Assignment Course: Operation Management

Session: Dec 2019

Question No.-1

Answer: Material requirement planning (MRP) is a system which calculates the material
and components required and ensures the availability of these at the right time and right place for
the manufacturing of a product. It basically consists of three steps taking stock of the materials
and components in hand, identifying which one will be required and then scheduling the plan for
production or purchase. MRP came into existence in early 1960’s and has significantly reduced
the inventory cost of the organizations by managing the proper inventory as per the requirement.

MRP breaks down inventory requirements into planning periods so that production can be
completed in a timely manner while inventory levels and related carrying costs are kept to a
minimum. MRP works from the beginning with a schedule for the finished goods which are
converted into the schedule for the required material and components. MRP is mainly used in
assembly plants where many parts and components are assembled to create one machine or job.
It allows its manufacturing unit to tell its supplier that which part is needed and when they will
be required for the continuation of the process.

MRP is also used to avoid losses due to unavailability of components and parts. For example my
company manufactures props for light, medium and heavy duty which are used in construction of
structures. For making one prop of medium duty we require 8 components/parts in total are
required out of which 5 parts/components are bought from outside suppliers and company
sometimes faces problem to receive one or two of parts due to unavailability of spare parts from
the supplier or due to our prior planning issues. Just because of this customer receives the job
late and they fine a heavy penalty of late delivery for that job. This is where an effective planner
can save by using MRP system.

Here by taking an example of my current company I shall be discussing the process of material
requirement planning in Khanna group of companies located at Asangaon, 85 km from Mumbai
central in thane district. We are the manufacturers of welded steel tubes, base jacks, props and
platforms of different variety. Here I will be taking an example of one prop which we make and
will be sharing the complete process of MRP of that prop (medium duty).

Product Name: Prop (Medium Duty)

BOM required as per specification released by design department and material of construction
shall be S:
Item No. Item Description Quantity Quantity Required for 100
per product Products
1 Outer Pipe (60.3mm x 3.35mm x 1 100
659mm)
2 Inner Pipe (48.3mm x 3.35mm x 1 100
579 mm)
3 Prop Nut 40 mm 1 100
4 Wire pin 1 100
5 MS plate (75 x 75 x 6.00 mm) 2 200
6 MS Rod (6mm dia x 605 mm) 1 100

The MRP process can be used for the above material requirement planning as the all above
material required are dependent on each other as if even one part is not available at the given
time then the product cannot be finished. Here are some steps which are involved in this process.

1) Identifying the required quantity: After receiving the design specification and product
quantity to manufacture from the design and marketing department we need to analyze
that which part and in what quantity will be required to finish a single product and on
basis of that we can find the total quantity required to complete the order. As given in the
above table to finish 100 props we require 200 pcs of 75x75x6.00mm plate and other
parts required are 100 each. Before ordering the requirement we also need to check
inventory for those given parts.
2) Getting details from created part: As we have found the quantity to order let’s assume
that we are at zero inventory. Considering that we need to make order for material by
fetching the detail from running MRP system we are able to select the material of
construction for the job. To avoid the ambiguity of wrong material order we always
prefer to select from the created work orders which are made by marketing team.
3) Doing MRP calculations: In this section all critical calculations are made by the MRP
system by itself at the will of user. We order the requirement in three stages as the
process takes 10 days to complete first part and consecutively 7 and 4 days to complete
next parts. We order the material as per this study.
4) Complete Orders: After all the calculations match the product with the requirement
and inform the final receipts are made by MRP in PDF form as output form which is
shared with the supplier as purchase order.

Thus the MRP helps the user to analyze the order and material required which finally gets the
product produced on time as per the required specifications.
Question No-2

Answer: - Aggregate operations planning abbreviated as AOP is very useful for operation
management. The main motive of the aggregate plan is to strike a balance among production
rate, workforce level and inventory on hand. AOP serves as a critical role of translating the
business plan and strategic intents into the operational decisions. Using AOP the
firm/organization ensures the continuous flow of goods and services to the customer. It generally
defines the amount of man-hours, production capacity required, targeted sales forecasts and what
amount of goods to be carry forward to store at inventory for continuous flow of goods to the
customer. In simple terms, aggregate planning is an attempt to balance capacity and demand in
such a way that costs are minimized. The term "aggregate" is used because planning at this level
includes all resources in the aggregate.

There are many reasons due to which every organization which are involved in product
manufacturing and service delivery to plan the operation at the aggregate level. Here are some
key merits which need attention for the AOP are as:-

1. Demand Fluctuation: Demand of products varies from time to time as the demands for
garments and jewelry increases in the festive season such as Diwali in India and Christmas
in western countries.
2. Capacity Fluctuation: As the demand fluctuates in season the capacity also fluctuates as
the days in February are 28 and in august is 31 which directly causes the decrease in the
capacity for the month of February. The shutdowns also affect the production capacity of the
plant.
3. Difficulty level in altering production rates: As we know the operational systems are
complex therefore it’s not easy to alter or vary the rate of operation from one level to another
level. For example if an company produces 1000 cars a day it cannot produce the 1500 cars
without prior planning such as ensuring components delivery from supplier and capacity of
the plant.
4. Benefits of Multi-period planning: Sometimes it is expected a hike in demand in next
months but the planners make a plan for particular month and make inventory in particular
month to meet the upcoming demand instead of making manpower overtime in later months.

Although after studying the demand and supply gap it is still difficult to certainly tell about the
specific combination which will work. There are two planning strategies are available to the
aggregate planner which are level strategy and chase strategy. Organizations can choose one of
these strategies to imply separately or the use them in combination as discussed below:-

 Level Strategy: As the name suggests itself in this strategy an aggregate plan is
made to maintain a steady production rate or a steady employment level. In order to
satisfy the changes in the customers demand the firm raises and lowers the level of
inventory. During the low demand period the level of inventory is increased which is
 used in during the period of high demand. Level strategy allows a firm to maintain a
constant level of output and still meet demand.
For example if we see the demand of garments in India, it increases during the festive
season of Diwali but nominal in the other months, but if the manufacturer uses this
strategy it can fulfill the customer’s requirement easily and on time. Level strategy
provides the advantages of stable output rates and workforce but it also causes negative
results such as costs of excess inventory, backorder costs and increased overtime or idle
time.

 Chase Strategy: In this method of AOP the demand and capacity are matched
period by period which could result in hiring and firing or laying off the employees as per
the requirement that would put an additional cost on the organization and insecure,
unhappy employees and problem with employee unions. 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.
For example during period of high demand additional workers are hired, the overtime is
increased, workers are permitted to do overtime and more capacity is obtain through the
out sourcing to complete the demand. Similarly during period of low demands workers
are fired, others are permitted to go under time and the numbers of working hours are
reduced.

 Mixed Strategy: It is the combination of both level strategy and chase strategy;
therefore it can be defined as one that employs a combination of the available alternatives
for AOP. In some scenario where one on the strategies don’t work the planner mixes the
both level and chase strategy for the production planning. For mixed strategy example:
a. Do not hire or layoff. Adjust the work by planning effectively in shifts with
constant working hours and no. of workers.
b. Building inventory before arising of demand and using bask orders to level peak
orders
c. Use workers for Preventive maintenance during still times.

All strategies work as per the requirement of product or the type of industry but if I take the
example of my company which is a steel tube manufacturing company then we use the mixed
strategy in which we roll the tubes on the base of chases strategy as when we have the orders for
export then we plan to complete the orders within a given time period. The level strategy is used
when we are to produce for the local market hence we use the mix of both types of strategies i.e.
mixed strategy.

Question No. - 3

Answer 3a: Plants locations are not selected overnight or over a cup of coffee, it takes
significant research and analysis along with a certain amount of time for the selection of
locations available as per the market and product manufacturing requirement. There are many
factors which can affect the decision for selecting the location of a plant which are:-

1. Availability of Raw Product and infra-structure: - Ethane crackers are plants

that perform the first step in the process of transforming ethane – a component of natural
gas – into plastics products. The plant is to be developed and constructed in Ras Laffan
Industrial City, an industrial hub located 80 km north of Doha, Qatar, which is
administrated by Qatar Petroleum because of the availability the raw product (i.e. ethane)
by US shale basins, including the prolific Permian Basin. Selecting location of any plant
also depends on the infrastructure availability and the selected position has world class
abundant amount of available area options for feed stock available at competitively good
price. The facilities for the transportations of raw product and finished goods are very
good in the selected region which is developing as a hub for petrochemical projects as
major oil and chemical companies.
2. Work force and Education: - Plant location must be convenient and easily
accessible to skilled workforce. Most businesses require skilled-labor force such as
engineers, management experts, computer programmers, etc. The region offers
advantages in terms of availability of skilled labor. As per the survey by planning and
statistic authority Qatar in 2017 Labor force in Qatar amounted to 2.057 million
economically active persons, a rise of 0.1% vis-à-vis the previous year; most of them are
females since females account for 278 thousand, a 2% annual growth rate compared to
2016
(source:https://www.psa.gov.qa/en/statistics/Statistical%20Releases/Social/LaborForce/2017/s
tatistical_analysis_labor_force_2017_En.pdf). This shows that the location doesn’t have
problem for the workforce.

3. Regulatory and Policy Issue: The setting of a plant requires the approval from the
respective government in which the plant is to be setup else from raw material,
infrastructure availability and skilled worker available as if without the approval of
government all other things and investments will be wasteful. Therefore the approval and
support from the government is very necessary. The Qatar government has provided its
full support to the said project as the Qatar petroleum is the major stock holder in the
project i.e. of 70%.

4. Market Availability: The availability of market for any plant is necessary for its
growth and sustainability. The competition in the market from its available and nearby
competitors. The cost of the product affects the market share of any company if the cost
of transportation is greater than this will increase the cost of the product; therefor it’s
good for any company if the transportations cost is lower and market availability are
near.
 5. Other Issues: The other issues which are considered for selecting a location for
making a plant can be availability and cost of land, climate conditions, supporting
industries and services along with no conflict with local communities.

Thus the location selection for any plant takes pretty much consideration as setting a plant is
itself a long procedure and it can take from 6 months to 5 years. The location selection for plant
like ethane cracker as these plants also needs safety related requirement approvals from
governments.

Answer 3b: In manufacturing industries plant layout consists of configuring the plant site with
lines, buildings, major facilities, work areas, aisles, and other pertinent features such as
department boundaries, machine locations:

1. Process Layout: These types of layouts are primarily found in job shops or where
the product volume produced is low which may require different processing and sequence
of operations. In this type of layout operations of similar nature are put together for
example operations like grinding, cutting and grooving can be grouped together in
workshop. This type of layout gives the firm the flexibility needed to handle a variety of
routes and process requirements. Services that utilize process layouts include hospitals,
banks, auto repair, libraries, and universities. Sometimes, the general-purpose
equipment utilized may be less costly to purchase and less costly and easier to maintain
than specialized equipment. Process layouts are not particularly vulnerable to equipment
failures as there are multiple machines available.

Milling Lathe Assembly

Machines

Welding Grinding Inspection Shipping & Painting

Receiving

2. Product or Line Layout: This layout is used for standardized products that require
highly standardized, repetitive processes. In a product layout, resources are arranged
sequentially, based on the routing of the products. In theory, this sequential layout allows
the entire process to be laid out in a straight line, which at times may be totally dedicated
 to the production of only one product or product version. In this layout one process is
done after the completion of the first process in that sequence.

Turning Milling Drilling Assembly Inspection Packing &

Operation Machines Dispatch

The main advantage of product or line layout is that it requires less investments in machine
equipment’s as machine duplication is not there and the equipment utilization is better. It
also has some disadvantages and the main disadvantage is that the machines have to be
idle if the previous processing is not done on time.

3. Fixed Position Layout: As the name tells itself the position of the machines are
fixed and the equipment, other material parts, components and men are brought to this
location. The major component of the body or the machine is fixed in a particular
position as it is too heavy to relocate it. This type of layout is used by manufacturer of
boiler, hydraulic and steam turbines and heavy jobs etc.

Boiler Building Yard

Men
Finished Product
Material
(Boiler)
Equipment

This type of layout has greater flexibility and helps in job enlargement and skill up gradations of
labor.

4. Combination type of layout: This layout is as the name suggests is the

combination of the all layouts such as process layout can be used for any process and the
fixed position lay out can be used in finished goods and packing & dispatch. This type of
layout is flexible and can be modified as per the requirement of the industries.