.

ERP in Operations Management is an all-encompassing software solution t o

refine and maximize diverse organizational and operational procedures. By
amalgamating various departments and functionalities into a cohesive
framework – including manufacturing, supply chain, human resources, and
finance – it facilitates seamless data exchange, heightened communication, and
more informed decision-making.

The outcome of this integration is heightened effectiveness, diminished

expenditures, and elevated overall output. Now, let’s delve into a
comprehensive examination of the primary attr ibutes.

1. Centralized Database

A centralized database in ERP acts as a single repository for all organizational

data. This means that information from various departments, such as sales,
inventory, finance, and HR, is stored in one location. This centralizat ion
eliminates data duplication and ensures data consistency. For instance, when a
customer’s contact information is updated in the CRM module, the same
updated data is instantly reflected across all relevant modules, preventing
discrepancies and confusion.

2. Integration

Integration within ERP goes beyond mere data sharing; it orchestrates

processes across departments. When an order is placed, the ERP system
initiates a sequence of events: it checks inventory levels, triggers procurement
if needed, schedules production, and updates financial records. This end -to-end
integration not only accelerates processes but also reduces errors that might
occur when disparate systems communicate separately.
3. Real-time Reporting and Analytics

ERP’s reporting and analytics capabilities empower users with data -driven
insights. Managers can generate real-time reports, charts, and graphs that
provide a holistic view of business operations. For example, production
managers can track production line efficiency in real time, identi fying
bottlenecks and optimizing workflows promptly. These insights enable quicker
and more informed decision -making at all levels of the organization.

4. Supply Chain Management

In the supply chain management module of ERP, various processes are

streamlined for optimal efficiency. Demand forecasting relies on historical data,
market trends, and current orders, ensuring that inventory levels are
maintained at just the right quantities to fulfill orders without excess
stockpiles. If stock levels drop below a se t threshold, the system automatically
generates purchase orders, maintaining a seamless supply chain.

5. Financial Management

ERP’s financial management module handles intricate financial tasks. It

automates processes such as invoicing, accounts payable, and receivable,
minimizing human error and ensuring accurate financial records. Additionally,
the module keeps track of tax regulations and accounting standards, ensuring
compliance and reducing the risk of financial discrepancies or legal issues.

6. Human Resource Management

ERP’s HR module encompasses the entire employee lifecycle. It manages

recruitment, employee onboarding, training, performance evaluations, and
payroll. This detailed tracking ensures that each employee’s journey is well -
documented and aligns with organizational goals. For instance, performance
evaluations can be linked to skill development programs, promoting a skilled
and motivated workforce.

7. Customer Relationship Management (CRM)

The CRM functionality in ERP focuses on nurturing and enhancin g customer

relationships. It tracks customer interactions, including inquiries, purchases,
and service requests. This information aids sales teams in understanding
customer preferences and behavior, enabling targeted marketing campaigns and
personalized customer interactions. The system also helps customer service
teams resolve issues efficiently by providing a comprehensive view of customer
history.
8. Mobile and Remote Access

ERP’s mobile and remote access feature extends its functionality beyond the
office walls. Authorized users can access the ERP system from their mobile
devices or remote locations. For instance, a sales representative visiting a client
can use their tablet to check inventory levels, place orders, and update
customer information in real t ime. This ensures that critical decisions and
actions can be taken even when not in the office.

In summary, ERP features work cohesively to create an integrated, efficient, and

data-driven environment for organizations. By utilizing a centralized database,
fostering integration, providing real-time insights, optimizing supply chains,
managing finances, enhancing HR processes, nurturing customer relationships,
and enabling mobile access, ERP systems empower businesses to operate
smoothly and competitively in today’s fast-paced business landscape.

Role of Erp in Inventory Management

Enterprise Resource Planning (ERP) systems are crucial in efficient business

inventory management. By providing an integrated and centralized platform,
ERP systems enable organizations to optimize inventory processes, enhance
visibility, and streamline operations. Through real -time data synchronization
and automation, ERP systems contribute to minimizing stock levels, reducing
carrying costs, and improving overall supply chain mana gement. Let us explore
the role of ERP in inventory management in detail :

1. Real-time Visibility

ERP systems provide a comprehensive view of inventory levels, spanning various

locations and departments. This real -time visibility helps businesses track
inventory movement, assess stock availability, and anticipate potential
shortages or excesses. With accurate and up -to-date information, organizations
can make informed decisions to optimize inventory levels and meet customer
demands efficiently.

2. Demand Forecasting

ERP systems leverage historical sales data, market trends, and other relevant
factors to predict future demand. By analyzing patterns and seasonality,
businesses can create more accurate demand forecasts. These forecasts assist
in planning production schedules, optimizing inventory levels, and avoiding
costly stock outs or overstock situations.

3. Inventory Optimization

ERP systems utilize sophisticated algorithms to balance supply and demand,

considering factors such as lead times, order quantities, and reorder points.
This optimization minimizes carrying costs while ensuring that the right amount
of stock is available to meet customer demands. This approach prevents excess
inventory and reduces the risk of stockouts.

4. Automated Reordering

ERP systems automate the reordering process by setting predefined stock

thresholds. When inventory levels drop below a certain point, t he system
automatically generates purchase orders or production orders, streamlining the
replenishment process. This automation reduces manual errors and eliminates
the need for constant monitoring.

5. Supplier Collaboration

ERP systems facilitate efficient c ommunication between businesses and

suppliers. Electronic data interchange (EDI) capabilities and online portals
enable seamless order placement, order confirmation, and delivery tracking.
This collaboration ensures timely replenishment, reduces lead times , and
enhances overall supply chain efficiency.

6. Batch and Serial Tracking

ERP systems enable tracking of items by batch or serial numbers throughout the
supply chain. This capability is essential in industries with strict regulations,
such as pharmaceutica ls and electronics. It aids in managing recalls, tracing the
origin of defective products, and ensuring compliance with quality standards.

7. Multi-location Management

ERP systems are equipped to manage inventory across multiple warehouses,

stores, or distribution centers. They provide centralized control over stock
levels, allowing businesses to allocate inventory efficiently based on demand
patterns, location preferences, and supply constraints. This approach minimizes
excess stock and optimizes resource utilization.

8. Data Analytics

ERP systems gather and analyze inventory -related data, offering valuable
insights into inventory turnover rates, slow -moving items, and stock movement
patterns. This data helps organizations identify opportunities to optimize their
inventory management strategies, make informed decisions, and implement
continuous improvement measures.

By addressing these roles comprehensively, ERP systems play a pivotal role in

modernizing and enhancing inventory management practices, leading to cos t
savings, improved customer satisfaction, and streamlined operations.
Examples of Erp in Inventory Management

Enterprise Resource Planning (ERP) systems play a pivotal role in optimizing

inventory management by streamlining processes, enhancing visibility , and
ensuring efficient resource allocation. These systems integrate various
departments, data, and functions into a centralized platform, enabling
businesses to manage their inventory effectively.

Here are some of the prominent examples of ERP in invento ry management:

1. SAP ERP

SAP’s ERP software offers comprehensive inventory management tools that

enable businesses to monitor stock levels, track movements, and optimize
reorder points. It provides real-time insights into inventory positions across
multiple locations, helping to reduce stockouts and overstocking.

2. Oracle NetSuite

Oracle NetSuite’s ERP solution incorporates advanced inventory management

capabilities. It allows businesses to manage multiple warehouses, track
inventory levels in real time, and automate reorder processes. The system also
offers demand forecasting and order fulfillment features.

3. Microsoft Dynamics 365

This ERP system provides a robust inventory management module that offers
visibility into stock levels, automates replenishment proce sses, and optimizes
stock movement. It integrates seamlessly with other Microsoft tools, enhancing
overall business operations.

4. Infor CloudSuite

Infor’s ERP solution includes powerful inventory management features that

support multi-site inventory control, demand forecasting, and vendor
management. Its advanced analytics capabilities enable data -driven decision-
making for better inventory management strategies.

5. Epicor ERP

Epicor’s ERP system offers inventory optimization tools that aid in managing
stock levels, reducing carrying costs, and improving demand forecasting
accuracy. It also facilitates efficient tracking of inventory movements
throughout the supply chain.
6. Acumatica Cloud ERP

Acumatica’s ERP solution empowers businesses with real -time insights into
inventory positions, helping to minimize stockouts and streamline order
fulfillment. It enables businesses to manage multiple warehouses, track lot and
serial numbers, and automate inventory replenishment processes.

These ERP systems go beyond basic inv entory tracking and management,
offering advanced features like demand forecasting, integration with other
business processes, and analytics -driven decision support. By employing these
systems, enterprises can attain increased authority over their inventor y, lower
expenses, and improve the overall effectiveness of their supply chain.

Fig 4.8 – General Model of ERP

Scope of ERP

 Enterprise Resource Planning (ERP) is a modular and robust system designed for
small-sized, mid-sized & large-sized enterprises.
 It supports inventory, purchasing, supply chain, sales and material management,
quality, research and finance, human resource, production and service functions.
 ERP software indeed covers the complete business operating functional range.
 Manufacturing: It means manufacturing and production process such as such as
scheduling, planning and tracking supplies, parts and products before, throughout
the production and after the manufacturing procedure.
 Managing: It means the entire management of the organization such as purchasing,
HR, financials, IT, quality and other things the organization do. The information
should be conveyed at the right time in a correct form to facilitate the suggested
correct decision-making by directors, managers, and executives of the enterprise.
 Selling & Delivery: This segment manages the entire process from marketing,
quoting, estimating, engaging and ordering products and services. It ensures to
timely deliveries of good supplies and a profitable sale of products.
 Servicing to customers: Offering satisfied and proper customer services is significant
to future relations and sales of the enterprises. To get a complete feedback for your
customers, knowing your product and how it is fulfilling the needs of the customers
in the market means expanding the life span of your relationships with your
customer.

 It helps the company to control the day-to-day activities, makes easier the processes
and provides better coordination amongst all the segments of the organization.
Although all the modules are the essential to the existence of an ERP but
manufacturing module is the main and important module. It provides various
benefits to the businesses.

Applications of ERP

Below is a list of the significant areas where an ERP is vastly in use:

•Manufacturing and Production

Manufacturing Process, Cost Management, Scheduling, Engineering, Bills of Material,

Capacity, Work flow Management, Quality Control, Manufacturing Projects etc.

•Supply Chain Management

Purchasing, Supply Chain Planning, Order Entry, Product Configuration, Inventory,

Supplier Scheduling, Inspection of goods, Commission Calculation and many more.

•Financials

Cash Management, General Ledger, Accounts Receivable & Payable, Fixed Assets and
many more.

•Projects

Costing, Billing, Time and Expense, Activity Management

•Human Resources (HR) management

Payroll, Training, Human Resources,Attendance & Time, other Benefits etc.

•CRM management (Customer Relationship Management)

Service, Sales and Marketing, Customer Contact, Commissions, and Call Center support
etc.

•Data Warehouse management

Several Self-Service interfaces for Suppliers, Employees and Customers etc.

Thus, ERP software in the modern time fulfills all the business requirements of all sized
Free Articles, typed business organizations.

Fig 4.9 – ERP FUNCTION

Disadvantages of ERP

 Increase complexity
 Add short-term costs
 More time-consuming
UNIT V
STORES MANAGEMENT AND
MATERIAL HANDLING
STORES MANAGEMENT
After inspection, the purchased materials are taken to preservation if they are meant for
stock. Non-stock items are directly taken to the assembly lines for inspection. Preservation
or storage is another aspect of materials management. With proper management and co-
ordination (particularly with purchasing, receiving and inspection), storage can contribute to
effective operations.

STORE

 Store is an important component of material management since it is a place that

keeps the materials in a way by which the materials are well accounted for, are
maintained safe, and are available at the time of requirement.
 Storage is an essential and most vital part of the economic cycle and store
management is a specialized function, which can contribute significantly to the
overall efficiency and effectiveness of the materials function.
 The term store keeping refers to the actual handling of the materials received into,
held in and issued from the store.
 The main activities involved are receiving materials, including quantity verification
and visual inspection, inspection of items, preservation of items.
 Store-keeping activity does not add any value to the materials.
 In fact it adds only to the cost.
 The organization is to spend money on space (expenditure on land, building passage
and roads), machinery (store equipment), facilities (e.g. water, electricity,
communication etc.), personnel, insurance, maintenance of store equipment,
stationary etc.
 All of these get added to the organizational overheads and finally get reflected in the
costing of the finished product. However, it is an essential function in any
organization.

Main Process of a Store

Fig 5.1 – Main Process of a store

Typically a store has a few processes and a space for storage. The main processes of store
are

(i) to receive the incoming materials (receiving),

(ii) to keep the materials as long as they are required for use (keeping in custody),

and

(iii) to move them out of store for use (issuing). The auxiliary process of store is the stock
control also known as inventory control.

 In a manufacturing organization, this process of receiving, keeping in custody, and

Issuing forms a cyclic process which runs on a continuous basis.
 The organizational set up of the store depends upon the requirements of the
organization and is to be tailor made to meet the specific needs of the organization.

NATURE OF STORES
Objectives of store management

An efficient stores management has normally the following main objectives.

 To ensure uninterrupted supply of materials without delay to various users of the

organization.
 To prevent overstocking and under stocking of the materials
 To ensure safe handling of materials and prevent their damage.
 To protect materials from pilferage, theft, fire and other risks
 To minimize the cost of storage
 To ensure proper and continuous control over the materials.
 To ensure most effective utilization of available storage space
 To optimize the efficiency of the personnel engaged in the store

Functions of a store management

Store personnel are responsible for carrying out the following functions.

 Receipt of incoming materials

 Supervision of unloading of materials and tallying of materials
 Checking for damages or shortages and preparation of the report
 Filling of ‘goods inward’, ‘day book’, or ‘daily collection’ register
 Completion of vendors consignment note (challan)
 Making arrangement for inspection and getting the inspection completed
 Preparation of ‘goods receipt note’ (GRN)
 Preparation of ‘goods rejection memo’ (in case of rejection of materials)
 Sending of materials to the respective stores
 Sending of the relevant documents to the respective departments
 Ensuring all storage and material handling facilities are in proper working order
 Ensuring good housekeeping and cleanliness in the storage space
 Checking, counting and tallying of materials before issue
 Making prompt entries in ‘Bin card’ or stock card
 Ensuring correct documentation of material receipts and material issues
 Ensuring safe and proper handling of materials so as not to damage them
 Ensuring proper record keeping and correct accounting of materials
 Ensuring regular stock verification
 Ensuring that rules and regulations relating to physical custody and preservation of
materials are followed
 Ensuring safety of materials and personnel

STORES LAYOUT

Store layout is the design of a store’s floor space and the placement of items within that
store.

It depends on the following factors:

1. Flow of Materials:

According to this factor, materials should move minimum possible distances.

2. Character of Materials:

The materials that are not damaged by weather can be stored outside in shed.

Materials like cement, plaster etc., must be placed in dry place. Tools and machines etc.,
should also be placed in dry places and coated to prevent rusting.
3. Quantity, Weight etc. of Materials:

It is necessary to find the space required for different purposes.

4. Frequency of Handling:

Handling consists of the following four stages:

(a) Receipts,

(b) Inspection,

(c) Storage and

(d) Issue of materials.

The following are general hints to carry out these stages of handling smoothly and correctly:

1. Layout is such that material may be quickly received in stores.

2. Unloading platforms are built of suitable height.

3. All around the stores there is thorough siding. If trucks are used for transporting the
materials, sufficient parking space is provided.

4. For heavy material, suitable equipment for internal transport is provided.

5. It is to be seen that each section of the store has sufficient allotting space. The material is
to be arranged in such a way that inward and outward movement of supplies can be carried
out smoothly.

STORAGE SYATEM
Types of Store Layout

Whatever the location followed, stock may be kept on one side of the aisle in which case it
is called comb type layout.

Goods may be placed on either side of the aisle in which case the method is called tree type
layout.

Selecting a particular type depends on the availability of space and the layout of the
building.

Fig 5.2 – Comb Type Layout

Fig 5.3 – Tree Type Layout

Location of a Store:

(a) Centralised Store:

 In small factories, it is desirable to centralise the materials so that they may be

brought under the control of one store-keeper and the store-room should be as far
as possible near the place, where material is to be used.
 If there are several manufacturing departments, the store-room will be most
conveniently situated, where it is near to all depart-ments. This will reduce handling
and a lot of manual work is eliminated. This type is called Centralised Store.

(b) Decentralised Store:

 In large factories, where there are several departments, each using different type of
materials, it becomes beneficial to separate the stores.
 For example, near the welding department, store the materials required for welding;
near the foundry department, store the items which are used there; near assembly
department, store the parts that are required there and so on.

Fig 5.4 – Centralised and Decentralised Sore Keeping

STOCK VERFICATION

Stock Verification is the physical counting of stock. Where counting is not possible,
measuring or weighing is done. The results of such physical checking are systematically
recorded.

Stock verification is necessary because:

(a) It minimizes pilferage and fraudulent practices,

(b) It ensures accuracy and usefulness of documents,

(c) It brings about a reconciliation of the stock records and documents.

(d) It identifies areas for more disciplined document control and

(e) It backs up the balance sheet stock figures Stock verification is the task of the materials
audit department. Verification may be continuous or periodical.

Types of Stock Verification:

1. Perpetual or Continuous Verification:

Under this system, verification of stock continues throughout the, year according to plan.
Different items of stores are verified according, to their nature, importance and issue fend,
etc. twice, thrice or even more in a year. A perpetual inventory is, therefore, maintained
showing all transactions so that reconciliation can be done.

The system of continuous verification has the following advantages:

(1) The materials audit staff can carry on their work independently.

(2) More detailed investigation is possible with regard to discrepancies as the

investigation is spread over the year.

(3) Preparation of final accounts is not delayed as the data for the final accounts remain
ready after audit.

(4) The operations of the stores continue and remain unaffected,

(5) There is no need to ‘freeze’ the operation because there are the perpetual inventory
records.

(6) It is possible for the records to remain more up to date.

According to S N Chary “the normal business of the stores can go on as usual and more
importantly the discrepancies do not come out all at once as in the annual stock-taking, so
there is time to investigate discrepancies thoroughly.”
2. Periodic Verification:

 This system of stock verification is done generally once a year — at the close of the
year.
 The period covers usually accounting year.
 Since the whole audit work is involved, the verification takes a few days of a week or
so to complete.
 During the audit period, no transactions can take place and therefore, problems may
crop up.
 Physical stock-taking is a matter of careful planning.
 Various steps are involved. A detailed programme has to be prepared giving
complete breakdown of the process—store wise and otherwise.
 Several departments are involved in chalking out programmer, particularly materials
management and finance departments.
 In a periodical stock verification system, the audit staffs are instructed to complete
the work as expeditiously as possible, since the usual store transactions remain
suspended during the audit period.
 Verification cards and check sheets must be prepared according to requirements.
 Cards must be serially numbered for easy reference and control. Separate provisions
are made for damaged or deteriorated items. Each member of the verification staff
should have selected areas for verification to ensure orderly compilation of the job
without duplication or omission.

3. Blind Verification

 Under this system the stock verifiers are given the location, but not details about
code numbers, description and stock record balances.
 The underlying logic here is that the verifier will not have his own idea about the
stock position and he may just mention the same figures in record without actual
verifi-cation of stock.
 This method is not very popular.
 It virtually serves no purpose when the entire operation of stores has to be well-
planned.
 The modern trend is toward the applica-tion of the ABC technique for stock
verification.
CLASSIFICATION AND CODIFICATION

Classification of Materials

 ‘Classification‘refers to the systematic division, grouping or categorization of

materials or store items with reference to some common characteristic.
 Classification of materials can be made on different bases namely nature,
manufacturing process, value, purpose etc.
 For identification of materials being purchased and stored it is necessary that they
should be properly classified.
 The store incharge should make a close study of the materials during the process of
storage for the purpose of their (i) safe custody, (ii) meticulous handling and storing,
and (iii) protection from damages, fire, pilferage, spoilage, etc.
 He is responsible for the classification of the materials.

The broad classification according to the materials (i) nature, (ii) use, and (iii) service can be
done in the following, classes:

(i) Raw Materials

(ii) Consumable Stores

(iii) Machinery and Plant

(iv) Equipment: Factory and office

(v) Inflammable Stores

(vi) Chemical

(vii) Furniture and Fixtures

(viii) Scrap Materials

(ix) Packaging Materials

(x) General Stores.

Basis of Classification of Materials

The important basis of classification of materials may be given as follows:

0n the Basis of Nature

On the basis of nature, materials may be divided into:

(i) Direct Materials: Direct materials are those items of material which can be identified with
a product or a group of products in a manufacturing concern and can be easily measured
and charged directly to the product. Such materials form the part of the finished product
e.g., timber in furniture, cloth in garments, bricks, sand and cement in building, yarn in cloth
etc.

(ii) Indirect Materials: These are the materials which cannot be traced to a specific product
and cannot be charged directly to the various products. These materials do not form part of
the product. Examples of indirect materials are—repair and maintenance stores, lubricating
oils, cleaning materials, cotton rags etc.

On the Basis of Manufacturing Process

On the basis of the manufacturing process, stores are divided into:

(i) Pre-process Stock: These are the items of stores which are yet to be taken into the
manufacturing process and are obtained prior to the commencement of the manufacturing
process or production. These include raw materials, bought-out parts and assemblies, and
stock in pipeline of materials in transit.

(ii) Intermediate Stock: Intermediate stock comprises the parts or assemblies which are
manufactured within the factory for use in the final product.

(iii) Finished Goods or Finished Products: As the name indicates, finished goods are the
items which have been duly manufactured in the factory and are ready for shipment or sale
to the customers.

On the Basis of Value

On the basis of the value, the stores items may be divided into:

(i) Category ‘A’: Category ‘A’ consists of materials which constitute 5% to 10% of the total
items in the stores and represent 70% to 85% of the total stores value.
(ii) Category ‘B’: This category consists of materials which constitute 10% to 20% of the total
items in the stores and also represent 10% to 20% of the total stores value.

(iii) Category ‘C’: This category consists of cheap materials which constitute 70% to 85% of
the total items in the stores and represent 5% to 10% of the total stores value.

Category ‘A’ items constitute costly items calling for greater degree of control for preserving
them. A reasonable degree of care may be taken to control category ‘B’ items while a
routine type of care may be applied to control ‘C’ category or residuary items.

On the Basis of Movement of Stores

On the basis of the movement or rate of consumption, stores items may be divided into:

(i) Fast Moving Stock: Fast moving stock indicates the items of materials which exhaust at a
very fast speed on account of high demand from production departments of a
manufacturing concern.

(ii) Slow Moving Stock: This category indicates the items of stores or materials which are
consumed or exhausted at a very slow speed on account of low demand from the
production departments of the manufacturing concern.

(iii) Dormant Stock: This category covers stores items which do not have any demand at
present and may regain demand in future. This category includes seasonal materials which
are required during specified seasons.

Advantages of Classification Of Materials

The main advantages of classifying stores items may be given as follows:

1. Helpful in Grouping of Stores Items: Classification process helps in the grouping of the
different items of materials in the store. Items falling under a particular category can be
stored at one place which ensures optimum utilization of storage space.

2. Easy Location: Proper classification of stores items helps in the easy identification of the
various items. The store-keeping staff can easily find out the materials whenever these are
required in the production departments.

3. Proper Accounting: Record-keeping process of properly classified items of stores is

simplified. Simplified record-keeping ensures accuracy in posting the receipts and issues in
the stores records.
4. Proper Care: By classifying the various store items on the basis of value, their relative
importance can be ascertained and suitable degree of supervision and control may be
exercised over them with reference to such value.

5. Avoidance of Duplication: Proper classification of the store items helps in avoiding the
possibility of duplication in stocking the same item of material.

6. Standardization: Classification helps in the standardization of various items in the stores.

Standardization of store items involves the variety reduction through the use of fixed sizes
and types. Standardization aims at having uniform standards for similar items.

Codification of Materials

 After having classified or grouped the various items of stores, it is necessary and
useful to codify them.
 Codification is the process of assigning a number or symbol to each store item in
addition to its name for making its identification easy and convenient.
 Codification of store items leads to saving in time and labour on account of
substitution of a symbol or number for a longer name.
 There are different kinds of store codes in use and most of them are specially
designed to suit the requirements of a particular organization.
 These codes may be based upon the nature of stock items, the purpose for which
these items are used or on any other basis which is considered as suitable according
to the local circumstances.
 Also, accurate identification of the materials may require a lengthy description which
may be complicated and hence may add to the confusion.
 Codification is necessary as it refers to as allotment of logical and systematic
numbers or alphabets or both (as a mixture) so as to help in simple but accurate
identification of the materials.

Advantages of Codification

The following are the main advantages of codification :

1. It avoids the long and unwieldy descriptions.

2. It tries to have accurate and logical identification.

3. It prevents duplication.

4. It standardizes the purchasing as well as storage.

5. It reduces the varieties.

6. It makes purchasing, recording, accounting, computerizing pricing, costing, location,

indexing and inspection efficient and result-producing.

7. It assures planned and quality production.

Systems of Codification

The following four systems of codification are commonly used in a materials department:

1. Alphabetical system is one in which codes to materials are allotted in alphabets which
have no relation to numbers. Each item of the storehouse is grouped according to nature,
use etc. of the item and materials are then analyzed from the point of view of codification.
Say, for example, Iron ore is given a code of IN-O and Iron Bars the IN-BA and so on.

2. Numerical system is one in which codes to materials are based on numbers. Numbers are
allotted as codes to materials making provision for future expansion as well. Say, for
example, Iron ore is given a code of 05—10 and Iron Bars the 11—67 and so on.

3. Decimal system is one in which codes to materials are again based on numbers but
instead of dash in between two number decimals are put. This makes the codes more
flexible and future expansion is very much possible. Say, for example, Iron ore is given a
code of or Iron Bars the 11. 67.03 and so on.

4. Combined Alphabetical and numerical system. This combines all the three above. Say, for
example, Iron ore is given the code of IN–05.10 and Iron Bars the IN-11.6 and so on.

Bins and Racks

 Bin is a compartment or a separated portion of a particular almirah, pigeon-hole,

cabinet, etc. utilized to store only one type of materials.
 A bin card is used for depicting the quality and quantity of the materials stored
therein.
 It functions as a materials movement record and as replenishment index.
 It is a brief version of the stock ledger pertaining to an item.
 It serves the purpose of a ready-reckoner for the item binned therein.
 It, thus, serves as a mirror of the bin. The following is the specimen proforma of a bin
card:
Fig 5.5 – Bin Card

 Racks are used for keeping materials inside the store.

 This is just like an almirah either open or close.
 They are mostly used for keeping general store items.
 They are in common use. Racks are fixed or movable frames of either wood or metal
bars.
 Racks for storing tubes, bars, sheets, plates, types, cables, drums, etc.
 The racks may also be specially designed.

CODIFICATION OF MATERIALS

 After having classified or grouped the various items of stores, it is necessary and
useful to codify them.
 Codification is the process of assigning a number or symbol to each store item in
addition to its name for making its identification easy and convenient.
 Codification of store items leads to saving in time and labour on account of
substitution of a symbol or number for a longer name.
 There are different kinds of store codes in use and most of them are specially
designed to suit the requirements of a particular organization.
 These codes may be based upon the nature of stock items, the purpose for which
these items are used or on any other basis which is considered as suitable according
to the local circumstances.
 Also, accurate identification of the materials may require a lengthy description which
may be complicated and hence may add to the confusion.
 Codification is necessary as it refers to as allotment of logical and systematic
numbers or alphabets or both (as a mixture) so as to help in simple but accurate
identification of the materials.
Advantages of Codification

The following are the main advantages of codification :

1. It avoids the long and unwieldy descriptions.

2. It tries to have accurate and logical identification.

3. It prevents duplication.

4. It standardizes the purchasing as well as storage.

5. It reduces the varieties.

6. It makes purchasing, recording, accounting, computerizing pricing, costing, location,

indexing and inspection efficient and result-producing.

7. It assures planned and quality production.

Systems of Codification

The following four systems of codification are commonly used in a materials department:

1. Alphabetical system is one in which codes to materials are allotted in alphabets

which have no relation to numbers. Each item of the storehouse is grouped
according to nature, use etc. of the item and materials are then analyzed from the
point of view of codification. Say, for example, Iron ore is given a code of IN-O and
Iron Bars the IN-BA and so on.

2. Numerical system is one in which codes to materials are based on numbers.

Numbers are allotted as codes to materials making provision for future expansion as
well. Say, for example, Iron ore is given a code of 05—10 and Iron Bars the 11—67
and so on.
3. Decimal system is one in which codes to materials are again based on numbers but
instead of dash in between two number decimals are put. This makes the codes
more flexible and future expansion is very much possible. Say, for example, Iron ore
is given a code of or Iron Bars the 11. 67.03 and so on.
4. Combined Alphabetical and numerical system. This combines all the three above.
Say, for example, Iron ore is given the code of IN–05.10 and Iron Bars the IN-11.6
and so on.
SAFETY STOCK INVENTORY CONTROL
SAFETY STOCK

Safety stock is an extra quantity of a product which is stored in the warehouse to prevent an
out-of-stock situation. It serves as insurance against fluctuations in demand.

Reasons for Keeping Inventories

1. To stabilise production: The demand for an item fluctuates because of the number of
factors, e.g., seasonality, production schedule etc. The inventories (raw materials and
components) should be made available to the production as per the demand failing which
results in stock out and the production stoppage takes place for want of materials. Hence,
the inventory is kept to take care of this fluctuation so that the production is smooth.
2. To take advantage of price discounts: Usually the manufacturers offer discount for
bulk buying and to gain this price advantage the materials are bought in bulk even though it
is
not required immediately. Thus, inventory is maintained to gain economy in purchasing.
3. To meet the demand during the replenishment period: The lead time for procurement
of materials depends upon many factors like location of the source, demand supply
condition, etc. So inventory is maintained to meet the demand during the procurement
(replenishment) period.
4. To prevent loss of orders (sales): In this competitive scenario, one has to meet the
delivery schedules at 100 per cent service level, means they cannot afford to miss the
delivery
schedule which may result in loss of sales. To avoid the organizations have to maintain
inventory.
5. To keep pace with changing market conditions: The organizations have to anticipate
the changing market sentiments and they have to stock materials in anticipation of non-
availability
of materials or sudden increase in prices.
6. Sometimes the organizations have to stock materials due to other reasons like suppliers
minimum quantity condition, seasonal availability of materials or sudden increase in prices.

Fig 5.6 - Safety Stock Levels & the associated effects of variability in the supply chain

INVENTORY CONTROL

 The simplest definition of inventory control, also known as stock control, refers to
the process of managing a company’s warehouse inventory levels.
 It is the process of ensuring the right amount of supply is available in an
organization. With the appropriate internal and production controls, the practice
ensures the company can meet customer demand and delivers financial elasticity.
 The inventory control process involves managing items from the moment they are
ordered; throughout their storage, movement and usage; to their final destination or
disposal.
 Many systems, processes, and technologies have been developed over the years to
help companies streamline the supply chain processes involved in inventory control
systems.
Fig 5.7 – Definition of Inventory Control

The below table explains different inventory types and the reason why such inventories are
held by the business.

Raw materials The reason for holding raw materials is to reap

the price advantage available on purchase of bulk
or on any seasonal raw materials which can be
procured only during the harvest seasons.

Inventory in work-in- The reason is to balance the production flow.

progress Let’s say if any batch order which requires the
same kind of raw material, it can be diverted from
the batch order that has been postponed by the
management for certain time thereby not
affecting the production flow.

Readymade components A company usually does not produce every

component that goes into the product.
Sometimes they buy readymade components
available in the market. In such a situation, it
becomes necessary for the company to hold stock
of those readymade inventories which are
required in the production of the final product.
Finished goods A company stocks the finished goods during the
waiting period until it finds its customer. In some
cases, more stocks are held to create demand for
the product and get a high price for the product.

From the above, it’s quite clear that for various reason, you need to hold inventories in the
business. In this process, how much to stock is an important question that needs to be
answered. Here is why inventory control plays an important role.

Objectives of Inventory Control

Benefits of Inventory Control

It is an established fact that through the practice of scientific inventory control, following
are thebenefits of inventory control:
1. Improvement in customer’s relationship because of the timely delivery of goods and
service.
2. Smooth and uninterrupted production and, hence, no stock out.
3. Efficient utilisation of working capital. Helps in minimising loss due to deterioration,
obsolescence damage and pilferage.
4. Economy in purchasing.
5. Eliminates the possibility of duplicate ordering.
INVENTORY CONTROL TECHNIQUES

1. ABC Analysis.

ABC analysis is an inventory control technique that categorizes inventory items based on
their importance and profits. ABC inventory categorization follows the 80-20 rule where
80% (almost) of revenues come from 20% (almost) of items. This 20% of items are
categorized as ‘A’ category. The next 30% of items are classified as ‘B’. And the bottom 50%
of items are classified as ‘C’. This categorization helps business leaders understand which
products or items are most important to the financial success of their business.

This ABC categorization technique splits items into three categories and controls
inventories based on their importance:

 Category A is the most valuable product contributing to overall revenues.

 Category B is the products between the most and least valuable items.
 Category C is the least valuable item, vital for general business but doesn’t matter
much individually.

1. Economic order quantity.

Economic order quantity (EOQ) is a formula for ordering an ideal quantity based on factors
such as purchase costs, carrying cost, holding cost, production cost, demands, and other
variables.

The primary objective of EOQ is to minimize related costs. The formula determines the
optimized number of product quantities to minimize the cost of goods sold (COGS). This
helps free up tied cash in inventory for most businesses.

This formula is effective when businesses benefit from rates for bulk purchases, carrying and
holding costs are significant factors, and costs decrease dramatically for large-scale
production.

EOQ = square root of: [2(demand)(order cost)] / holding costs.

2. VED Analysis.

VED Analysis is a popular inventory management strategy for small and medium-
sized manufacturers where some raw materials are vital but not easy to restock
quickly. This analysis helps to organize items for a production schedule.
According to their criticality, VED (Vital, Essential, and Desirable ) classifies materials
into three Vital, Essential, and Desirable.

Vital items: Vital items are required to continue the business. Without these items,
business becomes a stand-still. It is suicidal to stock-out vital items. Some items will
be crucial in your business, and you cannot compromise on stocks for them. Always
maintain a safe amount of inventory of these.

Essential items: Essential items are those whose stock-out cost would be very high.
These items won’t shut your shop, but your customers will expect you to have them.
After vital items, make sure enough stock of Essential items.

Desirable items: These are good to have and may not directly affect your business.
But they are adding more potential & opportunities. Maybe drops some sales due to
stock-outs, but it is very nominal and easily recoverable.

3. FSN Analysis:

FSN analysis stands for Fast-Moving, Slow-Moving, and Non-Moving. It is a simple yet
powerful inventory control technique used to categorize items based on their demand rate.
This helps businesses prioritize their inventory efforts, allocate resources efficiently, and
improve overall inventory performance.

Objectives of FSN Analysis:

 Identify and prioritize fast-moving items. These items require close monitoring,
accurate forecasting, and frequent replenishment to avoid stockouts.
 Optimize inventory levels for each category, reducing holding costs for slow-moving
and non-moving items.
 Establish appropriate ordering and replenishment policies based on the item’s
classification. This may involve different ordering frequencies, order quantities, and
safety stock levels.

4. HML Analysis:

HML analysis is a tool used in inventory management to categorize items based on

their unit price. It helps businesses prioritize their inventory control efforts and allocate
resources effectively. HML stands for:

 H: High-value items (highest unit price)

 M: Medium-value items
 L: Low-value items
The objectives of HML analysis are to:

1. Identify and prioritize high-value items. This ensures that these items are closely
monitored and controlled, minimizing the risk of stockouts and losses.
2. Optimize inventory levels for each category, reducing holding costs and improving
cash flow.
3. Establish appropriate ordering and replenishment policies based on the item’s
classification.

5. SDE Analysis:

SDE analysis, standing for Scarce, Difficult, and Easy, is a simple yet effective inventory
control technique that categorizes items based on the availability of their supply. It helps
businesses prioritize inventory control efforts, allocate resources efficiently, and improve
overall inventory performance.

Objectives of SDE Analysis:

 Identify and prioritize scarce items: These items are challenging to obtain and
require close monitoring and proactive management.
 Optimize inventory levels: Maintain sufficient stock of scarce items while minimizing
holding costs for easy-to-source items.
 Establish appropriate ordering and replenishment policies: Adapt policies based on
the difficulty of acquiring each item.
 Reduce inventory costs: Minimize procurement risks and costs associated with
scarce items.

6. GOLF Analysis:

GOLF analysis stands for Government Supply, Ordinarily Available, Local Availability, and
Foreign Source of Supply. It is a comprehensive inventory control technique that analyzes
items based on their source of supply. This analysis helps businesses
optimize procurement strategies, streamline inventory processes, and minimize costs
associated with inventory management.

Objectives of GOLF Analysis:

 Identify and manage risks associated with different supply sources. This allows
businesses to take proactive measures to mitigate risks and ensure the timely
availability of inventory.
 Optimize procurement processes for each source of supply, considering factors like
cost, lead time, and order quantity.
 Improve inventory visibility and control by tracking inventory levels and movement
based on their source.
 Reduce procurement and inventory carrying costs by identifying and eliminating
inefficiencies in the supply chain.

How GOLF Analysis Works:

1. Identify Inventory Items: List all items in your inventory.

2. Classify Inventory Sources: Categorize each item based on its source:
o G: Government Supply
o O: Ordinarily Available
o L: Locally Available
o F: Foreign Source of Supply
3. Analyze Each Source: For each source, consider factors such as:
o Cost: Price per unit, potential discounts, transportation costs.
o Lead Time: Time between placing an order and receiving the goods.
o Order Quantity: Minimum order quantity, economic order quantity.
o Payment Terms: Payment methods, credit periods, discounts.
o Quality: Consistency and reliability of supplier quality.
o Administrative Work: Documentation, communication, and other
administrative tasks.
4. Develop Procurement Strategies: Based on the analysis, develop specific
procurement strategies for each source. This may involve different ordering
frequencies, order quantities, safety stock levels, and supplier selection criteria.
5. Monitor and Review: Regularly monitor and review the performance of each source
to identify opportunities for improvement and adapt to changing circumstances.

7. XYZ Analysis:

XYZ analysis is a simple yet powerful inventory control technique that helps businesses
classify inventory items based on their demand variability and forecast accuracy. By
understanding the demand patterns of different items, businesses can allocate resources
effectively, optimize inventory levels, and improve overall inventory performance.

Divide items into three categories based on their CV:

 X (High Variability): High CV, indicating unpredictable demand and requiring close
monitoring and frequent ordering.
 Y (Moderate Variability): Moderate CV, requiring some attention and possibly
forecasting improvements.
 Z (Low Variability): Low CV, indicating predictable demand and allowing for less
frequent ordering and lower safety stock levels.

Objectives:

1. Identify and prioritize inventory items: Focus attention on items with high demand
variability and prioritize their control efforts.
2. Optimize inventory levels: Maintain sufficient stock to avoid stockouts while
minimizing holding costs for items with low demand variability.
3. Establish appropriate ordering and replenishment policies: Implement different
ordering frequencies, order quantities, and safety stock levels based on each item’s
demand characteristics.
4. Improve forecasting accuracy: Identify items with unpredictable demand and invest
in better forecasting methods for those items.

8. SOS Analysis:

SOS Analysis, standing for Seasonal and Off-Seasonal, is a specific inventory control
technique used for items with significant demand fluctuations based on seasonality. It helps
businesses optimize their inventory levels, prevent stockouts during peak seasons, and
avoid overstocking during off-seasons.

How SOS Analysis Works:

1. Identify Seasonal Items: Analyze historical sales data to identify items with
significant demand fluctuations across seasons.
2. Classify Demand Patterns: Categorize seasonal patterns into distinct periods like
peak season, off-season, and shoulder seasons.
3. Quantify Demand: Forecast demand for each season based on historical data,
market trends, and promotional activities.
4. Set Inventory Levels: Determine the minimum and maximum stock levels for each
season based on demand forecasts, lead times, and safety stock requirements.
5. Develop Ordering Strategies: Establish different ordering schedules and frequencies
for each season based on demand fluctuations.
6. Implement Promotional Strategies: Utilize targeted promotions and discounts
during off-seasons to stimulate sales and reduce inventory levels.
7. Monitor and Review: Regularly monitor inventory levels, sales data, and market trends
to refine forecasts and adjust strategies as needed.
MATERIAL HANDLING
Introduction

Raw materials form a critical part of manufacturing as well as service organization. In any
organization, a considerable amount of material handling is done in one form or the other.
This movement is either done manually or through an automated process.

Throughout material handling processes significant safety and health challenges are
presented to workers as well as management. Therefore, manual material handing is of
prime concern for health and safety professional, and they must determine practical ways of
reducing health risk to the workers.

Manual material handling ranges from movement of raw material, work in progress,
finished goods, rejected, scraps, packing material, etc. These materials are of different
shape and sizes as well as weight.

Material handling is a systematic and scientific method of moving, packing and storing of
material in appropriate and suitable location. The main objectives of material handling are
as follows:

 It should be able determine appropriate distance to be covered.

 Facilitate the reduction in material damage as to improve quality.
 Reducing overall manufacturing time by designing efficient material movement
 Improve material flow control
 Creation and encouragement of safe and hazard-free work condition
 Improve productivity and efficiency
 Better utilization of time and equipment

It is critical for manufacturing organization to identify importance of material handling

principle as the critical step in promoting the job improvement process. Manual material
handling significantly increases health hazard for the workers in from lower back injuries.

In the current competitive and globalized environment, it is important to control cost and
reduce time in material handling. An efficient material handling process promotes:

 Design of proper facility layout

 Promotes development of method which improves and simplifies the work process
 It improves overall production activity.
 Efficient material handling reduces total cost of production.

Principles of Material Handling

Material handling principles are as follows:

 Orientation Principle: It encourages study of all available system relationships

before moving towards preliminary planning. The study includes looking at existing
methods, problems, etc.
 Planning Principle: It establishes a plan which includes basic requirements, desirable
alternates and planning for contingency.
 Systems Principle: It integrates handling and storage activities, which is cost
effective into integrated system design.
 Unit Load Principle: Handle product in a unit load as large as possible
 Space Utilization Principle: Encourage effective utilization of all the space available
 Standardization Principle: It encourages standardization of handling methods and
equipment.
 Ergonomic Principle: It recognizes human capabilities and limitation by design
effective handling equipment.
 Energy Principle: It considers consumption of energy during material handling.
 Ecology Principle: It encourages minimum impact upon the environment during
material handling.
 Mechanization Principle: It encourages mechanization of handling process wherever
possible as to encourage efficiency.
 Flexibility Principle: Encourages of methods and equipment which are possible to
utilize in all types of condition.
 Simplification Principle: Encourage simplification of methods and process by
removing unnecessary movements
 Gravity Principle: Encourages usage of gravity principle in movement of goods.
 Safety Principle: Encourages provision for safe handling equipment according to
safety rules and regulation
 Computerization Principle: Encourages of computerization of material handling and
storage systems
 System Flow Principle: Encourages integration of data flow with physical material
flow
 Layout Principle: Encourages preparation of operational sequence of all systems
available
 Cost Principle: Encourages cost benefit analysis of all solutions available
 Maintenance Principle: Encourages preparation of plan for preventive maintenance
and scheduled repairs
 Obsolescence Principle: Encourage preparation of equipment policy as to enjoy
appropriate economic advantage.

Material handling operations are designed based upon principles as discussed above.
Material handling equipment consists of cranes, conveyors and industrial trucks.
FACTORS AFFECTING THE SELECTION OF MATERIAL HANDLING EQUIPMENT

The following factors are to be taken into account while selecting material handling
equipment.
1. PROPERTIES OF THE MATERIAL
Whether it is solid, liquid or gas, and in what size, shape and weight it is to be
moved, are important considerations and can already lead to a preliminary
elimination from the range of available equipment under review. Similarly, if the
material is fragile, corrosive or toxic this will imply that certain handling methods and
containers will be preferable to others.
2. LAYOUT AND CHARACTERISTICS OF THE BUILDING
Another restricting factor is the availability of space for handling. A low-level ceiling
may preclude the use of hoists or cranes, and the presence of supporting columns in
awkward places can limit the size of the material-handling equipment. If the
building is multi-storied, chutes or ramps for industrial trucks may be used. The
layout itself will indicate the type of production operation (continuous, intermittent,
fixed position or group) and can indicate some items of equipment that will be more
suitable than others. Floor capacity also helps in selecting the best material handling
equipment.
3. PRODUCTION FLOW
If the flow is fairly constant between two fixed positions that are not likely to
change, fixed equipment such as conveyors or chutes can be successfully used. If, on
the other hand, the flow is not constant and the direction changes occasionally from
one point to another because several products are being produced simultaneously,
moving equipment such as trucks would be preferable.
4. COST CONSIDERATIONS
This is one of the most important considerations. The above factors can help to
narrow the range of suitable equipment, while costing can help in making a final
decision. Several cost elements need to be taken into consideration when
comparisons are made between various items of equipment that are all capable of
handling the same load. Initial investment and operating and maintenance costs are
the major cost to be considered. By calculating and comparing the total cost for each
of the items of equipment under consideration, a more rational decision can be
reached on the most appropriate choice.
5. NATURE OF OPERATIONS
The selection of equipment also depends on the nature of operations like whether
handling is temporary or permanent, whether the flow is continuous or intermittent
and material flow pattern-vertical or horizontal.
6. ENGINEERING FACTORS
The selection of equipment also depends on engineering factors like door and ceiling
dimensions, floor space, floor conditions, and structural strength.
7. EQUIPMENT RELIABILITY
The reliability of the equipment and supplier reputation and the after-sale service
also plays an important role in selecting
SELECTION AND DESIGN OF HANDLING SYSTEM
TYPES OF MATERIAL HANDLING EQUIPMENTS
Material handling equipment can be classified into two categories, namely:
1. Fixed path equipment, and
2. Variable path equipment.
a. Fixed path equipment which moves in a fixed path. Conveyors, monorail devices, chutes,
and pulley drive equipment belong to this category. A slight variation in this category is
provided by the overhead crane, which though restricted, can move materials in any
manner within a restricted area by virtue of its design. Overhead cranes have a very good
range in terms of hauling tonnage and are used for handling bulk raw materials, stacking
and at times palletizing
b. Variable path equipment has no restrictions in the direction of movement although their
size is a factor to be given due consideration trucks, forklifts mobile cranes and industrial
tractors belong to this category. Forklifts are available in many ranges, they are
maneuverable and various attachments are provided to increase their versatility.
Material Handing Types of equipment may be classified into five major categories.
1. CONVEYORS
Conveyors are useful for moving material between two fixed workstations, either
continuously or intermittently. They are mainly used for continuous or mass
production operations indeed, they are suitable for most operations where the flow
is more or less steady. Conveyors may be of various types, with rollers, wheels or
belts to help move the material along: these may be power-driven or may roll freely.
The decision to provide conveyors must be taken with care since they are usually
costly to install; moreover, they are less flexible and, where two or more converge, it
is necessary to coordinate the speeds at which the two conveyors move.
2. 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,
therefore, most suitable for intermittent production and for handling various sizes
and shapes of material. There are many types of a truck- petrol-driven, electric,
hand-powered, and so on. Their greatest advantage lies in the wide range of
attachments available; these increase the truck’s ability to handle various types and
shapes of material.
3. CRANES AND HOISTS
The major advantage of cranes and hoists is that they can move heavy materials
through overhead space. However, they can usually serve only a limited area. Here
again, there are several types of crane and hoist, and within each type, there are
various loading capacities. Cranes and hoists may be used both for intermittent and
for continuous production.
4. CONTAINERS
These are either ‘dead’ containers (e.g. Cartons, barrels, skids, pallets) that hold the
material to be transported but do not move 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.
5. ROBOTS
Many types of robots exist. They vary in size, and in function and maneuverability.
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.
The choice of material-handling equipment among the various possibilities that exist is not
easy. In several cases, the same material may be handled by various types of equipments,
and the great diversity of equipment and attachments available does not make the problem
any easier. In several cases, however, the nature of the material to be handled narrows the
choice. Some of the material handling equipment are shown in the following figures.

Wheel conveyor
Screw conveyor roller

Belt conveyor

Roller conveyor

Jib crane
Bridge crane

Platform truck

Fork truck
Chain hoist

Electric hoist

Spiral chute
Industrial tractor

Electrical hoist

Materials Handling and Plant Layout

Evaluation of Materials Handling Performance

Safety in Materials Handling

QUESTION BANK
UNIT I

1. Define Production Management and Operations Management.

2. Explain role of operations management in total management system.
3. Explain Functions of Production Planning and Control.
4. Explain in detail types of production process
5. Explain about product life cycle and process life cycle?

UNIT II

1. What is aggregate planning?

2. Explain Master Production Scheduling.
3. Explain about product sequencing and factors affecting determination of plant capacity.
4. What is plant layout? Explain the types of layouts
5. Explain about factors affecting Factory location.

UNIT III

1. Define Forecasting and explain importance of forecasting

2. Explain types of forecasting
3. What are the general principles of forecasting?
4. Explain different methods of qualitative forecasting.
5. Explain different methods of quantitative forecasting.

UNIT IV

1. Briefly explain the steps involved in materials requirement planning.

2. How do you prepare the production plan? Explain with a suitable example.
3. Explain the various stages of manufacturing resource planning with suitable diagram.
4. Discuss the different inputs and outputs of materials planning in an organisation.
5. Explain about Enterprise resource planning scope, benefits and applications.
UNIT V

1. Explain responsibilities of a store, objectives of store management and types of store

layout.
2. Explain different methods of stock verification.
3. What are different techniques of inventory control and explain about ABC analysis.
4. What are the factors affecting selection of Material Handling Equipment?
5. Explain concept of material handling and Discuss Various material handling Equipments