Operation Management Combined

Topic 1
Introduction to Production Management,

Nature and Scope
Books
1) Operations management By Mahadevan
2) Production Operations management by Kanisha Bedi
3) Production Operations management by Chary
4) Production Operations management by Ashwathapa
Bhat
5) Operations Mgt by Prof Jamshed Modi
K J Somaiya Institute of Management, India

Value-Added Process
The operations function involves the conversion of
inputs into outputs
Value added
Inputs
Transformation/ Outputs
Land
Conversion Goods
Labor
process Services
Capital
Feedback
Control
Feedback Feedback
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Operations Management
A systems Perspective
Forecasting
PROCESSING
Labour Process & Purchasing & Goods
OUTPUT
Product Inventory
INPUT
Design Control
Material
Capital Operations Material & Services

Planning & Capacity
Control Planning
Feedback
Quality Maintenance Process
Management Management Improvement

What is Operations
Ops management will address the questions that the organization faces in its choice
of products and manufacturing technology, utilization of capacity , quality, costing
and sourcing of raw materials and customer handling policies.
▪An operations system is defined as one in which

▪ several activities are performed
▪ to transform a set of inputs into useful output
▪ using a transformation process.
▪ to fetch revenue to the system

Operations
A key functional area in an
Organisation
Finance
Operations
Marketing HRM

Resources of an Enterprise
▪Machines
▪Methods
▪Materials
▪Men
▪Money
--------------------------------------
▪Time
▪Information

Manufacturing & Service
Similarities & Differences
Manufacturing Organisations Service Organisations

Differences
Physical durable product Intangible, perishable product
Output can be inventoried Output can’t be inventoried
Low customer contact High customer contact
Long response time Short response time
Large facilities Small facilities

Capital intensive Labour intensive
Quality easily measured Quality not easily measured
Similarities
Is concerned about quality, productivity & timely response to its customers
Must make choices about capacity, location, layout
Has suppliers to deal with
Has to plan its operations, schedules and resources
Balance capacity with demand by a careful choice of resources
Has to make an estimate of demand
Service Operations
▪ Tangibility: Services are performances and actions rather than objects,
therefore having poor tangibility
▪ Heterogeneity: High variability in the operation system performance
▪ Simultaneous Production & Consumption: Degree of customer contact is
very high
▪ Perishability: Services cannot be inventoried as in the case of manufactured
products

Food Processing Industry
Inputs Processing Outputs

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

Hospital Surgery patients
Medical Supplies Monitoring
Equipment Medication
Laboratories Therapy
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Types Of Operations
▪ EXTRACTIVE
MINING
▪ TRANSFORMATIVE
* MACHINERY, CHEMICAL & PHARMA, METALS, TEXTILES
* MANUFATURING, CONSTRUCTION, FOOD PRODUCTS, UTILITIES
▪ DISTRIBUTIVE
* TRANSPORTATION & STORAGE * WHOLESALE & RETAIL TRADE
* COMMUNICATIONS * POSTAL & COURIER SERVICES
▪ SERVICES
* BANKING/ CREDIT/ FINANTIAL SERVICES, INSURANCE, LEGAL
* ACCOUNTING/ BOOK-KEEPING, ENGG./ ARCH, MGT. CONSULTANCY
*HOTELS/LODGING, LAUNDRY, REPAIRS and MAINT, ENTERTAINMENT
*MEDICAL/ HEALTH, EDUCATION, WELFARE, RELIGIOUS

Key Decisions of Operations Managers
▪What
What resources/what amounts
▪When
Needed/scheduled/ordered
▪Where
Work to be done
▪How
Designed
▪Who
Will do the work
• Why
To do the work
7/9/2021
Some of the challenges faced by operation Department include
▪ Addressing several issues varying in terms of time horizon, nature of
decisions
▪ Addressing design & operational control issues in the transformation
process
▪ Developing a set of measures to assess performance of the system
▪ Extent of cooperation with other departments
▪ Competition after the economic reforms
▪ Customer expectations
▪ Change: technology, environmental
▪ Keeping costs to a minimum
▪ low productivity and long lead time
▪ customer satisfaction, reducing lead times and meeting due dates

MTR food
- Fastest growing veg processed food company in India, market leader
- In 2008 it had turnover of USD 20 million, growing at 30% pa
- Provides authentic meal solutions to today’s consumer
- Product Portfolio: Processed foods, ready to eat, ready to cook, frozen, spices and spice
blends, and pickles
- Employs about 800 people factory has 8 divisions each with modern manufacturing
facilities. Makes use of technology derived from DFRL
- -maintains consistency and quality standards
- Food is packed in aluminum foils increases shelf life , autoclave process,
- Scan through X ray
- Large variety of packing material, for range of product and pack sizes.
- Major challenge for them is forecasting the demand for food . Forecasting accuracy is
important. Forecast is based on experience, seasonal variation and growth
- New product development innovation new tastes /preferences and the capacity to translate
them to final product .
- Right manuf process
- Planning and supply of raw material ingredients.

Thank
You
simsr.somaiya.edu
K J Somaiya Institute of Management, India 15

Operations Strategy
Subtitle goes here

▪Strategic planning exercise
▪ Enables an organisation to respond to the market needs in the most
effective manner
▪ By aligning various resources and activities in the organisation
▪ To deliver products & services that are likely to succeed in the
market i.e competitive advantage.
▪ A good strategy brings rewards to the organisation in terms of
profits, higher market share and a dominant position in the sector
▪Operations Strategy
▪ Is a process by which key operations decisions are made that are
consistent with the overall strategic objectives of a firm
▪ Decisions in the operations function are made on the basis of the
inputs from the overall corporate strategy

Need for Operations Strategy
▪ Competitive dynamics & expectations of customers change with time
▪ Due the changes in market place, competitive priorities for an
organisation is likely to change
▪ While it was customary for people to book for a passenger car and wait for a few
months to get delivery of the car, today a manufacturer of passenger cars cannot
afford to make customers wait that long
▪ ABB Ltd. reported that the price of a 33 KV circuit braker dropped from Rs.
275,000 in 1990 to Rs. 180,000 in 1999.
▪ Need a mechanism to systematically respond to these changes in the most

effective way
▪ Need to tune their operations to match with the competitive priorities
▪ Example is LMW

Strategy formulation process
Competitive
Order winners
Dynamics at
Order Qualifiers
the marketplace
Strategic options for Generic Competitive Priorities

Sustaining Quality, Cost,
competitive advantage Delivery, Flexibility
Firm level
Strengths & Corporate Strategy
Weaknesses
Strategic decisions for Measures for

Operations System
Operations Strategy Operational Excellence
Order Qualifiers & Order Winners
▪ Order qualifying attributes are the set of attributes that customers expect in the
product or service they consider for buying
▪ Order winning attributes are other attributes that have the potential to sufficiently
motivate the customer to buy the product or service
▪ What constitutes order winning and order qualifying might change from time to
time
▪ During the early 1980’s providing superior quality products was an order
winning attribute. However, in the 1990’s quality became an order qualifying
attribute as customers began to expect high levels of quality
▪ Order winning attributes include efficient consumer response, speed, variety
and convenience

Operational Excellence
Performance measures
Mahadevan (2007), “Operations

Management: Theory & Practice”,
© Pearson Education
Measures for operational excellence: An example.
Comparison on the basis of some operational
measures
Performance Criterion for Comparison (1987) Japan@ U.S.*
Production of vehicles (Million) 4 8

Number of employees 37,000 850,000
Parts on which detailed Engg. is done (%) 30 81
No. of employees in purchasing 337 6000
Number of suppliers for upholstery 1# 25**
Design to customer delivery time (months) 46 60
@ - Data pertaining to Toyota; * - Data pertaining to GM

# - Single supplier; ** - 25 Suppliers were supplying components to seat buiding department.
Mahadevan (2007), “Operations

Management: Theory & Practice”,
© Pearson Education
Strategic Decisions in Operations
Options
Translating the corporate strategy into operations strategy boils down to making certain
choices with respect to design and operational control
Product
Portfoli
o
Supply
Chain Strategic Process
Options
for
Operation
s
Tech-no Capacit
logy y

Operation Strategy Options
Product Portfolio
• Product portfolio pertains to decisions on
– what products the organisation wants to produce
– the number of variations in each product line
– the extent of customisation offered to customers
• Product portfolio as a strategic option
– Wide product portfolio: Overall strategic objective is to provide highly differentiated set
of products and services to the customer
– Narrow product portfolio: Overall strategic objective is one of cost leadership
Process Choices
▪ Three types of flow happen on account of process choices:
▪ Continuous streamlined flow
▪ Intermittent or batch flow
▪ Jumbled flow
▪ Choice of process will be consistent with product portfolio decisions
▪ A manufacturer emphasising on production volumes, fewer varieties and optimised
cost will make process choices pertaining to continuous streamlined flow
▪ An organisation wishing to satisfy an objective of providing wide range of products to
the customers will adopt batch/intermittent flow type
▪ the need to provide a very large variety and practically a production volume of one or
few will adopt jumbled flow

Technology Choices
▪ Technological advancements in recent years have given new opportunities for creating
competitive advantage for firms
▪ Case of Asian Paints utilising technological advancements for mixing of basic
pigments to distribute paints in large varieties of colours and in large assortment of
sizes
▪ Using new technology options (such as computer integrated manufacturing) for
processes, organisations can……
▪ react faster to customer needs
▪ yet maintain high levels of productivity
Lower in-process inventory: Several of the above benefits directly translate to lower
work in process inventory and reduced cost of manufacturing.
Increase Resource utilization
Ease of Changes to designs and plans
Cut down on lead time

Capacity
Capacity decision influences the profitability of a firm
▪ accrued cost advantage due to economies of scale
▪ Ability to spread fixed costs over a larger capacity
Supply Chain issues

▪ Two types of supply chains can be configured:
▪ Efficient supply chain: objective is cost optimisation and better utilisation of resources
employed in supply chain operations; typically used in the case of functional products
▪ Responsive supply chain: the key objective is to develop a capability to respond fast to
the market requirements; typically used in the case of innovative products

Breakeven analysis
F – Fixed costs of production

v – Variable cost of production of one unit
p – Selling Price of one unit of the product
c – Contribution of one unit of product towards the fixed costs
S – Sales volume (in terms of number of units)
BEPSales – Sales volume required to achieve breakeven
Contribution Margin (c) = p – v
BEPSales =

Breakeven Analysis
A company manufactures a certain component, which it is able to
sell at Rs. 15 per component. The variable cost of the component is
Rs. 10 per unit. If the company has made a total investment in fixed
costs to the tune of Rs. 30,000, what is the breakeven sales for the
component?
Solution
F – Fixed costs of production = Rs. 30,000
v – Variable cost of production of one unit = Rs. 10
p – Selling Price of one unit of the product = Rs. 15
Therefore contribution of one unit of product towards the fixed costs, C is

computed as:
c = p – v = 15 – 10 = Rs. 5
BEPSales =

▪ Explains significance of having greater production capacity to lower
costs and maximize profit
▪ Break-even analysis is a technique widely used by production
management and management accountants.
▪ Total variable and fixed costs are compared with sales revenue in
order to determine the level of sales volume, sales value or production
at which the business makes neither a profit nor a loss (the
"break-even point").
▪ That said, analysing the BEP can help to determine whether a new
product has enough critical mass to make a profit and is feasible to be
launched.

Limitations of Break even analysis
▪ Limitations Break-even analysis is only a supply side (i.e. costs only)
analysis, as it tells you nothing about what sales are actually likely to be for
the product at these various prices.
▪ It assumes that fixed costs (FC) are constant. Although this is true in the
short run, an increase in the scale of production is likely to cause fixed costs
to rise.
▪ It assumes that the quantity of goods produced is equal to the quantity of
goods sold

Thank You
simsr.somaiya.edu

Design Of Processes

SCM
Company or organisation
Design Planning and Improvements

Phase Execution Phase
Purchasing Phase Sales & Distribution
Strategy JIT
Forecasting
Capacity TPM
Aggregate
Raw Materials New product Planning Kanban Finished goods
dev
MPS 5S
Location
MRP Value
Layout analysis
Business Resources Key Impacts/Outputs
Environme • Men Decision • Cost
nt • Material • What • Quality
• Machines • Where • Service
• Customer
• Money • When • Speed/Time
• Competitio
n • Who • Flexibilily
• Markets • Why
• Change • Time • How
• Information

Understanding of any Operations system begins with understanding of the
PROCESSES in that system. A PROCESS is a basic building block of
Operation.
For example, Fast food joint.

Customer places an order . The outcome is determined by the process
employed to satisfy the demand.
The number of resources consumed, time taken to serve, number of people

involved, cost involved will all depend on the process design
Process Design will in turn indicate the -----

time needed, utilization of resources and productivity of the resources.

Process mapping is about understanding the steps in performing a business
process.
Data about the process is collected. Helps in understanding the unnecessary
steps or activities.
In an organistaion there are several business processes and these consume
resources and time and hence lead to cost.
Hence improvement in cost, lead time and resource utilization calls for
understanding the BUSINESS PROCESSES thoroughly.
Throughput Time:
Cycle time
Bottleneck

Process Design indicates how the manufacturing resources are organized in the
system so that the flow patterns are optimized . It is defined by the nature of
activities that we pursue.
Design of Processes is an imp early step in OM.
It consists of the Choices we have to make regarding the flow of parts in a
manufacturing system.
For ex type of machine to use, the number of machines of each type and their
placement on the shop floor.
A detailed analysis of how each component will be manufactured. This means
determining the number of steps involved in the manufacturing
Design of process leads to process planning.
Factors that influence the choice of process……………

Value added
Waste In a process the activities that do NOT add Value as perceived by the
customer is waste
Value Stream all the value added activities that are needed to be performed from the
time the customer places the order to the time the time the order is fulfilled.
Concept to launch,
order to delivery
raw material to FG
Some non value added …..

Waste of carrying Inventory. Having incoming and outgoing inspection
Having army of progress chasers. Expensive follow up with suppliers.
Waste of making defects… This not only costs money but also interrupts the flow of
production
Waste of unnecessary Motion Moving and storing components add cost not value, job
traveling large distances.
Machine breakdowns, rework.

Factors Influencing Process Choices
Volume: quantity of the products produced in a manufacturing system
Low volume: Turnkey project management firms such as L&T and BHEL
High volume: Consumer non-durable and FMCG sector firms, Chemicals, bulbs
Mid-volume: Consumer durables, white goods and several industrial products
Variety: Number of alternative products and variants of each product that is offered
by a manufacturing system
Variety of product offerings is likely to introduce variety at various processes in
the system; alternative production resources, materials, and skill of workers
example Tata Motors power windows Titan watches.
A variety in product offering will also include variety in manufacturing process
(different machines, raw materials resources and skills)
Example: travel agency
Flow: Flow indicates the nature and intensity of activities involved in conversion of
components and material from raw material stage to finished goods stage. It provides
for clues to the operations manager about the production planning and control required.

Relationship between volume and
variety
Hig h
h Hig
Volume Variety
Mass Mid volume Project

Production Mid variety Organisations
Petrochemicals, Motor Manufacturing Turnkey Project
Automobile Pharmaceuticals Execution

planning strategies
planning premises are in use in operations management;
▪ Make-to-Stock: more amenable for systems with fewer product varieties and
high production volume
▪ Assemble-to-order: useful for intermittent flow systems catering to the

mid-volume mid-variety situations
▪ Make-to-order
▪ Engineered to Order

Processes & Operations Systems
Available Alternatives
▪ Process characteristics are largely determined by the flow of products in the
operating system
▪ Three types of flows occur in operating systems:
▪ Continuous
▪ Intermittent
▪ Jumbled

Continuous Flow System
▪ Characterized by a streamlined flow of products in the operating system
▪ Conversion process begins with input of raw material at one end, progresses
through the system in an orderly fashion to finally become finished goods at
the final stage
▪ Production process is sequential and the required resources are organized in
stages
Examples:
▪ several chemical processing industries such as manufacture of
petrochemicals,
▪ steel, cement and glass
▪ high volume production of very few varieties (such as electrical bulbs
or spark plugs)

Paper Manufacturing
An example of process industry
Logs and chips Crushing of Processing of

of wood stored logs and chips the wood
Preparatory
Drying the Refining the Cleaning &

wood pulp Wood pulp Bleaching
Pulp making
Stretching Cutting
Paper rolling Final packing
Paper making
Operations Management Issues
Process Industry
▪ The notion of capacity

▪ Flow rate determines capacity
Importance of maintenance
▪ Need to maximize productivity
▪ Once the logs are fed to the system it is not possible to stop the system
▪ There must be a balance of capacity between all stages of manufacturing
to maintain an even flow of materials from raw material to the finished
goods stage
▪ Failure at any intermediate stage will have an adverse effect on the entire
system

Discrete manufacturing
▪ In discrete manufacturing various components are manufactured in

discrete fashion and the final product is obtained through an
assembly process
▪ In a mass production system, the volume of production is very
high and the number of variations in the final product is low
▪ Examples:
▪ Automobile and two wheeler manufacturers,
▪ Manufacturers of electrical components such as switches and health care
products such as disposable syringes
▪ The entire manufacturing is organised by arranging the resources

one after the other as per the manufacturing sequence (known as
product line structure)

Intermittent Flow System
▪ All firms do not have the benefit of high volume production system.
▪ As customer preferences increases a firm tries to give options and variety.
▪ Also as competition increases, a firm will try to beat over the competition by
adding newer products
▪ Example Pumps
▪ When variety increases the volume for each variation will be lesser

Intermittent Flow System
▪ Characterized by mid-volume, mid-variety products/services
▪ Manufacturing resources will be shared by group of products example car paint shop
▪ Each product has different processing requirements and sequence of operations . this Increases
the flow complexities
▪ Flow and capacity balancing are difficult but important
▪ Pharma industries use batch production methods
▪ Capacity Estimation is difficult
▪ Production Planning & Control is complex
One batch can be produced in one of these units and another batch in another unit.
Manuf resources are organized on basis of similarity of manuf process

Components of various product variants will flow intermittently up to the final assembly stage
Issues in Intermittent:
1)Capacity estimation is complex
2)Changeover from one variety to another , impact of changeover
3)Layout of machines

Jumbled Flow System
▪ Occurs on account of non-standard and complex flow patterns characteristic
in certain systems
▪ Highly customized items
▪ customer orders for one or a few
▪ Examples
▪ project organisations such as BHEL or L&T
▪ Customized manufacturing systems (Job Shop) such as Tool Room, PCB
fabricator, sheet metal fabricator, printing and publishing service.
▪ There is unique process design. Organization cannot get the benefit of
batching or repetitive manufacturing
▪ Capacity, Cost accounting and estimation systems are crucial as there is a
constant need to quote for specific customer orders
▪ Ex construction multiple entities are involved such as architects govt
bodies, construction workers society etc.
▪ Many stages are there : design, foundation, design, electrical systems , air
conditioning, super structure

Volume Discrete Process
High Mass production Continuous flow

production
Medium Batch Batch
Low Job Shop X

Complexity of Operations
Management
Some indicators
i gh
H
t y in
e
ari els,
t er V , Mod ngs, s
ea cts uti ce
Gr rodu ss Ro choi
P e gy
• roc olo
• P echn
• T
r d er Engineered to Order
to O
M ade
Order
le to
emb Jumbled Flow
Ass
o S tock Intermittent Flow

et
Mad
o w
L Continuous Flow

Thank You
simsr.somaiya.edu

PRODUCT
DEVELOPMENT
Subtitle goes here

PRODUCT DEVELOPMENT PROCESS
India’s Role in R & D
Is fast emerging as a R&D hub
Companies:
Microsoft Oracle, DELL, SAP labs
Mico Bosch, Daimler Chrysler Research Center
Rolls Royce has tied up with IISc
Boeing is tying up with HCL tech for navigation systems
Reasons ???

Product development process is
▪ A broad set of tools, techniques and concepts that
▪ Enables firms to bring out new products & services
▪ faster and at a lower cost
Operations management addresses the issue of innovation by
enabling firms with distinctiveness in the offering.
This distinctiveness may be
in the product or
in the manufacturing technology or
in the channel it employs or
in the business process
Example : DELL direct selling model

Product Dev – key to Competitive Advantage
A company with a good product development process will be in a
better position to bring out new products and services.
There by stay ahead of the competition and retain its customers and
market share.
Innovation, understanding of customer preferences, capacity to

translate this into the final product through choice of raw materials,
blend and production. New recepies are developed, tested before
launch.
Organizations have experienced several tangible benefits from a

good product development process.
While Japanese manufacturers such as Honda and Toyota
introduced as much as 85 models between 1982 and 1989, the
American counterparts were able to introduce only 49 models

Product Development Process
Possible outcomes/benefits
Potential Benefits/Outcomes
Provides unique benefits and features for the
customers
Meets customer expectations better than existing
Customer
products
Dimensions
Provides better quality as perceived by the
customers
Results in innovative offerings to the customers
Simplifies product use and maintenance
Sustained
Performance Addresses environmental issues pertaining to
manufacture, use and disposal
Simplifies the manufacturing process
Operational Simplifies the assembly process
Advantages
Enables faster new product introduction

Strategic
Reduces the cost of the product
Advantages
Provides capabilities for mass customisation
Four Stages
▪ Concept Generation: understanding what the customer needs are
and translating them into alternative ideas for products that
services that can be developed. New products are the outcome of
a need to close the Gap that exist in the market w.r.t customer
needs
▪ Design: detailed specifications are first drawn about the
product/service. Particularly the shape, size, weight, finish,
material used etc
▪ Development: physical development of the product; during this
stage, the details arrived at the drawing board are physically
transferred to reality
▪ Production: efficiency and effectiveness of the manufacturing
process, equipment, machines and the sources of supply

Sequential Decision Points

Tools for efficient product development:
Understanding customers needs
Quantitative Analysis
Market Research • Statistical analysis
• Hypothesis Testing
Focus Groups Qualitative Analysis

•Reproduce
In-depth qualitative customers
own words
interviews
Translate
Create Bundles of
Hierarchy of
Customer
Customer Needs
Attributes

Competitor Analysis:
An understanding of what the current offerings are and how gaps
and problems identified can help to offer valuable inputs for further
development.
Reverse Engg
Benchmarking- specific parameters are chosen to be benchmarked

such as cost performance, ease of maintenance ease of
manufacture assembly and distribution. Once the parameters are
identified, the data collection and analysis will reveal the positioning
of ones own product v/s competitors product

The Software Product Development Process.

Thank You
simsr.somaiya.edu

Facility Location
Subtitle goes here

Facility Location
▪ Process of determining a geographical site for the production
operations to achieve maximum operating economy and effectiveness
What are the factors that influence location

How can the location issue be approached
What are the methods available for choosing a location
Ex: Tata Nano at Singur
Location decisions determine the flow of materials

Operating cost of the firm
cost of manufacturing and logistics and distribution

▪ Tata Nano Singur Controversy refers to the controversy generated by land acquisition of
the Nano factory of Tata Motors at Singur in Hooghly district, West Bengal, India.
▪ Singur gained international media attention since Tata Motors started constructing a factory
to manufacture their $2,500 car, the Tata Nano at Singur. The small car was scheduled to roll
out of the factory by 2008.[1]
▪ The state government of West Bengal facilitated the controversy by using 1894 land
acquisition act rule to conduct takeover of 997 acres (4.03 km2) of farmland to have Tata
build its factory.[2]
▪ The rule is meant for public improvement projects, and the West Bengal government wanted
Tata to build in its state. The project was opposed by activists and opposition parties in
Bengal.
▪ The choice of Singur was made by the company among six sites offered by the state
government. The project faced massive opposition from displaced farmers. The unwilling
farmers were given political support by West Bengal's opposition leader Mamata Banerjee.
Banerjee's "Save Farmland" movement was supported by environmental activists like Medha
Patkar, Anuradha Talwar andArundhati Roy. Banerjee's movement against displacement of
farmers was also supported by several Kolkata based intellectuals Leftist activists also
shared the platform with Banerjee's Trinamool Party.
▪ The Tatas finally decided to move out of Singur on 3 October 2008. Ratan Tata blamed
agitation by Banerjee and her supporters for the pullout decision. On 7 October 2008, the
Tatas announced that they would be setting up the Tata Nano plant in Sanand, Gujarat.

Need for Location Decisions
▪When starting a new business
▪To expand business in new markets
▪To meet growth in demand
▪Relocation for optimisation of costs
▪Other social and economic reasons – i.e. shortage of labour,
power shortage, etc
These decisions are not made frequently and have long term impact
on the organisation and investments required, and operating costs

▪ Maruti to set up 2nd plant in Gujarat, acquires 600 acres
▪ PTI | Dec 23, 2012, 07.34AM ISTNEW DELHI: Maruti Suzuki India on Saturday said it has
started spadework to set up its second facility in Gujarat with acquisition of another 600 acres, in
addition to its existing plan to invest Rs 4,000 crore for setting up a plant in the state.
The company also said it expects about 6-7% sales growth in 2013-14 after closing the current
fiscal with about 6% rise in vehicle sales. The country's largest carmaker also said it will not
enter the premium segment of passenger cars in India and will "protect" its image of a small car
manufacturer.
"We have land at two locations in Gujarat. The first one is offered by the government and the
second one is a private land that is directly acquired by us with some negotiations by the
government," Maruti Suzuki India (MSI) Chairman R C Bhargava told reporters here. The
company has acquired about 600 acres, located about 40 km from the first site near Mehsana, he
added. "The second location is for our future expansion. Once we exhaust the capacity at the
first site, we will move to the second one," Bhargava said.
▪ When asked if MSI is shifting its focus from Haryana, Bhargava said: "We are not moving away
from Haryana. We have two plants in the state and going to Gujarat after utilising the capacity at
Gurgaon and Manesar. We will do the same once we exhaust the capacity in Gujarat also." He
said the company will do the groundbreaking ceremony for the Gujarat facility early next year.
MSI had this year announced to invest Rs 4,000 crore, its biggest-ever outside Haryana, to set up
a 700-acre new production facility in Gujarat by 2015-16.

Objectives of Location Decisions
▪Maximizing potential profits
▪Balance between cost and customer service
▪To gain competitive advantage
-Some companies have a single location where all facilities are

located companies in aerospace and defence sector
-On other hand facilities are located in multiple markets ex

Toyota Ford

▪ Location issues have become more prominent in recent years on account of
GLOBALISATION of markets
▪ Multi-national Corporations have more opportunities to identify candidate
locations for their manufacturing facilities.
▪ ABB decided to locate its factories that could produce world class products
at competitive prices . Moreover factories needed to have high level of
technical and domain expertise.
▪ Resulted in factory for circuit breakers at Baroda
▪ Variable drive motors at Faridabad
▪ Factor cost advantages and expanding market in developing countries

have made these nations attractive for locating new facilities.
▪ Regulatory Issues removal of cap on FDI, simplifying tax structure ,
reduction of customs and excise tariffs
• Expanding markets in developing countries such as india china

Factors that drive globalisation
Three tier model
Country Competitiveness
Govt. budget & regulation Quality of judicial &
political institutions
Labour Sector Competitiveness Qlty of

Mkt. Flexibility
Infrastructure
Openness to
Quality
Intl. trade &
Company Competitiveness
Ability to design, produce, & mkt of
Tech. products
finance
superior to competitors, Qlty. of
business mgmt.
Extent to which a business sector offers potential for

growth
and attractive return on investment
Development
of financial Mkt. Extent to which a national environment is
Conducive or detrimental to business
Location Decision
Relevant Factors
Market Related Issues Cost related Issues
Domestic/ International Easy availability of cheap land,
Location and cost of land
Availability of Raw Materials/ Transport Costs
proximity to raw materials Taxes and tariffs
Nearness to markets Cost of manufacture
Proximity to suppliers, Currency /exchange rate
subcontractors
Availability of power, water and
fire fighting amenities,
Transport facilities, quality of
infrastructure
Availability of skilled labour
Existence of other industries in
the vicinity
Regulatory/Policy Issues Other Issues
Government & Economic stability Culture
Quality of legal and other Climate
institutions Quality of Life
Trading blocks and trading Disposal of waste
agreements Civic amenities
K J Somaiya Institute offor employees
Management, India
Case- Li and Fung
▪ Li Fung is a Hong Kong based trading firm in the textile sector
▪ Initial concept is made in HK
▪ Cotton yarn is bought from Korea
▪ Dyed and woven in Taiwan
▪ Zippers are sourced from a factory in china
▪ Components are shipped to Thailand
▪ Packing and inspection in HK
Q) What are the factors affecting the global supply chain operations ?
▪ Volume of orders
▪ Change in demand pattern, example winter garments, summer collection
etc
▪ Technical capabilities
▪ Infrastructure
▪ Coordination

Case- Li and Fung
Q)
What are the barriers in achieving the service-cost-time equilibrium in the
above case.
▪ Foreign exchange rates
▪ Geo political issues, EXIM policies
▪ Cultural, language
▪ Increase/decrease in taxes
▪ Break in the value link due to competition forces
▪ Transportation delays (during peak season) , damages during
transportation
▪ Coordination

Example 7.1 Location factor rating
▪ A manufacturer of garments is actively considering five alternative locations
for setting up its factory. The locations vary in terms of the advantages that it
provides to the firm. Hence the firm requires a method of identifying the
most appropriate location. Based on a survey of its senior executives the firm
has arrived at six factors to be considered for final site selection. The ratings
of each factor on a scale of 1 to 100 provide this information. Further, based
some detailed analysis of both the qualitative and quantitative data available
for each of the location, the rating for the locations against each factor has
also been arrived at (on a scale of 0 to 100). Using this information obtain a
ranking of the alternative locations.
Factor Rating of each locations against the

Ratings factors

Solution to Example 7.1.
Overall rating for location 3 = 60*0.28 + 40*0.18 +

50*0.15 + 10*0.09 + 45*0.09 + 90*0.20 = 54.77

Centre of Gravity Method
▪ All the demand points (or the supply points, if raw material is supplied from several
locations) are represented in a Cartesian coordinate system
▪ Each demand (or the supply point) will also have weight indicating the quantum of shipment
▪ Therefore it is possible to identify the centre of gravity of the various demand (or supply)
points
▪ Notations:
▪ The number of demand (or supply) points in the grip map: n
▪ Co-ordinates of location i in the grid map: (xi,yi)
▪ Quantum of shipment between existing demand (or supply) point i and proposed facility: Wi
▪ Co-ordinates of the center of gravity in the grip map: (XC,YC)

Example 7.2.
▪ A manufacturer of certain industrial component is interested in locating a new facility in a

target market and would like to know the most appropriate place in the target market to locate
the proposed facility. The manufacturer feels that there are no location constraints in the
target market (i.e. any point in the target market is good enough).
▪ There are four supply points A, B, C and D in the locality that will provide key inputs to the
new facility. A two-dimensional grid map of the target market in which we would like to
locate a new facility with distance coordinates of the four supply points is available.
▪ The annual supply from these four points to the proposed facility is 200, 450, 175 and 150
tonnes respectively.
▪ The situation is graphically shown in the two-dimensional plot in the figure. While the
coordinates in the parentheses show the distance from the origin of the target map of each of
the supply point, the number that follows is the annual shipment (in tonnes) from these points
to the proposed facility.
▪ Identify the most appropriate point in the grid map to locate the new facility.

Solution to Example 7.2.
Grid Map
600
Distance in Kilometres
A (125,550), 200
500
B (350,400), 450
400
vity
300
G r a
of D (700,300), 150
t r e
200 Cen 6,376)
(36 C (450,125), 175
100
100 200 300 400 500 600 700

Distance in Kilometres
Thank You
simsr.somaiya.edu

Plant Layout
Subtitle goes here

Plant Layout
▪ What is layout: I s the physical arrangement of the resources in the
system to improve the overall performance thereby providing better
customer service.
▪ Ex hospital facilities
▪ Where to locate resources and the impact of alternative choices

Objectives of Good Plant Layout
Safe working
Improved flow ofconditions
materials, information and people
Reduced material handling costs and time
Reduced bottleneck centres
Reduced idle time
Ease of maintenance
Improve productivity
Safe working conditions

Principles of Plant Layout
Minimum Travel
Sequence of Operations
Usage of maximum available space
Compactness of facilities
Safety
Optimum investment
Flexibility
Benefits of good layout design

Jobs in a manufacturing system travel lesser distance
Customers spend less time in service systems

Need for Relook at Plant Layout
▪ Inefficient Operations – high cost, bottleneck operations

▪ Accidents, Health Hazards and Low Safety
▪ Introduction of new products/ services
▪ Change in volumes of products or product changes
▪ Changes in processes, methods, or equipment
▪ Changes in environment or legal requirements

Types of Layout
▪ Process Layout
▪ arrangement of resources on the basis of the process
characteristics of the resources available
▪ Product Layout
▪ order in which the resources are placed follow exactly the
sequence dictated by a product
▪ Fixed Position Layout
▪ emphasis is not so much on optimum position of resources
required for the process, since the product itself largely dictates
this; the focus is on gaining better control of material flow and
reducing delays
• Group Technology

Product Layout
• Product follows some sequential steps of Production

• Continuous Flow – fluids, powders, metals, and bulk
items
• Dedicated Repetitive Flow – light bulbs
Characteristics
• Work moves through process at fixed rate. Resources
are arranged in the order of machining requirements
• material handling equipment is designed for the line
• Work capacity of various work stations has to be
synchronised and work force at the optimum level of out
put

Product Layout
An example
Product A
L D M G
Product B
L D L G
Product C
L D M L G

Manufacturing Process Layout ..example
Milling
Lathe Department Department Drilling Department
L L M M D D D D
L L M M D D D D
L L G G G P
L L G G G P
Grinding Paint Shop

L L Department
Receiving and A A A
Shipping Assembly
Process Layout
An example
Product A
Product B L L L L D D
Product C D D
L L L L
D D
M M
G G G
M M

The sequence of visits is a function of the process and is available
on the routing card
There is criss cross of the components as they visit different

machines . This increases material handling
Difficulty in production planning and control.
Creates functional silos in companies

Product & Process Layout
Pros & Cons
- Product layout requires dedicated resources. Only high volume manufacture

can justify that
- Process layout has better flexibility and utilization of resources.

Fixed Site (Project)
Materials, Tools and Personnel brought to project

location
Ship Building, Aircraft building, Construction sites,
Road Construction
What you need is just good workplace organization
Personnel highly trained and very skillful

• Order quantities small and products are high value and bulky
• Tooling, personnel and materials need to be available at proper
time

Group Tech
▪ Of late there is an increased trend in variety of products by organizations
▪ Ex is Titan Most manufacturing companies are going the mid variety – mid
volume way
▪ GT finds out the commonality in manufacturing and uses it as a basis for grouping
components and resources
▪ GT is also called a cellular manufacturing
▪ Layout is made for a part family ie products with similar characteristics The
available components are grouped into product families
▪ Appropriate measure of manufacturing similarity is used to identify product
families
▪ Corresponding to the part families the machine groups are identified, appropriate
machines are grouped into cells and the layout is formed
▪ Components will not travel outside the cell
▪ Production planning becomes easier.
▪ Material handling is improved, more traceability

Group Technology Layout
An example
Cell 1 Cell 2
L M D M D L
D L G G D L
L D L D
M L G L M
Cell 4 Cell 3

Group Technology Layout
An example of washing machine 10 kg 15 kg
1) Loading – Front Top
2) Automatic Semi Automatic Manual
Cell 1 Cell 2
F M T
A
L a L
F S T S
L A L A
Cell 4 Cell 3

Process Layouts in Service Organizations
Wide variety of services, use Process Layouts

• Libraries
– Reference materials, serials, microfilms in separate areas.
• Hospitals
– X-ray, Surgery, Oncology, Maternity.
• Insurance
– Claims, underwriting, filing are individual depts.
Product Layouts in Service Organizations
• When volume of demand is high.
• Customs and Immigration at Airports.

Layout Design
Performance Measures
Performance Measure Basis for measurement

Distance travelled by jobs in the Kg - Metres of job movement for
shopfloor each product
Minimum space required to actual
Space utilisation index
space utilised
Material Handling costs Rupees per month
Number and quantum of inter-

Inter-departmental moves
departmental moves

Thank You
simsr.somaiya.edu

Capacity
Subtitle goes here

Capacity – the Issue
“The fundamental problem of operations

management is balancing capacity and demand”
❖ How much and when should capacity be added?

❖ What type of capacity should be added?
❖ Where should additional capacity be added?

2
Capacity
Capacity is defined as the amount of work that can be done in specified time
period
capacity of a machine, capacity of a worker to produce

Thus Capacity is the RATE of doing work, not just the quantity of work done.
Capacity Available and Capacity Required.
Capacity Management is responsible for determining the capacity needed and then
providing for that capacity.
Capacity is stated (measured) in units of product or some standard unit of output.
If a variety of goods are produced, there is no common unit then capacity is stated
in hours available (time)
Capacity planning is important as It has a significant impact on the cost of
operation of the system due to large fixed costs associated with capacity
Capacity
▪ Capacity Planning: is the process of determining the resources needed

to achieve the plan and finding ways of making that capacity available.
Capacity denotes in general the extent of availability of these resources for
use by various processes
- It also denotes the maximum output of products and services one can achieve
using these resources
- Determine the capacity available at each machine in each time period
- Determine the load at each machine
- Resolve differences between available and required capacity.
Capacity planning is important. It has a significant impact on the cost of

operation of the system due to large fixed costs associated with capacity

Measuring The Capacity
▪ Unit Of Output example tons of paper, number of cars etc
▪ Standard Time Using the work study techniques Standard time for a job is measured. It is the time
required to make the product using given method of manufacture and by a qualified worker working at
normal pace. It provides for a yardstick to measure the work content and a unit for stating the capacity.
Available time is the number of hours that a work center can be used. Ex 3 machines, 8 hours per day 5
days a week. = 3x5x8 = 120 hours
Utilization the available time is the max time we can expect from the work center (machine) . However in
practice there are issues. There will be some downtime, absentism, material not available so the percentage
of time that the work center is active to the time it is available
Utilization = hours actually worked

available hours
Efficiency = actual rate of production

standard rate
A work center produces 120 units in 1 shift (8 hours). The standard output in that 1 shift is 100 units
What is the efficiency ?

Capacity buildup
Alternative modes
Typical mode
Capacity
Demand
Time
Reactive mode Proactive mode

Input measures of capacity
▪ Refining capacity of BPCL refinery in Mumbai is 260,000 barrels of

crude per day
▪ Tool room facility will measure its capacity in terms of machine hours
▪ A hospital will measure the capacity in terms of number of beds.
* Thus firms in high variety will find it better to measure capacity in

quantum of inputs

Output measures of capacity
▪ Toyota Kirloskar Auto Parts measures it capacity in terms of

number of transmission gear boxes it can produce
▪ Tata Bearings, a division of Tata Steel, has a capacity of 25

million pieces per annum
▪ MICO Bosch has an installed capacity of one lakh distributor

pumps at its Jaipur plant
▪ Better suited for Low variety and high volume of goods

Capacity Augmentation
Alternatives
▪ Waste Elimination: example in process industries, identifying the bottle neck in the
operations and working on de- bottlenecking
▪ Multi-skilling of workforce
▪ Sub-contracting/Outsourcing: logic follows a make or Buy decision.
When should you Sub-Contract? The considerations are lack of existing capacity,
technicality and criticality (risk) of the item for which capacity is being considered and
cost.
Advantages managing peak hour demand, react to the market requirements,

building in house capacity is expensive and takes time.
Drawbacks finding a suitable partner/vendor.
▪ Addition of new capacity: Greenfield expansion

Thank You
simsr.somaiya.edu

Forecasting
I think there is a world market for may be 5 computers. Thomas Watson, IBM,
1943
An economist is an expert who will know tomorrow, why the things he

predicted yesterday did not happen today. Evan Esar
Prediction is very difficult, especially if it is about the future. Niels Bohr
•1
Forecasting
⚫ Forecasting is prelude to planning.
⚫ An estimate of what conditions will be there in future time. (timing and
magnitude of occurrence)
⚫ WHY Forecast:
⚫ Firms cannot wait till orders are received to start planning to produce
goods
⚫ Customers will demand delivery in a reasonable time
⚫ Manufacturers must plan to have capacity and resources to meet
demand
⚫ Demand is the need for an item. The costs of storing RM and FG that
are not immediately required can be reduced. Out of stock and Over
stock situations can be avoided and thus profitability can be achieved.
•2
The management can take correct decisions only if it has as correct as
possible idea of the future.
Management also needs to assess the effects of its present decisions on future.
Forecasts will drive logistics planning and coordination.

Helps in prediction and projection of the volume or the number of units
required to be produced, shipped or sold
A typical forecast in a supply chain is a prediction of weekly or monthly

shipments from a distribution center for an individual item.
•3
Independent vs. Dependent Demand
Independent Demand (Demand not related to other items

or the final end-product)
Dependent
Demand
(Derived demand
items for
component parts,
subassemblies,
E(1) raw materials,
etc.)
What is forecasted
⚫ Marketing.. Demand Forecasting, Market share, Trend in prices

⚫ Operations.. Material requirements, Material and Labour costs, Idle time,
Inventory, Defective parts
⚫ Finance.. Cash flows, Expenses, Revenues, Costs
⚫ Personnel.. Labour Turnover, Absenteeism..
•5
PATTERNS OF DEMAND
• Average Demand - steady requirement

• TREND - long-run general movements increasing or decreasing
• SEASONAL - recurrent and periodic

• CYCLICAL - caused by economic expansions and contractions,
Business Cycles
• RANDOM - no discernible pattern
Forecasting
Forecasting Techniques
Qualitative- based on judgment, intuition and informed decisions. Such techniques

are used to forecast general business trends and potential demand for product
families.
Qualitative techniques are seldom used in production and inventory
Where not much data available, useful for new products
Quantitative:
•Time series.. Based on past data, use of computers for faster processing
•Causal.. Based on factors influencing demand e.g. Advertisement, quality, competition,
economic factors, Govt policies..
•7
Forecasting...Qualitative Methods
Grass Roots - Talk to Sales Force, Talk to Customers
Market Research - Surveys of Customers, Experimental Test Markets
Panel Consensus - Bring in Experts
Delphi Method - Formal, Sequential Method of Polling and Pooling Expert
Opinions
8
Quantitative:
•Time series.. Based on past data, use of computers for faster processing
•Causal.. Based on factors influencing demand e.g. Advertisement, quality,
competition, economic factors, Govt policies..
Extrinsic Causal.- Based on factors influencing demand

external (economic) indicators that relate to the demand for the company
products ex : birth rates, income distribution ex correlation sale of auto
tyres v/s increase in gasoline consumption
⚫Sale of bricks v/s housing stats
⚫Government departments, banks, trade associations and financial papers
/magazines
⚫Generally used to forecast total demand or demand for the product families rather
than individual end items
Intrinsic Time series - use of company historical data to forecast.

⚫Data is available in the company.
⚫Assumes that what happened in the past will happen in future
•9
In-Class Exercise
• Develop 3-week and

5-week moving average
forecasts for demand.
• Assume you only have 3
weeks and 5 weeks of
actual demand data for
the respective forecasts
18
In-Class Exercise (Solution)
19
Weighted Moving Average
Determine the 3-period

weighted moving average
forecast for period 4.
Weights:
t-1 .2
t-2 .3
t-3 .5
20
Solution
21
Exponential Smoothening
⚫ Suppose it is December and we want to forecast the demand for Jan
⚫ Demand History:
⚫ Jan 92 July 84
⚫ Feb 83 Aug 81
⚫ Marc 66 Sep 75
⚫ April 74 Oct 63
⚫ May 75 nov 91
⚫ June 84 Dec 84
The average demand of the last 6 months (80) can be used to forecast Jan demand
If at the end of Jan the actual demand is 90 then………..
New forecast = alpha (latest demand) + (1-alpha) (previous forecast)

Forecast for Feb = 0.1 ( Actual JAN demand) + 0.9 ( Jan forecast)
= 0.1 ( 90) + 0. 9 (80)
•14
Thank you
•15
Inventory
Management

Inventory System Defined
Inventory is the stock of any item used in an organization.

These items include: raw materials, finished products,
component parts and work-in-process.
An inventory system is the set of policies and controls that

monitor levels of inventory and determines what levels
should be maintained, when stock should be replenished,
and how large orders should be.

Purposes of Inventory
Avoid stock outs ( safety stock)
satisfy periods of high seasonal demand (seasonal inv)
Provide a safeguard for variation in raw material delivery time
Take advantage of economic quantity discounts and protect

against price rise
Maintain independence of operations (buffer between
successive operations
satisfy expected customer demand (anticipation)

Objective of Inventory Control
To achieve satisfactory levels of customer service while keeping
inventory costs within reasonable bounds
•Maximize customer service (this requires carrying
substantial inventory).
•Minimize inventory investment (this requires carrying

little inventory).
Inventory management is responsible for planning and controlling the Inv
from RAW mat to FG stage

Inventory Planning /Control Systems
▪ Finished goods and spare parts typically belong to independent
demand items in manufacturing organizations
▪ Inventory planning of items must address the following two key
questions:
▪ How much?
▪ When?

Why Inventory is Important
On the balance sheet it represents about 30 to 50 % of the assets.

As inventories are used up, its value is converted into CASH
Effects of Poor Inventory management
▪ Poor inventory management may lead to stock outs and hence cancellation of
customers orders, overstocking leading to insufficient storage space and increase in
the number and rupee value of obsolete products.
▪ inventory management has a large financial impact on the firm. Investments blocked
in inventory cannot be used to obtain other goods or assets that could improve the
enterprise performance.

Types of Inventory
▪ Cycle Stock/ Lot size
It is portion of inventory that depleted as customer orders come in
and replenished as suppliers orders are received. Periodic
replenishment is required.
Example hospital ordering 10000 syringes and daily use is 500.
If Q is the order quantity per cycle then average inventory = Q/2
▪ Transportation/Pipeline Inventory:
Exists because of the time needed to move the goods from one
location to another such as plant to distribution center called as
Pipeline or movement inventories.
▪ Safety Stock
is held to cover the unpredictable fluctuations in supply or demand or
lead time, so that stock out will not happen.
Types of Inventory
▪Anticipation inventory / Seasonal these are built up in
anticipation of a future demand for example, ahead of a peak
selling season, promotion etc.
▪Dead stock- It is obsolete stock – that part of the non moving

inventory that is unlikely to be of any further use. Example
electronics
▪Decoupling Inventory Complexity of production control is

reduced by splitting manufacturing into stages and maintaining
inventory between these stages

Cyclic, Pipeline and Safety Stocks
A graphical illustration
Cyclic Stock
Quantity
Pipeline inventory
Safety stock
L
Time
Cyclic inventory, pipeline inventory and safety stocks are critically linked to “how
much” and “when” decisions in inventory planning
Costs in Inventory Planning
Carrying Cost
▪Interest for short-term borrowals for working capital

▪Cost of stores and warehousing
▪Administrative costs related to maintaining and accounting for
inventory
▪Insurance costs, cost of obsolescence, pilferage, damages and
wastage
▪All these costs are directly related to the level of inventory

Ordering Cost
▪Search and identification of appropriate sources of supply

▪Price negotiation, contracting and purchase order generation
▪Follow-up and receipt of material
▪Eventual stocking in the stores after necessary accounting and
verification
▪A larger order quantity will require less number of orders to meet
a known demand and vice versa
Cost of carrying and cost of ordering are fundamentally two opposing cost
structures in inventory planning
Shortage Cost
▪Costs arising out of rescheduling the production system to

accommodate these changes
▪Missed delivery schedules leading to customer dissatisfaction and
loss of good will
▪The effects of shortage are vastly intangible, it is indeed difficult
to accurately estimate the same

Inventory Control for
deterministic demand: EOQ Model
Demand during the planning period =D

Order quantity =Q
The cost of ordering per order =
Inventory carrying cost per unit per unit time =
The average inventory carried by an organisation=
The cost associated with carrying inventory =
The total ordering cost is given by

Total cost of the plan =
Total cost of carrying inventory + Total cost of ordering
TC(Q) = +
EOQ Model
A graphical representation
Sum of the two costs
Total cost of carrying

Cost of Inventory
Minimum Cost
Total cost of ordering
Economic Level of Inventory

Order Qty.

Inventory Control for
deterministic demand: EOQ
Model…
Denoting EOQ by Q*, we obtain the expression of Q* as:
The optimal number of orders =
Time between orders =

Issues in using EOQ Model
Model assumptions
1. The demand is known with certainty
2. Demand is continuous over time
3. There is an instantaneous replenishment of items
4. No price discount is offered when the order size is large
5. Ordering cost is constant.
▪ Despite this, the EOQ model could be applied with suitable modifications
because it is robust
▪ Q can be a minimum order quantity if EOQ value is lesser
▪ Have a preferred quantity based on truckload quantity, economies of scale,
quantity discounts etc

EOQ Example (1) Problem Data
Given the information below, what are the EOQ and reorder point?
Annual Demand = 1,000 units

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

EOQ Example (1) Solution
In summary, you place an optimal order of 90 units. In the

course of using the units to meet demand, when you only
have 20 units left, place the next order of 90 units.

Continuous Review (Q) System
An illustration
Inventory Position
Q Physical Inventory
Inventory Level
ROP
Mean Demand during LT

SS
Safety Stock
L Time
Periodic Review (P) System
An illustration
Inventory Position
Physical Inventory
QR Q2R Q3R
Order Up to Level
S
Inventory Level
SS
Safety Stock
R 2R 3R
L
Time
▪Use of Q and P systems
▪Q system is based on perpetual monitoring
▪Q system is less responsive to demand changes when demand
declines, the ROP moves to the right and system will continue
to order even if demand is less, so carrying cost may rise
▪If demand increases, ROP will happen frequently and ordering
cost will increase
▪Another issue is ordering of multiple items A, B,C from the
same supplier.
▪P system overcomes limitation of Q system.
▪Greater chances of linkage between MRP and planning system.
▪For high value/ A class use P system

Inventory Classification
Ashok Leyland may have about 50000 items in inventory
Each has different consumption, when to order how much to order and
s to keep etc .
Having the same level of monitoring and control is not feasible.
Consider 2 items: A fastener and a complex sub assembly.
1) If there were errors in judging the requirement of …… or if extra

items get ordered,
2) If there is a shortage then response time to get the fasteners
3) You will record the movements verify the transactions.
4) Physical security

Product Classification Analysis (ABC)

Selective Control of Inventories
Alternative Classification Schemes
▪ ABC Classification (on the basis of consumption value)

▪ XYZ Classification (on the basis of unit cost of the item)
▪ High Unit cost (X Class item)
▪ Medium Unit cost (Y Class item)
▪ Low unit cost (Z Class item)
▪ FSN Classification (on the basis of movement of inventory)

▪ Fast Moving
▪ Slow Moving
▪ Non-moving
▪ VED Classification (on the basis of criticality of items)

▪ Vital
▪ Essential
▪ Desirable
▪ On the basis of sources of supply

▪ Imported
▪ Indigenous (National Suppliers) K J Somaiya Institute of Management, India
ABC Classification
A graphical illustration

Thank You
simsr.somaiya.edu

Title goes here
Subtitle goes here

Evolution of ERP
Enterprise Resource Planning
• 1960 1970’s - MRP – Material Requirement Planning

(Inventory with material planning & procurement)
• 1980’s - MRP II – Manufacturing Resources Planning
(Extended MRP with Manufacturing.)
• Mid 1990’s - ERP – Enterprise Resource Planning
(Covering most of the activities of an Enterprise)
• 2000 onwards – ERP II – Collaborative Commerce
(Extending ERP to external business entities)
ERP
▪ ERP is the effective planning of all resources in the organisation
▪ Enterprise Resource Planning(ERP) is a software driven business

management system which integrates all facets of the business, including
planning, manufacturing, sales and marketing.
▪ Links financial, manufacturing, human resources, distribution & order

management into a tightly integrated single system with shared data &
visibility across the business.
▪ The biggest gain from implementing an ERP solution is that it forces a

company to institute a proven set of business processes, rather than
reinvent the wheel..

Advantages of ERP
1) Integration and discipline in the organization.
2) Streamlining of business operations
3) Good MIS and monitoring: Information is available to the concerned people at the
place/time etc for better decision making
4) Optimizes inventory: It determines how many of an item are needed and when, in order to
meet the master schedule. ERP thus helps the manager to procure the component as it is
needed thereby avoiding excess inventory costs
5) Realistic commitments: Realistic delivery promise can enhance customer satisfaction. With
the use of ERP, production can give marketing timely information about the likely delivery
times to prospective customers. Potential new orders can be added to the system to
calculate how the revised total load can be met with the existing capacity.
6) Use Of common databases and platform: Solves the problem of data integrity and
redundancy. Saves dual entries and speeds up information processing: No duplication of
work

STOCKING ERP -
POINTS
ERO
FG NRO
WAREHOUSES BRANCHES
POWAI WORKS
MAIN SERVER
(ERP) DIV. / REGION
SRO
CUSTOMER
WRO
FACTORIES VENDOR
MRP Material Requirement Planning
Some terminologies
▪ The iterative process of computing all requirements at a level and then

moving down the level is known as explosion in MRP
▪ Product Structure graphically depicts the dependency relationships among
various items that make up the final product
▪ A Bill of Material (BOM) is a list of all materials needed to assemble or put
together one unit of the final product
Basic Building Blocks

▪ Existence of multiple levels of dependency
▪ Product Structure – Bill of Materials (BOM)
▪ Time phasing the requirement
▪ Incorporating lead time information

MRP
Determine the requirements

- When to order
- What to order and
- how much to order
▪ Materials requirements planning (MRP) is the logic for determining the number
of parts, components, and materials needed to produce a product.
▪ MRP provides time scheduling information specifying when each of the
materials, parts, and components should be ordered or produced.

MRP Inputs & Outputs
Master Production Schedule
Product Material Inventory

Structure Requirements Master
File Planning File
Planned Order Releases
Work Orders Purchase Orders Rescheduling Notices

Product Structure Tree
An illustration using telephone
Telephon
e Level 0
Base Unit Connecting Connecting Hand Set

(1) Cable (1) Jack (2) (1) Level 1
Operating Panel B. Cover Lug Speaker Mic. H. Cover

Unit (1) Board (1) Plate (2) (4) (1) (1) Plate (2) Level 2
Button Control
Assy. (1) Panel (1) Level 3
Button Screw Dial Screw Screw Screw

(12) (12) (3) (3) (4) (2)
Level 4
BOM : Refrigerator
Refrigerato
r
Level 0
Compress Condens
Cabinet
or er
Level 1
Motor Shell Body

Door
Assembly Level 2
MANUFACTURE Inner Outer

D
Alloy
Body Body Level 3
PURCHASED
Alloy Level 4

Indented BOM
Telephone Example

Incorporating Lead Time
An illustration
Planned Order Release Time = Planned Receipt Time – Lead Time

Next, we need to start scheduling the components that make up “A”. In
the case of component “B” we need 4 B’s for each A. Since we need 50
A’s, that means 200 B’s. And again, we back the schedule up for the
necessary 2 weeks of lead time.
LT = 2
Spares
A 4x50=200
B(4 C(2
) )
D(2 E(1 D(3 F(2
) ) ) )
MRP Reports
▪Planned orders to be released at a future time.
▪Order release notices to execute the planned orders.
▪Changes in due dates of open orders due to rescheduling.
▪Cancellations or suspensions of open orders due to
cancellation or suspension of orders on the master production
schedule..
▪Exception reports used to point out serious discrepancies, such
as late or overdue orders

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Production
Planning
Subtitle goes here

Production Planning
A good planning system should answer these 4 points:
What are we going to make, and when ?
What does it take to make them ?
What do we have ?
What do we need ?

Aggregate Production Planning
▪ Aggregate production planning serves to translate business decisions into
operational plans
▪ APP is done to match demand with available capacity
▪ Priority and Capacity
▪ Priority is what is needed, how many, and when . The market establishes priority.
manufacturing is responsible to devise means to satisfy demand.
▪ Capacity is the capability of the manufacturing to produce goods in the planned
time period. Depends upon the resources the company has – Men, material,
machines and money
▪ The 5 levels of manufacturing planning and control. At each level there is a check
on the priority and available capacity.
▪ How the differences between priority and capacity can be resolved.
The production plan is based on the objective given by the business plan.
Quantities of each product group that must be produced in each period
The resources needed in each period

Need For APP
APP is done in an organization to match the demand with supply on a period

by period basis. Serves the role of translating the Business plans and strategic
intent into Operations Decisions.
Inputs are from.

Forecasts for end items.
Actual orders received from the customers

Planning Levels

Production Control

Activity Personnel involved Concerns
Business/strategic Top management Sales and Profitability, ROI
Planning
Production Planning Senior managers Plant general Factory level, groups of products
SOP managers
Master Production Manager End Items

Schedule
MRP senior engineers Components, machines

MPS OBJECTIVES
It is the link between the PP and what manufacturing will actually produce.
The MPS drives the Material Requirements plan
The MPS is a priority plan for manufacturing
MPS is for END items ONLY . It is a plan of what is to be produced and when.
It is not rigid and is possible to make changes that are consistent with the market
place and existing capacity.
Inputs are from.

Forecasts for end items.
Actual orders received from the customers
Changes To The Plan Can Occur:

1) If customer change or cancel orders.
2) If our machine breaks down, or new machine added
3) Our supplier supplies us late

Two generic strategies to make the Production
Plan
▪ In level strategy, the emphasis is not to disturb the existing
production rate at all
▪ In chase strategy, no effort is made to carry inventory from one
period to another; the supply – demand mismatch is addressed
during each period by employing a variety of capacity related
alternatives
APP Strategy APP alternatives applicable Key features

Inventory based alternatives Inventory as the critical link between
the periods; Made-to-stock
Level Strategy (a) Build Inventory
environments; Products with low risks
(b) Manage Backlog/Backorder of obsolescence
Capacity adjustment alternatives
(a) Over Time/Under Time
No inventory carried from one period
(b) Vary no. of shifts
(c) Hire/Lay-off workers to another; Made-to-order and project
Chase Strategy
environments; Several service
Capacity augmentation alternatives
systems
(a) Sub-contract/Outsource
(b) De-bottleneck
Thank You
simsr.somaiya.edu

Lean/JIT
Subtitle goes here

Origin Of Lean
Customers required more options and better service

Managing operations efficiently , creating a responsive structure became important .
Japanese people developed a set of tools and techniques
Automobiles Toyota and Kawasaki competed with General Motors and Harley
Japanese gave Value to the customer, good quality at lower costs
This was replicated in the electronics industry register, transistors memory chips,
entertainment cameras etc.
Why Lean
In the light of the economic slowdown, it is important for organizations to improve
productivity, response to consumers and cut costs to stay competitive.
Deliver better quality products and services using lesser resources.

The Philosophy of Lean
1) Is elimination of WASTE and 2) continuous improvement
Lean management a process that enables an organization to create a value stream by
eliminating waste
Based on the premise that identifying any waste and removing it creates a value stream of the
product for the customer
Value added activities, (VA) Non Value added activities (NVA) and Necessary but Non Value
added (NNVA)
Waste process or a set of activities that does NOT add Value as perceived by the customer
is waste
Value Stream all the activities that are needed to be performed (VA and NNVA) from the
time the customer places the order to the time the time the order is fulfilled.
Processes Concept to launch, order to delivery, raw material to FG
A good understanding of waste and value and tools and techniques to cut the waste are
crucial to creating a lean enterprise.

What is the meaning of Continuous Improvement ?
Answer Is a small issue taken. Studied, analyzed and solved.
-Is ongoing
-Does not require huge investment capital outlay, changes
-Makes use of available technology, resources
- Calls for application of several tools and techniques. Example Quality Circle, Poka
yoke, 5S
- One of the first steps is to create a context (perspective) for C Imp.
- Contexts such as TPM initiatives, preparation of a company for quality awards
- - Japanese have used CI methods on the 1970s to cut costs and lead time.
- CI is an important element of modern operations management practices in
organisations today
What is TPM https://www.reliableplant.com/Read/26210/tpm-lean-implement

Eliminating waste
The seven types of waste:
Waste from Waste of waiting

setup/changeov
overproduction time
er waste
Processing
Inventory waste Waste of motion
waste
Waste from
product defects

Waste - Some Examples/Sources in industry
• Watching a machine run

• Waiting for parts
• Counting parts
• Over-runs in production
• Moving parts over long distances
• Storing inventory
• Looking for tools
• Machine breakdown
• Rework
Waste of over production…. Making products which are not needed in the immediate
future. Supply should be in line with demand This leads to locked inventory, extra material
handling, ageing, And can be very costly.
Waste of waiting….. These are of two kinds, that of the operator and that of the
material.
Waste of unnecessary Motion and transportation add cost not value, and hence
should reduced as far as possible. like searching for tool, walking.
Waste in process- relate to process capability, extra monitoring, more than required
inspections. Working on an item more than necessary, Non Adherence to best practices,
too many rules which leads to complicated work etc.
Waste of stocks… Any inventory costs money to carry.
Waste due to time spent in changeover of set up
Waste of making defects… This not only costs money but also interrupts the
flow of production.
Reduction Of Waste
There are specific methods to tackle and reduce waste.
1) Over producing can be avoided by improving the understanding of the market –

demand , forecasting etc
2) Waiting time can be reduced by proper scheduling
3) Motion analysis can help identify unnecessary movements and transportations
4) Unnecessary stock can get eliminated by JIT
5) Robust systems and TQM will help reduce process waste and defects
6) Set up and change over can be reduced by application of SMED
Thus K J Somaiya Institute of Management, India

Tools Of JIT
Poka-yoke
Preventive Maintenance
Set-up time reduction
Kanban
5S housekeeping
SMED

Process is a summation of activities
JIT is about reducing raw material, WIP and finished goods inventory.
The Japanese spend time on designing and planning the system and then implement it
correctly in one go.
we spend less time in planning and then go and start to implement a half cooked idea.
Soon we stumble upon problems and call for modifications in the system. Every time a
problem is faced we tend to insert a safety buffer rather than reaching for the root cause.
The cycle of solving by design changes continues forever and a perfect system is rarely
achieved.
Soon the buffers that are introduced in the system make the system inefficient and adds
heavily to costs
Over period of time the entire system becomes full of buffers
JIT does away with they cushions because more that cushions you have the more you rely
on it.
Example pump and back up pump.
Today many Japanese companies work with 0 defects 0 breakdown, 0 accidents

Just In Time Manufacturing Water Flow
Analogy
Unrealistic lengthy Defective Poor

Schedules Lack set up Material Quality
of Times
training
Machine Breakdown
Bottleneck/bad layout
unrealisable supplier Behavioural/Managerial constraints

Category Manuf Organisations Service Organisation
Inventory Related Waiting for material to work on Excessive paper work
Stock verification Incomplete information leading to

pending decisions
Parts shortage
Repeated counting
Waste Due To Process/producing Defects Wrong service delivery

defects
Machine breakdown Payments not made on time
Watching the machine run Proposals not completed on time
Waste due to Planning Searching for tools Complicated office layout
Transferring parts over long Documents being handles many

distances times before decision
Overproduction

Elements of JIT
Continuous improvement
Attacking fundamental problems - anything

that does not add value to the product
Striving for simplicity - simpler systems may

be easier to understand, easier to manage and
less likely to go wrong
Quality control at source - each worker is

responsible for the quality of their own output

The result is …………
No overproduction
No underproduction
No inventories piled up
Excellent shop floor discipline

JIT in Indian Industry
Issues
1. Regulate the relation between Business, Labour, Financial institutions and
suppliers
2. Work force has lack of motivation. Trade unions and their resistance.
3. Culture and Education issues.
4. Govt controls prices.
5. Supplier issues uncertainty.
6. http://data.conferenceworld.in/IEEERAJSHREE/P120-124.pdf
7. Example: Maruti has located suppliers nearby

8. Maintain proper storage levels. Reduce the levels of inventory
9. Vendor development reducing Paperwork. Logistics route optimization.

Thank You
simsr.somaiya.edu

Value Analysis
and Value
Engineering
Subtitle goes here

Value Analysis and Value Engineering
▪ Value Analysis is a technique that allows to increase the value of a
product or a service systematically, by reducing OR eliminating all the
functions that do not add any value or benefit to the product.
▪ A product or process exists to fulfill a need.
▪ This need or set of needs is termed as a function, that the product or
process satisfies.
▪ For instance, knife exists to fulfill the need of cutting and hence to cut is
the function of knife.

⇒What is meant by term Value?
▪ Value is a function of ‘Desired Performance’ and ‘Cost’.
▪ Example: Oranges
▪ Expressed as Desired Performance (P) ÷ Overall Costs (C)
▪ Desired performance is expressed by the term worth which is defined
as the lowest cost to achieve the Use (work) function and Aesthetic
(sell) function.
▪ Example : car handles and fittings made of silver

How do define VA & VE
⇒How VA originated?
▪ During the Second World War, U.S. government reserved certain
materials from armament industry.
▪ Therefore, General Electric Company found itself in fix as many of their
regularly used materials suddenly became unavailable due to reservation.
▪ A purchase executive of the company, Lawrence D. Miles made many
substitutions in place of original materials.
▪ Surprisingly, the results showed that substituted materials did not affect
the quality but brought costs down.
▪ Later Larry developed a step by step approach for this exercise and
named the technique as Value Analysis.
⇒ Thus it is a step by step approach to identify the functions of a product,
process, system or service; to establish a monetary value for that function
and then provide the desired function at an overall minimum cost without
affecting any of the existing parameters like Quality, Maintainability,
Productivity, Safety and other Performance Characteristics.
▪In the year 1954, U.S. Navy Bureau of Ships adopted same
technique in their effort at ‘cost avoidance’ during the design
stage and saved million of dollars .
▪They named this technique as Value Engineering.
▪Thus, Value Engineering indicates application at design stage
whereas Value Analysis is the application on the product that is
into manufacturing/distribution or a service/process.

Tools for efficient product development:
Considerations
• Is it possible to replace the proposed method of manufacture with
a less costly one?
• Is it possible for someone else (suppliers) to produce certain
components cheaper, faster and better?
• Can we eliminate parts and replace them with more universal
parts?
• Can we eliminate certain features from the design?
• Are there instances of over-design in certain components
increasing the cost? If so, how can we rationalise these aspects?

The TATA nano project made use of VE.
Rane group which made the rack and pinion steering system,,
focussed on reducing the weight of the material used, by replacing
the steel rod of the steering with a steel tube.

Examples Of Non Value added activities
▪ Ex Inventory: over production , parts waiting, stock verification, counting
the number of items on hand.
▪ Processes: defects and reworks , machine breakdown, delay due to

material not available
▪ Planning: searching for tools, movements of parts over long distance within
the factory.
▪ _______________________________________
▪ Waste process or a set of activities that does NOT add Value as
perceived by the customer is waste
▪ Value Stream all the VA activities that are needed to be performed
from the time the customer places the order to the time the time the
order is fulfilled. Concept to launch, or order to delivery of raw
material to FG, procurement, distribution

High amount of checking and control.
A lot of work goes on in the company that does NOT add value to the
product/service/customer .
A simple test to distinguish VA and NVA
Take the customer perspective and ask “ Do I Care?” about the
product/process
If the answer is NO
Does the customer care about your company internal audits, reporting controls
etc ?
Repeated checks and controls on work at diff stages ?
As long as there are people some amount of checks will be necessary, so we

need to keep that to a limit . These are called NNVA activities

The Value of the a function V= P/C can be increased by four methods.
(1) Decrease the cost while ensuring the same level of performance.
• Reduce the thickness of wooden drums in case of packing of telephone cables.
• Earlier CDs and DVDs were sold at above Rs 100/- Moser Baer introduced the same at
almost half the price.
(2) Enhance the performance at the same cost
• Providing a supplement of Mumbai Mirror along with the copy of The Times of India at
no extra cost.

(3) Decrease the cost and increase the performance
▪ Intel’s Pentium chip is cheaper (compared to earlier) and has much more
processing power than all its earlier chips.
(4) Increase both performance and cost ensuring that performance increases
more than the increase in cost.
▪ American cola giant increased quantity of soft drink from 250 ml to 300 ml
(20% more) but increased price just by 10%
⇒ In all the above cases ‘cost’ is viewed at from customer’s point of view.

Value Analysis Tests
►Each product or component is subjected to the following tests:
▪ Is its cost proportional to its usefulness? Ex new improved version of car lxi to
vxi
▪ Does it need all its features?
▪ Is there anything better for the intended use? Ex rust proof car, digital storage
devices
▪ Can a usable part be made by lower cost method?
▪ Can a standard product be found which will be usable?
▪ Will another dependable supplier provide it for less? SAP training
▪ Is anyone buying it for less?

Options to execute Value Analyses/Value
Engineering
▪ Modify
▪ Integrate
▪ Substitute
▪ Simplify

Examples of Value Analysis
▪Modify-Motor car engines have been modified to run on
LPG/CNG
▪Integrate-Air conditioner and heater integrated into one unit. Also

(print+scan+copy+fax)
▪Substitute-In-house wiring has been changed from copper to

aluminum or coke bottles changed from Glass to Plastic. Also CFL
tubes light in place of standard tubes
▪Simplify-Application software simplified by being made modular.

Earlier all modules were bundled or an equipment made modular
which simplifies transportation and maintenance. Example-
installation of software is simplified., bank applications, passport
application K J Somaiya Institute of Management, India 14
When to Apply Value Analysis?
• Products are losing their market share and there is a decline in sales.
• Products are priced higher than competition in a price sensitive market
or product cost is > sales price of competition.
• New designs to be undertaken.
• Rising manufacturing costs.
• Focus is on saving costs.

Thank You
simsr.somaiya.edu

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Topic 1

Introduction to Production Management,

K J Somaiya Institute of Management, India

Capital Operations Material & Services

K J Somaiya Institute of Management, India

▪An operations system is defined as one in which

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India

Manufacturing Organisations Service Organisations

Large facilities Small facilities

K J Somaiya Institute of Management, India

Inputs Processing Outputs

Inputs Processing Outputs

Doctors, nurses Examination Healthy

*HOTELS/LODGING, LAUNDRY, REPAIRS and MAINT, ENTERTAINMENT

*MEDICAL/ HEALTH, EDUCATION, WELFARE, RELIGIOUS

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India 15

Subtitle goes here

K J Somaiya Institute of Management, India 1

K J Somaiya Institute of Management, India

▪ Need a mechanism to systematically respond to these changes in the most

K J Somaiya Institute of Management, India

Strategic options for Generic Competitive Priorities

Strategic decisions for Measures for

K J Somaiya Institute of Management, India

Mahadevan (2007), “Operations

Performance Criterion for Comparison (1987) Japan@ U.S.*

Production of vehicles (Million) 4 8

Design to customer delivery time (months) 46 60

@ - Data pertaining to Toyota; * - Data pertaining to GM

Mahadevan (2007), “Operations

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India

Supply Chain issues

K J Somaiya Institute of Management, India

F – Fixed costs of production

Contribution Margin (c) = p – v

K J Somaiya Institute of Management, India

Therefore contribution of one unit of product towards the fixed costs, C is

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India 17

K J Somaiya Institute of Management, India

Design Planning and Improvements

K J Somaiya Institute of Management, India 3

For example, Fast food joint.

The number of resources consumed, time taken to serve, number of people

Process Design will in turn indicate the -----

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India

Factors that influence the choice of process……………

K J Somaiya Institute of Management, India

Some non value added …..

K J Somaiya Institute of Management, India

Overall rating for location 3 = 600.28 + 400.18 +