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E Book MS 53 - Production and Operations Management
E Book MS 53 - Production and Operations Management
E Book MS 53 - Production and Operations Management
Management: An Overview
In a generic way, conversion process adds value to raw materials by changing its shape,
size or weight and transformation process entails changes in form, location or time.
• Land
• Labour
• Capital
• Enterprise or Entrepreneurship.
With the increasing fluidity of money, land has become interchangeable with money
.Industrial managers are also engaged in effective and efficient utilization of a huge
variety of resources as below:
1) Men
2) Money
3) Machines
4) Materials
5) Methods
6) Management
7) Measurement
8) Message (information and communication)
6 9) Motive power (energy).
Production and Operations
Excepting perhaps men (workmen) and money, all other resources are knowledge- Management: An Overview
based and technology-oriented. In the knowledge society we have already entered
(Peter Drucker), we are Witnessing increasing ingress of knowledge inputs in every
work process. Already, the whole world is busy unraveling the possibilities of
integrating information technology with every work process of homo sapien society.
= Productivity + Wastivity
a) Increasing productivity
2.1 INTRODUCTION
In this unit we will be able to learn about various aspects of production/operation
systems. The collection of all interrelated activities involved in producing goods and
services is called a Production system. A production system consists of five principal
components: Inputs, Conversion/Creation process, outputs, Feedback and Managers.
The inputs to a production system consist of the resources that are transformed into
the desired outputs (goods and services) as well as the resources needed to support
the overall production process. The major output of a service system is customer
satisfaction. Conversion process in the production system typically changes the shape
and/or composition of raw material and other inputs. In a service organisation the
service is created.
One of the important aspect of managing a production system is to determine the
relative roles of people and machines. With rapid changes in technology, now a days
machines are capable of performing more tasks as compared to the people. Robots
for example can performed more menial and dangerous tasks. The biggest challenge
before a production operations manager is to manage this Human-Machine
Interface.
In this unit we will be dealing with such important issues as: What role and especially
reactive role is being played by production system in the context of organisational
setting?, Why it is essential to view the production system It - the systems view
point?, What is the procedure of designing a production system'?, Why it is important
to achieve 11
Issues in Production/
Operations Management productivity improvement in order for production system?, Why it Is important to
achieve productivity improvement in order for production system to be both efficient
and effective?, What contributions are made by upcoming issues of production
system such as GT and OPT to the overall cost effectiveness of the production-
system. In What ways the recent developments in the field of IT are influencing the
production systems and what resultant economic benefits can be reaped?
Comprehension of these aspects shall puts you in good stead when confronted with
such issues in your working situations.
The production systems which are responsive to rapid changes in the market place
are capable of reducing the lead time between product development and
manufacturing which is also known as the startup period between product design and
actual production.
• Quality is a qualifier
• How TQM emerged
• Difference between QC, QA, TQC and TQM
• The various terms and their relationships
• Voice of the customer
• Quality function deployment (QFD)
• House of quality (HOQ) • Identifying the process
• Measuring processes • Cost of quality
• Organized problem solving • Improving the process
• Process capability studies o Importance of employee participation and
empowered decision making in TQM
• What a quality systems standard means
Structure
3.1 Introduction
3.2 TQM: A Historical Perspective
3.3 Quality Terminology
3.4 Understanding the Customer
3.5 Understanding and Improving the Process
3.6 Employee Involvement and Empowerment
3.7 ISO 9000: The International Quality System Standard
3.8 Summary
3.9 Self-Assessment Exercises
3.10 Further Reading
3.11 Appendix: ISO 9000 Quality System Standards
3.1 INTRODUCTION
Total Quality Management (TQM) is a systems approach to ensuring quality in an
organization. TQM is not just quality control or quality assurance. Nor is it limited to
the boundaries of a Total Quality Control system. It is a dynamic process with a
strong philosophical base which incorporates many of the concepts upon which Total
Quality Control Systems are based. The emphasis is on involving everyone in the
organization in activities which provide for continuous never-ending improvements.
Quality activities are planned and managed into the system and are oriented towards
the achievement of complete customer satisfaction. The liberalized economy is
forcing Indian companies to establish Total Quality Management Systems. It is a
struggle which has just begun and Indian companies will continue to do so just to be
in the race - lest they perish. Quality will be just a qualifier, not a competitive
advantage anymore.
21
Issues in Production/
Operations Management TQM ettorts are led by top management by involving everyone in the company with
the prime objective of satisfying the external customer. This focuses the
organizational efforts towards satisfying the internal customer with the help of a
quality management system for ' doing things right the first time. The traditional
approach of post-production detection of defects is discouraged and a prevention
philosophy is adopted to bring down the nonconformances. The organization seeks
continuous never-ending improvements which are tracked with the help of
appropriate measurement systems.
In this chapter the focus will be on understanding the customer and the process and
then satisfying the customer by improving the process through total involvement of
employees. After a brief historical perspective on. TQM and its relevance to Indian
organizations (Section 3, 2), we will define the various terms relevant to quality
management (Section 3.3).
TQM organizations focus on understanding and responding to the needs of the
customer. The voice of the customer is clearly identified and then deployed
throughout the organization with minimum of distortions. In section 3.4, we will
discuss the techniques used to identify customer satisfaction and their expectations.
We will understand what Quality Function Deployment (QFD) means and what is a
house of quality.
In most organizations there are different functions which are geared towards
supporting the core manufacturing (or service) process. Functions, such as, design,
engineering, marketing, finance, systems, R&D, administration, health care and so
on. All these functions can be seen as processes which are designed to satisfy
customer needs. All processes have variations which need to be controlled and then
improved in a never ending cycle of efforts aimed at continuous improvement. In
section 3.5, we will discuss how to get into the path of continuous improvement.
Various problem solving tools will be presented. Procedures will be explained for
identifying major nonconformances and therefore the major problem areas. Since we
are aiming for continuous improvement, measurement systems for monitoring the
quality performance will be discussed. We sketch out a measurement framework for
identifying nonconformances. We will also understand what cost of quality means
and how to establish a measurement system.
Even though customers are the driving force behind the process, without total
employee involvement (in terms of alignment, motivation and empowerment) and top
management leadership, the TQM efforts become futile. Methods need to be adopted
to stimulate total involvement and move toward the common goals of systematic and
continuous improvement with the ultimate aim of satisfying customers, employees
and stakeholders. These aspects will be discussed in section 3.6.
Before concluding, in section 3.7, we will introduce an International quality systems
standard called ISO 9000. Even though a TQM organization is beyond ISO 9000, the
exercise undergone for getting the quality systems certification brings in the
discipline much needed for a organization practicing TQM:
3.2 TQM: A HISTORICAL PERSPECTIVE
Quality management systems have evolved through quality control (QC), quality
assurance (QA), and total quality control (TQC) systems to total quality management
(TQM) systems. We will briefly sketch out each of these systems.
Quality control is concerned with defect detection by using post-production
inspection procedures. Statistical quality control techniques are used while inspecting
the finished goods. Main focus is on the product i. co what is wrong with the product
(or part). Techniques such as acceptance sampling, control charts, control by
attributes and control by variables are typically used by the QC inspectors while
controlling the quality of goods manufactured. The extent of employee involvement
is minimal. Only few inspectors from the QC department are involved in quality
control activities. It takes a real short time (within days) to install a QC system.
However, such systems do not help identify problems.
Quality assurance systems aim to produce as per design specifications and emphasize
defect prevention. Quality is built into the system (that produces the product) by using
22 production and operations management principles. Statistical process control techniques
Total Quality Management
are used to monitor the process by allowing random variations and eliminating non
random variations. Main focus is on the process -i.e., what is wrong with the process
which manufactures the product. Quality system standards (such as ISO 9000) are
adopted to assure quality in the process. ISO 9000 is an International systems
standard which shows how an organization can establish, document and maintain an
effective quality system. It helps demonstrate to the customer that the organization is
committed to quality and has the ability to meet their requirements. The employee
involvement is limited within the centralized-staff function of the QA department. It
takes between six to twelve months to install such a system. The main theme her is to
document (with well defined procedures) what you do and do what you document.
Total quality control systems are concerned with cost reduction efforts as a drive
towards continual improvement. Here quality is organized into the system. These
systems take off once the cost of quality is calculated. Problem areas are identified
and problem solving techniques are used extensively during the continuous
improvement cycle. Performance is monitored with the help of the COQ system.
These efforts enhance the product quality. Here waste identification and removal is
an important benefit. Philip Crosby's zero defects program (Table 3.1) is a TQC
approach. So is the Taguchi methodology which emphasizes the importance of a
robust design to take care of all downstream fluctuations. In TQC systems we have
more involvement in the form of various quality circles working towards improving
the processes. Time to install is between one to three years. It may be noted that QA
standards form the basis for a TQC or TQM approach.
Total quality management systems manage quality in. They have a strong
philosophical base that incorporates several important concepts of TQC systems.
Management efforts are oriented towards the achievement of complete customer
satisfaction. Here we find an organization wide responsibility for quality. Time to
install is three to five years. The evolution shows a culture change in the organization
which achieves customer orientation through various stages of development that
progress through a systems oriented to an improvement oriented to a prevention
oriented state.
23
Issues in Production/
Operations Management
Figure 3.1 and Table 3.1 show how TQM emerged over the century and who were
the quality gurus who were responsible for the status this philosophy commands
today. The progress from quality control to quality assurance to total quality control
to total quality management took almost a century of concerted efforts from quality
gurus, such as, Walter Shewhart, W. Edwards Deming, Joseph Juran, Kaoru
Ishikawa, Genichi Taguchi, Armand Feigenbaum, and Philip Crosby. The quality
movement was initiated in Japan by Deming and Juran. It was later picked up by the
Japanese who have made the quality movement a big success story. Around the 80s
Japanese companies, on a continuous cycle of never-ending improvements, surpassed
the west. They captured the markets with their consistent: quality products and have
now shifted their priorities on to satisfying customers with products having high
quality at low price.
We will take a. brief look into the Indian scenario. According to the World
Competitiveness Report (1994) Indian companies lag far behind their global
competitors in terms of customer orientation, time to innovate, time to market and, in
general, in terms of TQM practices. Under the liberalized scenario, it is more of a
concern because the global players are now entering the Indian market. We may be
having global capacities in some cases but we fail in terms of global quality For us it
is a Catch 22 with a difference-if we don't practice TQM we die; If we practice TQM
we struggle to survive (vie may not surpass but we do survive and may be succeed). I
used the word survive because our competitors are already much superior to us in
terms of quality practices. For example global players may be having component
rejection rates of I in 10,000 while Indian companies are struggling with rejection
rates of I in 100. A case in point is the US based company Motorola, which has made
the slogan six sigma quite famous by targeting 99.99997% defect free manufacturing.
According to a 1995 Business Today survey, Indian plants have trouble achieving
even 95% defect free manufacturing. In most cases the burden of high rejection is
passed on to the customer. But with liberalization becoming a reality the customer
has a choice. And companies have to listen to the voice of the customer to drive their
quality initiatives. With mass customization becoming a goal of most quality
programs, there is a lot of pressure on the Indian companies. There is a need, in most
sectors, for instant translation of new designs into finished products with no defects.
Internal customer: Any individual (or group or organization) who receives and uses
what an individual (or group or organization) provides (see Figure 3.2). Should
section I meet the needs of section 2? What happens to section 2, if the section 2
requirements (in terms of quality specifications) are not met by section l? What if
section 1 is not capable of meeting section 2 needs? Should the section I work in that
case be outsourced? That would mean making section 1 redundant Taking another
example, manufacturing departments are internal customers of product design and
development departments. If the design department supplies engineering designs that
are not producible by the manufacturing department then the internal supplier
customer relationship suffers. The supplier here is unable to satisfy its internal
customer. Should manufacturing somehow produce it over-riding the design
specifications? How would it affect the overall quality of the product in that case? Or
should design sensitize itself to manufacturing capabilities before developing
products intended for satisfying the external customer?
Quality and Productivity: The focus of productivity is now shifting. The old
factory-oriented definition of productivity is "product (or service) output per unit of
resource input". The new market-oriented concept is "salable, good quality product
(or service) output per unit of resource input." The higher the value the better is the
productivity. Figure 3 uses the new definition of productivity.
Quality and Profitability: Profitability is driven by quality.
We know, profit = revenue - cost
and revenue = price * quantity sold
⇒ Profit increases if revenue increases or cost decreases.
⇒ Revenue increases if price increases (quantity sold remaining constant)
or if quantity sold increases (price remaining fixed)
Quality and Cost: There are two debatable viewpoints regarding this relationship.
Both the views are justified depending on the frame of reference. Viewpoint 1:
Improved quality requires more expensive materials, additional labor, more precise
machines and therefore lead to higher costs. Viewpoint 2 : Improved quality is
possible through savings in rework, scrap and warranty expenses leading to decrease
26 in costs.
Total Quality Management
Several houses of quality are required in deploying-the voice of the customer. Figure
3.6 shows an example of how the voice of the customer can be deployed. QFD will be
most effective if we take a systems-approach to implementing quality practices in the
organization. Thus early involvement in the product development process with the help
of cross-functional teams is an absolute necessity to prevent problems downstream.
We can also measure and monitor a systems quality improvement program by identifying
nonconformances. A nonconformance is any deviation from measurable quality specifications
that need to be satisfied. Quality improvement programs are most effective if we identify
nonconformances in terms of quantity and cost, and systematically strive to eliminate
dominant nonconformances. Nonconformance could be in one of the following several forms:
Defects (i.e., work not to specification)
Rework (i.e., work requiring correction)
Scrap (i.e., work thrown away)
Backlogs (i.e., work behind schedule)
Late deliveries (i.e., work after due date) '
Surplus items or over-production (i.e., work not required)
We need a well defined measurement system to capture nonconformances in a database.
Next we sort the data and identify dominant nonconformances (in different sections of
the organization) to prioritize quality improvement actions appropriately. We generate
summaries of : a) nonconformance quantities and costs, (b)scrap, rework and repair 31
Issues in Production/
Operations Management actions, (c) supplier performance, (d) product performance in the field and (e) cost of
quality. Then we undertake improvement activities to eliminate the nonconformances
as far as possible in a continuous cycle using various problem solving tools.
Activity D
Choose a manufacturing company and a service company. Identify a key activity for
improving quality in each.
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
Activity E
Describe the elements of the TQM infrastructure.
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
Organized problem solving
Problems have several viewpoint perspectives. Solving the problems in an organized
manner helps realize the maximum benefits. Organized problem solving assists
solvers to. analyze the causes thoroughly before jumping into conclusions. It helps
generate maximum ideas from members in a team.
The problem solving process involves understanding the existing process(es), and
collecting facts, figures and information to help define the problem. A problem well
defined is half solved. Data analysis is done and the assumptions are reexamined.
Techniques are used to generate ideas for developing potential solutions. All the
alternative solutions are evaluated and the best ones are selected and implemented.
Table 3.2 shows the steps involved in creative problem solving along with the
corresponding seven quality control tools.
Figure 3.9 shows simplified versions of the seven QC tools which can be applied to
almost any practical problem. Flowcharts are used to understand the larger process
and how each stage affects the other. They help identify all customers, activities,
problem areas and redundant operations (if any). Critical quality characteristics that
need to be controlled at the appropriate stages are also identified. Thus flowcharts
help in identifying quality problems and areas of productivity improvement.
Checksheets help collect and report data in a systematic manner. We use special data
collection forms and use tally marks to. collect the frequency of occurrences of
characteristics that affect quality. Figure 3.9 shows a portion of a checksheet where
the frequency data is being collected for a certain quality dimension of a product.
Histograms are graphical representations of the variation in a set of data. In processes
they help identify variations and their patterns. The tally marks in the checksheet are
arranged in the form of a histogram to show the distribution of the data.
33
Issues in Production/
Operations Management While drawing histograms samples have to be designed carefully so that they are
representative of the process (or the population). Pareto diagram is a histogram of data
(e.g. the various types of nonconformances) arranged according to their descending order
of frequencies. Pareto diagrams help segregate the major few problem areas from the
trivial many thereby short-listing potential projects for improvement. When tracked over
time they show the=results of improvement programs taking effect. Cause-and-effect
diagrams help identify causes for a certain problem (the effect) There could be various
categories of causes, such as, man, machine, material„ environment, method and so on.
Through brainstorming problem causes are listed under the various categories. Once the
various causes have been collected, those having the biggest impact on the problem are
identified. Scatter diagrams help identify the nature of the various cause-effect
relationships. Causes having strong positive and negative correlation with the problems
arc identified for the improvement program. Control charts are graphical tools
representing the state of control of a process. Samples coming out of a process are
collected at frequent intervals, their quality characteristics measured and then plotted on
the appropriate chart for analysis. If the process is in control there is a high probability
the sample will fall between the statistically calculated upper and lower control limits.
Walter Shewhart, in the 1920s at Bell Laboratories, was the first to propose control charts
for distinguishing between common causes (or random variations) and special causes (or
non-random variations). We have control charts both for variable and attribute measures.
Thus organized problem solving involves defining the problem, identifying the root
cause of the problem, identifying the various solutions, selecting the best solution, and
recommending corrective action procedures for either controlling, reducing, or
eliminating problems.
Improving the process
Control means maintaining a
certain level of performance
while improvement means
achieving a higher level of
performance. Figure 3.10
shows the difference between
control and improvement. To
monitor the performance,
processes must be measurable.
We use statistical process
control (SPC) techniques to
measure and analyze variations
in a process. In any process,
the process-performance
measures fluctuate randomly,
due to common causes, around a certain target value (or average value known as
process mean). However, due to some special causes we also have non-random
variations taking place. We use control charts to identify these non-random deviations
in a process caused by the sporadic problems. We get rid of these underlying causes to
bring the process under control. On the other hand, to improve the process we need to
achieve higher performance levels by reducing the random chronic problems (or the
common causes of fluctuation) around new and superior target levels.
Thus we use SPC to detect special causes of process variation from common causes. A
process is said to be in a state of statistical control when the process variations are due to
the inherent, common causes only. Such processes are considered to be stable and
predictable within appropriate limits. A stable process, which also meets the product
specifications, can produce acceptable products. However, attaining stability is not an
end in itself. Rather continuously striving to reduce the random (or natural) variations
in the process is the main objective of any continuous improvement program. SPC is
implemented on the key processes where the sources of variability have been identified.
The operators are trained to gather preliminary data and prepare and use control charts.
Process Capability Studies
Continuous improvement leads to process improvement which means variability
34 reduction through enhancement of process capability. We will try to understand what
process capability means.
Need and Importance of Forecasting
4.1 INTRODUCTION
Every individual is interested in the future. Some with respect to themselves. Some
with respect to others-their near or dear ones. Some with respect to their apponents.
Few are just curious. Others need to prepare themselves (PLAN) for contingencies
likely to happen in future if known before hand. It is interesting to note that don't
know about future exactly. For example: People save for future to take care of
contingencies like serious illness, likely heavy expenses, to provide for their families
and children in case of their sudden death etc. These contingencies might not occur,
or when they occur, the magnitude may be such that total savings may not be
sufficient. That means, if it is ACCURATELY known before hand, than the PLANS
can be prepared and implemented to BETTER take care of contingencies.
The same problem is faced by managers and decision makers in their respective field
of operation. Because it takes time to complete an action, if this is sufficiently long,
then after the action in complete, the purpose of action may not exist.
Example: To-day realise as a manager that the demand of your product is much
more than the total production of all producers taken together. You decide to setup
another plant to increase the production so that you can take advantage of huge
demand supply gap. It will take several years for the plant to be effected and start
production. By then high demand gap may not exist-either demand has fallen or other
producers have already started producing more. So by the time your plant is
complete, it not useful for the purpose it was effected. It you could have known about
this situation earlier, then you would have started construction of plant so as to be
completed TODAY, then it would have served the purpose for which it was erected.
Every manager would LIKE to know exact nature of future events to accordingly
take action (PLAN) when sufficient time is in hand to implement the plan. The
effectiveness of his plan depends upon the level of accuracy with which future events
are known to him. But every manager plans for future irrespective of the fact whether
future events are EXACTLY known or not. That implies, he does try to FORECAST
future to the best of his Ability, Judgement and Experience. 5
Forecasting
4.2 CONCEPT OF FORCAST
Usually forecasting and predicting are used interchangebly in general usage. Adam
and Ebert in their book Production and operation management have defined and
distinguished the two as follows:
Forecasting: "Is a process of estimating a future event by casting forward past data.
The past data are systematically combined in a predetermined way to obtained the
estimate of the future".
Prediction: "Is a process of estimating a future event based on subjective
considerations other than just past data; these subjective considerations need not be
combined in a predetermined way".
Thus forcast is an estimate of future values of certain specified indicators relating to a
decisional/planning situation. In some situations forecast regarding single indicator is
sufficient, where as, in some other situations forecast regarding several indicators is
necessary. The number of indicators and the degree of detail required in the forecast
depends on the intended use of the forecast.
How much far in future? This is subject to the situation. It should be sufficiently in
advance so as to leave enough time in the hands of the decision maker to take a
decision/ ' plan and to put that plan operational by the time forecasted situation
occures.
Thus
Forecast (Time in future) >Time taken for preparation of plan
+ Time taken to implement the plan
What methodology is to be used for projecting the past data into future? - depends on :
5.1 INTRODUCTION
Forecasting generally deals with estimating future values of variables and telling in
advance about the occurrence of future events. Variables generally take quantitative
values. Thus, we can associate quantitative values to variables such as sales
production, profit, market share, rainfall, and population. A series of values of a
variable at equidistant time points forms a time series. A number of rigorous
approaches exit in the literature to forecast time series. Forecasting occurrence of
future events, however is altogether different. Events, such as development of a new
technology or a new product, arrival of a new competitor, formation of a new
coalition, and calling a labour strike are difficult to quantify. Therefore they elude a
rigorous mathematical treatment. We adopt less rigorous, more subjective methods to
deal with forecasting such events.
In this 'connection we wish to mention that forecasting events is in some way similar
to fortune telling that has a long pedigree. Palmistry, astrology, and gazing into glass
objects,
12
Qualitative Methods of Forecasting
the art of fortune telling, are still popular in many countries of the world today. The arts
of science fiction writing and futurology are of recent origin. Although they are not
treated as very scientific, they have produced wonderful. scenarios of the future which
have often come true. A variety of approaches have been forwarded in the past three
decades to make the art of event forecasting more rational, if not exactly scientific.
Qualitative forecasting is relevant to the broad field of social science that is widely
known to be an inexact science. Inexact science contrary to natural sciences, are
characterized by the following:
1) Reasoning is informal. Terminology in inexact science exhibits certain amount
of vagueness, and intuitively facts and implication are given high credence.
2) Attributes are not amenable to exact measurement.
3) Mathematical derivations are rarely used.
4) Predictions are not made with great precision and exactitude.
Helmer and Rescher (1959) suggest that forecasting qualitative events in such inexact
science should develop along the following lines:
1) Quasi-laws should be given more credence. Quasi-laws are those that have
limited generalization and allow exceptions because the condition under which
these are applicable may not be met in certain situation. Such laws are not rated
as belonging to physical science.
2) Forecasting should be accepted on far weaker evidence than explanation. This
epistemological asymmetry stems from the fact that explanations can be
validated by a comparison with factual statements and data while forecasts are
not. While one explanation must be more credible then its negation, a reasoned
forecast must be more tenable and credible then its comparable alternative. An
unreasoned prediction, on the other hand, is not validated by plausible
arguments but ex post facto by a record of success on the parts of the forecaster.
3) Prediction should permit associations of subjective (or personal) probabilities
are a measure of a persons confidence in the truth of some hypothesis in the
light of certain evidences.
4) Experts must be motivated to use their background knowledge in forecasting
exercises. A forecast expert is one
a) who is rational,
b) who has large background knowledge, and
c) whose forecasts show a record of comparative successes in the long run.
A rational person is one
a) whose mental preferences are consistent and who is ready to correct the
inconsistencies if pointed out to him,
b) whose subjective probabilities are stable over time provided he receives no new
relevant evidence,
c) but which are affected by new relevant evidences, and
d) these probabilities should reasonably agree with the probabilities when derivable
from observed facts.
To an expert, statistical information matter less then his knowledge of underlying
regularities about the past instances. Quasi-laws can play an important role for the
expert judgement. The function of an expert is intrinsic in the sense that he operates
with in a theory or a hypothesis and that he is invoked only after an hypothesis is a
formulated and its probability is estimated.
A forecast expert should be able to
a) sketch out general direction of future developments,
b) anticipate major junctures (branch points) on which the course of developments
will hinge, and
c) make contingency forecasts with respect to alternatives associated with them. 13
Forecasting
It is thus to be understood that the basis of forecasting very fax into the future has to
be' subjective, being based on the-power of judgement of the experts.
In this write up we have presented three important approaches to forecasting
events.They are the judgemental forecasting (section 5; 2), the Delphi technique
(section 5.3), and the cross-impact analysis (section 5.4).
18
Qualitative Methods of Forecasting
E) Reliability of the Estimates
Dalkey asked almanac questions. First round responses were treated as a population.
Samples of various sizes were drawn from the population. Correlation between the
median and the true answer was computed. Mean correlation coefficient over all
questions for several sample sizes was taken as a measure of panel reliability A plot
of panel reliability versus panel size indicates an asymptotic growth of the curve to 1
as the panel size increases (Figure 5.3).
F) Optimism/Pessimism in Forecasts
Ament analyzed two Delphi studies on the same topic conducted during 1964 and
1969 where the panelist were asked to estimate probability of occurrence of events by
a particular year in the future. He noted that probability estimates, made during the
year 1964, were significantly less than those made during 1969. He concluded that
long-range forecasts tend to be pessimistic whereas short-range forecasts are
optimistic.
G) Optimism/Pessimism Consistency by Panelists
Martino analyzed 10%, 50% and 90% likely dates. He computed three standardized
deviates for each individual and for each given event. Means were computed for each
individual and each likelihood. He noticed that panelists are consistently optimistic/
pessimistic with respect to the three likelihoods. He also noticed that standard
deviation is comparable to, or greater than, the mean. He inferred that individual
panelists tend to be biased optimistically or pessimistically with moderate
consistency.
5.3.6 Guidelines for Conducting a Delphi. Study
The following guidelines should be followed while conducting a Delphi study
a) All members should agree to serve on the panel.
b) The procedure for conducting the study should be explained to the panelists in
detail.
c) If possible, the panelists should be paid at the usual consultancy rate.
d) Every panel member should be assigned a code number.
e) Two copies of each questionnaire should be sent to the panelists in each round
so that he can retain a copy for his own record:
f) The questionnaires should be easy to understand.
g) It should not contain too many statements. A practical limit is suggested as 25.
h) Statement should be neither very lengthy nor very short. Optimum word length
is generally 25 for familiar events. It has to be higher for unfamiliar events.
i) Contradictory forecasts should be included to initiate debate.
j) Injection of moderator's opinion should be avoided becalm it has been found to
substantially bias the results.
19
Forecasting
k) A statement should not contain possibility of occurrence of compound events.
l) A statement should not be changed.
m) When editing the respondent's comments for clarity, the intent for the originator
should not be lost. Similarly, when editing from round to round, meaning of a
statement should not be changed.
n) Occasionally, by keeping track of how different subgroups of a respondent
group vote on specific items, it is possible to know how polarisation are taking
place.
o) The questionnaire should be pre-tested on any willing guinea pigs outside the
respondent group.
p) Delphi responses can be computer processed.
5.3.7 Guidelines for Selecting the Delphi Panelists
A general principle for selecting a panel for a Delphi study is that a variety must be
introduced to avoid bias. Therefore, the panelists should belong to different schools
of thought, different age groups, different institutions, different geographical
locations, and different sexes, etc.
If the subject matter for a Delphi study concerns an organization only, then naturally,
most of the panel members will be chosen from within the organization. However,
external members must be included whenever they are likely to contribute greatly to
thinking process.
Internal members must naturally have deep knowledge of the organization. They
must maintain the secrecy. Since the top managers of the organization are usually a
very busy set of persons, the internal members may be chosen from among the
managers who are about 2-3 levels lower in the organizational hierarchy.
External members are expected to be outstanding in the relevant field. They may be
selected from peer judgments, suggestions from internal experts, and suggestions
from other panel members.
5.3.8 Advantages
Delphi is always preferred to any other method whenever a consensus of a large
number of informed individuals is desired. Compared to the committee meetings
Delphi has the following advantages:
a) The undue influence of dominant or eloquent personalities is absent.
b) One need not publicly contradict prestigious personalities.
c) The tendency to be carried away by majority opinion is absent.
d) One can always change his views "since anonymity is preserved without causing
any embarrassment to himself.
e) Diversified opinion of many informed individuals will always be collected in
this process.
f) It economizes on the time required by busy individuals sine questionnaires can
be filled up at the individual's convenience,
g) It is relatively cheap to administer.
h) It facilitates conceptualizations of difficult phenomena.
i) It has no geographic and scheduling restrictions to get participants together.
j) It has shown high success in encouraging group and individual consideration of
factors that might otherwise be dismissed or neglected in planning.
The other advantages that are claimed for Delphi are the following:
a) It has great utility in obtaining results when other methodology is appropriate.
b) It is a creative technique and encourages innovative thinking. Hence it is
applicable to ill-structured problems.
c) By generating a consensus of opinion, it facilitates a change in an individual's
20 social values and the overall climate of the organization.
Qualitative Methods of Forecasting
d) Ratings from Delphi studies provide quantitative scores for evaluation and can
aid the choice of a course of action.
e) The two-way communication in a Delphi study facilitates understanding and
learning on the part of the participants.
f) The Delphi consensus leads to a commitment that leads to easy implementation.
Moreover, a Delphi exercise may be used to identify roadblocks to
implementation.
g) It blends the subjective and the objective, the rational and the extra-rational.
h) Delphi can be used along with such other aids as simulation-games, role playing,
cross-impact matrix, trend extrapolation, and scenario writing.
i) It is very flexible, and applicable to many situations.
5.3.9 Common Pitfalls of Delphi
Delphi is not without certain drawbacks albeit the many advantages claimed in its
favour. Most of the drawbacks originate due to deficiency in the design of the Delphi
study by inexperienced monitor teams. The following is a list of the major
deficiencies:
a) The inability to make the Delphi objectives specific,
b) The inability to identify and motivate many "informed individuals" to
participate,
c) The inability to stimulate response,
d) The inability to appreciate and highlight consensus and divergence,
e) The inability to refrain from imposing monitor and preconceptions of a problem
upon the respondent group by over-specifying the structure of Delphi,
f) Though advanced as a structured communication device, the method suffers
from the following:
i) the communication is too restricted for many problem situations,
ii) the requirement of written feedback editing, and distribution places a high
cost on the communication of ideas.
g) The Delphi panelists often give inconsistent views (Mohapatra et a1., 1984).
5.3.10 Variants of Delphi
Over the year, many variations on classical Delphi have been forwarded. Some of
these variants are the following:
a) An initial list of events or some information on the problem context can be
provided to the panelists. .
b) The panelists may be asked to suggest 10%, 5% and 90% likely dates of events
(instead of the conventional most likely date of occurrence).Median of the
50%date is taken as the median of the group response, whereas the spread
between the median of 10% and 90% dates is taken as the interquartile range of
the group response.
c) On-line real-time Delphi can be practised if facilities exit. Here the concept of a
round because redundant. A panelist directly keys in his scores and is informed
of the updated group response immediately.
d) Direct interaction among the panelists may be allowed.
e) The number of rounds (the stopping criterion) for a Delphi study can be
determined by examining if the stability of group response has been achieved.
This can be done by studying examining if the stability of group response for
individual statement from round to round or by studying the histograms of
response for individual statement from round to round or by analyzing the
changes in the coefficient of variation between rounds or even by carrying out
statistical significance tests for comparing the variation of group response
between rounds.
f) A hierarchical stopping criterion is often suggested (Figure 5.4). Such a criterion
is quite comprehensive. Though ideally it look very appealing it is difficult to
apply.
Gustafson et al (1973) present a framework for designing an opinion capture
technique. They divide the group opinion capture techniques into three types: 21
Forecasting
Of the many variants of Delhi which have lately been proposed, the Nominal Group
Technique (NGT) has exhibited the greatest potentialities (Ven and Delbecq 1974).
In its basic form, the technique requires participants to generate ideas in private.
Participants then engage in a round-robin meeting in which each offers an idea at
time. Discussion is then allowed. Finally an appropriate form of vote is taken to
determine the Group's final answer However, NGT was designed for the generation
and capture of ideas rather than for the estimation of prescribed quantities.
This procedure is developed by Nelms and Porter (1985) and is also referred to by
them as an "interactive Delphi" procedure. The procedure has the following ten steps:
a) Participants are given background information.
b) Participants assemble face to face m a conference room: The Delphi leader
provides \the background information and raises the partinent question.
Discussion among the participants is discouraged.
c) A Delphi questionnaire is .given to each participants. After completing, the .
participants return them to the Delphi leader.
d) Results are summarized and displayed before the group. Answers are ranked
from high to low Medium, quartiles and range are also computed and provided
to the participants.
e) Feedback of results are discussed freely among the participants. The 'name of an
22 'individual who may have been made a particular response is not disclosed publicly
Qualitative Methods of Forecasting
f) A second Delphi round is performed. In addition to the questionnaire, the
panelists are given index cards for anonymous questions and comments. These
are then return to the Delphi leader.
g) Results are summarized and posted. Anonymous questions are read and
recorded for display.
h) Discussion on the feedback is allowed.
i) Results are examined for stability of response of each panelist (not consensus).
In case of sufficient stability, The process is terminated. Otherwise, steps 6
through 9 are repeated.
j) Final results are summarized on paper. Additional statistical analysis is
performed. These are distributed to all the participants for comments.
The following advantages are claimed for the EFTE procedure:
• Protection from group effects,
• Face-to-face interaction,
• Feedback, and
• Stability as stopping criterion leading to fast start to finish.
5.3.11 Final Remarks on Delphi and its Variants
Over the years, popularity of Delphi and its variants is growing. With new
applications of Delphi studies and its variants and with continued research on its
methodological aspects, one hopes that it would become an important tool in the
hands of planners. With careful use, well-thought-out design, and integration with
other techniques, Delphi and its variants can help collect opinion of a large group of
experts in the ill-structured areas of forecasting, objective setting, and long range
planning.
Activity D
How could the Delphi method be used to predict for 5 years into the future, the
demand for the hospital beds in a given community? Under what circumstances
would you recommend use of Delphi method.
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
Activity E
Explain how a Delphi techique delivers a concensus forecast.
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
Activity F
Conduct an Estimate-Feedback-Talk-Estimate (EFTE) procedure for forecasting as
your organization.
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.........................................................................................................................................
.........................................................................................................................................
6.1 INTRODUCTION
Forecasting is the art and science of predicting the future events. Forecasting was
largely an art, but it has now become a science as well. While managerial judgement
is still required for forecasting, the manager is added today by sophisticated
mathematical tools and methods. While all elements of operations management are
important, forecasting is viewed as the key elements in the operations structure. This
unit is an excellent overview of quantitative forecasting techniques and models and
help recognizing the different models. Also it will help to know their use according to
one's needs. It can be highlighted that the qualitative forecasting is discussed in unit 5
of MS53 . The reader has to read this quantitative forecasting in combination with the
qualitative forecasting. Then only he or she can have a complete understanding of the
subject of forecasting. The needs of the market are changing for us, and we have to
respond more quickly than before. To do so, we have placed a higher emphasis on
forecasting. Students are required to refer MS"8 for different types forecasting
techniques.
6.2 FORCASTING
Forecasting, in general, presents an unresolved philosophical dilemma. `You can
never plan the future by the past', said Edmund Burke. But Patrick Henry disagreed: I
know of no way of judging the future but by the past'. Operations managers try to
forecast a wide range of future events that potentially affect success. Main concerned
36 here is that of
Quantitative Methods of Forecasting
forecasting customer demand for product and services. Forecasting may be short-
term or long-term by nature.
Forecasting is an essential tool in any decision-making process. It's uses vary from
determining inventory requirements for a local shoe store to estimating the annual
sales of video games. The quality of the forecast strongly related to the information
that can be extracted from past data.
Defining Forecasting
A forecast is an estimate of a future event achieved by systematically combining and
casting forward in a predetermined way data about the past. It is simply a statement
about the future. It is clear that we must distinguish between forecast per se and good
forecasts. Good forecast can be quite valuable and would be worth a great deal.
Long-run planning decisions require consideration of many factors: general economic
conditions, industry trends, probable competitors actions, overall political climate,
and so on.
Prediction, on the other hand, is an estimate of a future event achieved through
subjective considerations of managers. This subjective consideration need not occur
in any predetermined way.
Forecasts are possible only when a history of data exists. An established TV
manufacturer can use past date to forecast the number of picture screens required for
next week's TV assembly schedule. A fast-food restaurant can use past data to
forecast the number of hamburger buns required for this weekend's operations. But
suppose a manufacturer offers a new refrigerator or a new car, he cannot depend on
past data. He cannot forecast, but has to predict. For prediction, a good subjective
estimates can be based on the manager's skill, experience, and judgement. One has to
remember that a forecasting technique requires statistical and management science
techniques.
In general, when business people speak of forecasts, they usually mean some
combination of both forecasting and prediction. Commonly, forecasting is substituted
freely for economic forecasting. It implies for some combination of subjective
calculations and subjective judgement. We caution students and operations managers
to avoid misunderstanding.
Forecasts are often classified according to time period and use. In general, short-term
(up to one year) forecasts guide current operations. Medium term (one to three years)
and long-term (over five years) forecasts support decisions on plant location and
capacity Forecast are never perfect. Because it deals with past data, our forecasts will
be less reliable the further into the future we predict. That means forecast accuracy
decreases as time horizon increases. The accuracy of the forecast and the its costs are
interrelated. In general, the higher the need for accuracy translates to higher costs of
developing forecasting models. So how much money and manpower is budgeted for
forecasting? What possible benefits are accrued from accurate forecasting? What are
possible cost of inaccurate forecasting? The best forecast are not necessarily the most
accurate or the least costly. Factors such as purpose and data availability play
important role in determining the desired accuracy of forecast.
6.3 APPLICATION TO DIFFERENT FUNCTIONAL
AREAS
Forecasting is one input to all types of business planning and control, both inside and
outside the operations function. Marketing uses forecasts to plan products,
promotion, and pricing. Finance uses forecasting for managing cash flows and as an
input to financial planning. Accountants rely on forecasts of costs and revenues for
tax planning. Human resource personnel need forecasts for recruiting.
The main focus of this unit is on forecasting on operations function. It serves as an
input for decision on process design, capacity planning, and inventory control. For
process design purposes, forecasting is needed to decide on the type of process and
the degree of automation to be used. For example, a low forecast of future sales
might indicate that little automation is needed and the process should be kept as
simple as possible. If greater volume is forecast, more automation and more elaborate
process including line flow might be justified. Since process decisions are long-range
in nature, they can require forecasts for many years into future. Forecast can measure
the variability in demand during lead time 37
Forecasting
that in turn can help carry proper safety stock levels. Appropriate safety stock
inventory levels could minimise overall carrying and stockout costs associated with
these items.
6.3.1 Forecasting in operations management
In studying forecasting, we must be careful not to be emotional in immersing
ourselves in techniques and loose track of the reasons for forecasting. Forecasting is
an important component of operations planning. It is absolutely necessary for
planning, scheduling, and controlling the system to facilitate effective and efficient
output of goods and services.
Forecasting is helpful in operations management as regard to the aggregate demand
forecast. It is obtained by estimating expected volumes of sales, expressed in dollars,
and then converting the sales dollars into homogeneous production units. Production
unit can be subdivided into component parts and converted into labor or material
requirements. These resource forecasts are used to plan and control operation
subsystems as shown Figure 6.1
Refer Figure 6.1. There are three types of operations sub-functions which need
forecasting. These operations sub-functions are planning the system, scheduling the
system, and controlling the system. Each one will be discussed below in detail.
Planning the system: Managers need to forecast demands so that they can design or
redesign processes necessary to meet demand. Automated, continuous flows facilitate
high production volumes; manual or semi-automated, intermittent flows are generally
more economical for smaller production volumes. The demand forecast is critical to
this design. We have discussed a bit of this at the beginning of the unit. Wide
variation between anticipated demand and actual demand can result in excessive
operations"costs. Capacity planning utilities forecasting at different levels. A long
range forecasting is needed for planning the total capacity of facilities. For medium
range capacity decisions, a detailed forecasting will be needed to determine the
subcontracting, hiring plans, and equipment utilisation. Shoat-range capacity
decisions, including assignment of available people and machines to jobs or activities
in the near future, should be detailed in terms of individual products and they should
be highly accurate. If capacity is not expanded fast enough, both individual firms and
the national economy suffer. On the other hand, too much capacity is burdensome.
For example, Jet aircraft, at $20 million each, cannot be purchased and stocked for
occasional demand, since the cost of excess capacity is considerable. Boeing,
McDonnell Douglas, and airbus- the world's largest commercial aircraft producers-
38 try
Quantitative Methods of Forecasting
very hard to have manufacturing plants size a to meet exactly the number of aircraft
demanded. If the plants are too large, it will be costly to the firm.
Scheduling the system: Job scheduling in intermittent and continuous operations is
more stable if demand forecasts are accurate. Accurate demand forecasting is needed
for best utilisation of the existing conversion system. Managers need intermediate run
demand forecasts for three months, six months, and a year into the future. Both
current and future workforce levels and production rates must be established from
these forecasts.
Controlling the system: In regards to controlling inventory, production, labor, and
overall costs, managers need accurate demand forecast. Accurate forecasts are
needed for the immediate future- hours, days, and weeks ahead. Thus a computerised
forecasting system may be needed for these decisions.
In general, there are different types of decisions in operations and different associated
forecasting requirement as shown in Table 6.1. A peep into the table indicates that
there are two types of forecasting methods in operations management: qualitative
methods of forecasting and quantitative methods of forecasting. It is to be reminded
that qualitative forecasting has been discussed in unit S. This unit will deal with the
quantitative methods of forecasting only.
Table 6.1 Forecasting uses and methods
Uses of Time Accuracy Number of Management Forecasting
forecasting horizon required products level methods
For operations
Process design Long Medium Single or few Top Qualitative
and causal
Capacity planning Long Medium Single or few Top Qualitative
Facilities and causal
Aggregate Medium High Few Middle Causal and
planning
Time series
Scheduling Short Highest Many Lower Time series
Inventory Short Highest Many Lower Time series
management
Source: Operations Management by R.G Schroeder, McGraw-Hill.
Trend reflects the effect of global movements in the time series. Consider the linear
trend. Yt= bo +blx
bo = Y- intercept
Example: Sales data of a company are given for 14 time periods (t) with respective
sales data (yt). Forecast the sales value for the period 15.
42
Quantitative Methods of Forecasting
How do you make forecasts for the period 17 i.e. for the first quarter of 5'' year,
considering the trend component, seasonal component, cyclical component and
random component?
Solution: The following table calculates the 4-period moving averages (MAs) and
centered MAs. The sample calculations are shown below. You can calculate the
44 values very fast and accurately with the help of MS-Excel.
Quantitative Methods of Forecasting
Note that the first moving average (= 909) is for the whole first year i.e. it is
associated with all the four quarters of the whole year. Therefore it is reasonable to
center it. This is the (Tt Ct) component. Now question is where do we center it2 It can
be between 2nd and the 3rd quarter.
We can handle this by taking the midpoints of successive moving averages. For
example: (909+915.75) / 2 = 912.375 (can be centered at 3' quarter) that is the
average of the MA of 4th quarter and MA of 5th quarter.
This indicates that you are using 50 observations and centering at the middle.
Similarly, (915.75+919.25) / 2 =917.50 (center at 4)
Yt
St R t =
Tt C t
For Year 1
installation etc. The frequency with which management reviews such issues is also an
important consideration. If the lead like for adding the new facility is 3 years and
management reviews such issues 5 years after the latest additions, the minimum
planning horizon should be 3 + 5 = 8 years.
For the last year in the planning horizon, i.e. in 2004, the value oft in the trend-line
equation will be 20: therefore, the annual expected demand then will be Y 2004 = 600
+ (20t)) (20) - 4600. Thus, if the present trend continues, we must provide enough
capacity to produce at an annual output rate equal to Y 2004 = 4,600 units. Given a
current capacity limit of 2400 units, the projected increase in capacity requirements for
2004 is equal to 4600-2400=2200 units. Whether the required capacity will be added all
at once, or in smaller increments depends on the process technology. A typical
manufacturing unit might decide to build facilities for a new large plant, and acquire
equipment gradually as needed. A typical process plant, however , is more severely
restricted by the technology used to large-capacity increments. The choice depends on
balancing the lower variable costs for large-capacity increments against high fixed
costs that cannot be absorbed due to underutilization in near future. The projected
capacity requirements to handle increase in demand is explained in Fig. 7.2.
The above procedure does not account for the degree of uncertainty in future demand. 7
Production Systems Design
This may be evaluated subjectively by top management planners, or statistically by
computing a measure of dispersion 'f actual demand points in the past from the trend line.
The projected estimate for net capacity requirements cat be adjusted further to allow
for planned shutdowns to handle preventive maintenance or for planning for
unexpected growth or decline. For example, suppose that the firm has decided to build
the new plant with a capacity of 2.500 tonnes/year overseas. If management wants to
increase this by 20 Per cent for planned maintenance and another 10 per cent for further
growth, the capacity adjustment needed would be.
Normal plant capacity = (2500 v fits (1.20) = 3000
Adjusted plant capacity = (300) (1.10) = 3300 units
The adjusted plant capacity represents an average annual output rate for the overseas
plant. If there are no seasonal fluctuations the monthly rate will be 3300/12 = 275
tonnes. but in the presence of a strong seasonal cycle typical of plants actual
requirements will exceed this monthly average during the peak season, and in slack
periods, they will be less than the average. If management can rely on seasonal
inventories, overtime, or subcontracting, the annual capacity requirements can be met
by the above monthly rate.
If inventories cannot be used, the production rate must be continually changed to
follow the actual demand over time period. Let t s assume that the plant in this case can
handle demand with a monthly maximum capacity equal to 300 tonnes. On annual
basis, this corresponds to increasing capacity to 310() tonnes. Between the extremes of
3300 tonnes needed for producing at a constant rate of 275 tonnes /month and 3600
tonnes to absorb peaks of up to 300 tonnes per month1, it is often possible to adopt a
compromise plan. For example, we may assume that an amount of (290) (12) = 3400
tonnes/year is needed. This amount is definitely influenced by the feasible scale Of
production and technology of the process. Therefore, in the determination of long-term
capacity we must be aware of the feasibility of using short-range alternatives such as
inventories.overtimes. Multiply workshifts, or subcontracting.
7.3.2 Capacity Planning for a Multiple-Stage System
When the production process consists of one stage only, the determination of capacity
requirements by previous methods refers to the output rate for the entire new system
directly. More often, however, capacity planning for multistage processes becomes a
necessity. Different equipment configurations at each stage make it virtually
impossible to have all stages operate with the same maximum capacity requirements in
done for the bottleneck operations or production stages. This can result in higher
operating costs due to under utilization of facilities at other non-bottleneck operations.
However, this may well be the only feasible way or alternative: in a given situation.
Activity B
Briefly describe a practical approach toward managing capacity change. Would-it be
important for a person workings to be a general manager not an operations manager, to
under and, this process? Why or why not?
…………………………………………………………………………………………
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From the data in Table7.2, we note four points of special significance in capacity
studies : (i) An increase in plant size requires a large investment, but can lead to,
significant economics of scale near the full-capacity production volume. This usually
results for savings in construction and equipment per unit of capacity. (ii) Fixed costs
per unit become smaller, because items like utilities, supervision, insurance, etc., are
almost same over a wide range of plant capacity. (iii) Certain variable costs are also
allocated over more units, thus decreasing unit variable costs. (iv) Variable costs also
tend to be lower in large plants due to economics in raw-materials purchases and
shipping, and lower processing costs from more specialized equipment that are
economical only from more specialized equipment that are economical only for large
production volume. For larger plant sizes, with more advanced technology used for
production, we are. in effect, substituting capital for labour, resulting in higher
organizational efficiencies through application of more advanced management
techniques for planning and control of operations (computer-aided scheduling,
maintenance: inventory control and other functions) in most cases.
The concept of economics of scale has been a powerful force in shaping economic
activities both in the private and public sector. Organizations, where this plays an
important role, may come from industries, such as oil refining, steel, communications,
transportation and service systems, like supermarkets, departmental stores, education,
government. etc. In addition, the choice of the correct plant size must be determined
not only by cost performance; but also by the level of expected demand. This requires
the cost-volume-profit analysis in many cases.
7.4.2 Cost-Volume-Profit Analysis
The selection of optimum plant size given capacity requirements must be based on
adequate analysis of cash flows for each alternative plant size. This in turn requires the
9
estimation of total costs (TC) and total revenues (TR) at different production volumes for
Facilities Planning
i) What impact does facilities planning have on handling and maintenance costs?
It has been estimated that between 20 and 50 per cent of the total operating expenses
within manufacturing are attributed to material handling. It is generally agreed that
effective facilities planning can reduce these costs by at least 10 to 30%. Also good
layout provides easy access to equipment maintenance and repair, thus reducing
downtimes and maintenance costs.
ii) In what do organisations invest the majority of their capital and how convertible is
their capital once invested? 15
Production Systems Design
iii) What impact does facilities planning have on a facility's capability to adapt to
change and satisfy future requirements?
Since a particular solution to a layout problem is very costly and difficult to change.
it is desirable to maintain adequate flexibility to make it possible for the system to
adapt to changes. Economic considerations force a constant re-evaluation and
re-organisation of the existing systems, personnel and equipment. New machines
and new processes render older models and methods obsolele. Changes that are
constantly taking place in production methods, better equipment and materials
render it impossible for companies to retain their old facilities and layouts without
severely damaging their competitive position in the market place. To sum up,
changes in level of demand, design of product(s) or services and in technology often
result in layout adjustments that can be achieved only with flexibility the existing
configuration.
iv) What impact does facilities planning have on employee morale and how does
employee morale affect operating costs?
The layout design must assure every employee safe, healthy and comfortable
working environment. Due consideration must be given to health and safety norms
Specified in factory act by eliminating or minimizing possible hazardous conditions
in the place of employment. Any equipment or process that may create hazards to
workers' health and safety must be located in areas where the potential for employee
contact is minimal. A well designed layout, besides minimising losses in both
money and manpower resulting from industrial accidents; provides a working
environment that leads to a better utilisation of the all important human resource.
8.3 FACILITY PLANNING-OBJECTIVES
Facilities planning is a. continuing activity in any organisation that plans to keep abreast
of developments in the field. The problem presents a challenge to management because of
the complex interactions of several key factors and the difficulty in assessing their impact
on system performance. Although the methods available fall short of comprehensive
approach, they can provide good solutions to several layout sub-problems through
general guidelines, principles and techniques. Therefore rather than seeking an optimum
solution to the complete layout problem, the analyst relies on experience, good judgement
and some quantitative techniques to produce a satisfactory overall solution. Facilities
planning thus, although becoming more scientific, continues to rely greatly on the
experience of planners.
It may not be realistic or feasible to state one precise objective for any facility planning
exercise or the same objectives for all the facility planning exercises. Some typical
objectives considered while developing layouts are listed below. Their order of
importance depends-on the specific problem under consideration.
i) Support organisation's mission through improved material handling_ materials
control, and good house keeping.
ii) Effectively utilise people, equipment, space and energy.
iii) Minimise capital investment.
iv) Be flexible and promote ease of maintenance.
v) Provide for employee safety and job satisfaction.
These objectives can be restated as characteristics of good layout.
Is it time for relayout study?
Many a time layouts are originally designed efficiently. As the organisation grows and '
changes to accommodate a changing environment, the layout becomes less and less
efficient. This forces the need for a relayout exercise.
Following are some indicators pointing towards a relayout study (which can be _restated
as the characteristics of a poor, layout):
• Congestion in aisles and storage areas and poor utilization of space
16 • Excessive in process inventory and excessive work flow distances
Facilities Planning
• Continual production bottlenecks in some locations and simultaneous idle facilities
elsewhere
• Skilled workers doing excessive unskilled work
• Long operation cycles and delivery delays
• Worker anxiety and strain
• Accidents or near accidents
• Obvious lack of production control
• General feeling of confusion with employees often spending time in locating
products, components, materials, tools etc.
The main purpose of relayout studies is generally to maximise the profitability or .
efficiency of operations. Other purposes include minimising safety or health hazards,
facilitating crucial staff interaction, freeing up bottleneck operations, "and minimising
interference, noise or distractions between different operational areas.
Activity A
Do you propose the relayout of your factory facility location give the reasons for that.
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
This grouping, in a process layout. results in departments like drilling, milling, sawing
turning, painting, receiving and shipping etc. It may be noted that there is no loss in
efficiency (in the context of operation) if machines used to convert materials into
products are located long distance apart. The problem is about the loss of time, wasted
effort and cost of moving materials. This grouping of machines by function (Fig. 8.1) is
characteristic of job shops and batch type production facilities.
The flow process chart for GEAR MAKING is shown in Figure 9.1.
Activity A
Considering your organisation, can you just examine the method study that has been
under practice.
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………………….
Operations Process. chart is a process chart giving an overall picture by recording in
a sequence only the main operations (O) and inspections ( ).
The Man-machine chart describes the activities of a man and of the machine(s) lie is
tending. The chart helps in determining the number of machines each operator should
work or the optimum number of operator per machine.
This chart helps in visualising the proportion of work cycle during which the operator
and machine are busy or idle. Figure 8.2 shows a Malt-Machine chart for MIXING A
DRINK IN A BLENDER.
Activity B
Consider the experience in your Organisation-Develop a flow process chart for the
type of work you are engaged with.
…………………………………………………………………………………………
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Production Systems Design
Simo chart is used while carrying out Micromotion Study (systematic study of human
motions to perform an operation), which aims at eliminating unnecessary motions and
determining the best sequence of motions.
34
Work Systems Design
The SIMO chart for the operation of SIGNING A LETTER is shown in Figure 9.4.
Figure 9.3 shows the work place layout for the operation.
Motion Study makes use of Principles of Motion Economy, which are used as
guidelines for designing motion-efficient procedures. These principles are classified in
three categories:
The Flow Diagram includes a plan view of the work area under consideration, and a
line diagram indicating the path followed by the object under study and flow process
chart symbols 35
Production Systems Design
Super imposed on the lint diagram to indicate what happens to the object as it passes
through the process. Figure 9.5 shows the floe diagram for GEAR MAKING.
EXAMINE the facts: The recorded facts are, at this stage, systematically examined
by questioning everything about the job- the way the job is being done now, the.
materials that are being used, the tools and equipment, the working conditions etc.
DEVELOP the improved method: Once the questions like WHY, WHAT, WHERE.
WHEN, WHO and HOW are answered, the method study analyst can now try to put
the findings into practice. It is often difficult to generalize the procedure for evaluating
the various alternatives, since this depends upon the particular situation. Often,
judgment plays a vital role. The criteria need not be confined to the quantitative factors
alone. The methods study analyst is faced ,with the problem of predicting performance
time, fatigue, effort, energy expenditure, monotony and job satisfaction for various
alternatives. Man,, of these factors are treated as unquantiliable in the comparison of
alternative work methods.
INSTALL and MAINTAIN the improved method: After the best method for
performing work has been identified, this must be standardized. The motion patterns,
size, quantity of materials, tools, jig and fixtures, the machine and the working
conditions must be specified. All these factors, as well as, working conditions must be
maintained alter they have been standardized. A written standard practice, giving the
detailed account of the operations, must be followed.
Working Environment
Working environment has a significant impact on the person and on task performance.
There are a number of environmental factors such as temperature, humidity,
ventilation, illumination, noise etc. affecting worker performance. The work designer
must know how each factor affects the person or performance, how to diagnose the
problem and what solutions will be effective in different situations_
Environmental problems are the ones that involve the surroundings of the worker.
There is a relationship between the worker, the task and the environment as shown
below.
36
Work Systems Design
Environment may alone affect the worker (for example. being outside on a very hot
day). But the combination of environment and task has serious influence on the worker
(for example. hard work on a hot day).
The common environmental factors are outlined below.
Temperature: Human beings can perform under a wide range of temperature.
However, work gets adversely affected if temperatures are outside the comfort range.
Temperature problems are less problematic in offices than in factories.
Humidity: Humidity is an important variable for maintaining a comfortable working
environment. Temperature levels depend on humidity levels since human beings are
more sensitive to temperature variables at high humidities. High humidity requires
more cooling on a warns day: and more locating on a cold day, than love humidity.
Illumination: Illumination consists of both the quantity and quality of light. Each of
these may contribute to lighting problems. The amount of illumination depends on the
type of job. For example, more illumination is needed for detailed work. Lighting can
be classified in various ways such as:
• Primary and Secondary lighting
• General and Specialised lighting
• Natural and Artificial lighting
Primary lighting is the lighting required to perform a task, whereas Secondary
lighting is light needed to move about and for safety needs.
General lighting is lighting from overhead sources over abroad area. Specialised
lighting is needed for situations like checking quality defects.
Natural lighting is used widely due to its low cost Artificial lighting is used for
specialised lighting.
Usually, lighting problems; arise from the quality rather than quantity of illumination.
Glare and contrast are important aspects.
Glare occurs when a bright light shines in a person's eye and reduces its visibility of
the object to be seen. It can be from a light source or may be reflected from the object
itself. Hence, there should be proper shielding of light sources or relocation of sources
of reflected glare. For example, the computer display screen should be perpendicular to
the nearby window, to eliminate sources of direct or reflected glare.
Contrast is caused when the illumination level of the object is significantly different
from the visual surroundings.
Solutions to lighting problems include the following:
• Controlling the light source by shielding or relocation
• Changing the illumination level
• Changing the task to require less fine visual perception
• Changing the object to control reflectance.
Noise and Vibration
Noise is unwanted sound. Noise is caused by vibration of machines as well as human.
beings. Noise is annoying, thereby leading to errors and /or accidents. It can damage/
impair hearing if it is very loud. Noise limits are set by three criteria: hearing loss,
speech interference and annoyance. Intermittent noise causes less hearing loss than
continuous noise-because the hearing mechanisms have a chance for recovery before
each new exposure. Unwanted background noise has detrimental effect on oral
communication. Noise has a definite effect on work performance.
Measurement of noise levels and exposure times will indicate the extent of noise effect
Measures for tackling the noise problems include the following:
• isolating the person from the noise source by distance and /or barriers.
• Modifying the exposure time. .
• Use of earplugs. 37
Production Systems Design
Vibration is also an important factor in job design. Vibration can conic from various
sources like machines, tools vehicles, human activity. Corrective action for vibration
include use of shock absorbers, padding, cushioning, rubber mounting.
Activity C
Examine the working environment at your work place which has a significant impact
on your productivity. Give better solution for realocation.
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………………...
ii) Behavioural Approaches to Job Design
An effective job design is one which a person can do. one that a person wants to do,
and one whose output invaluable to the organisation.
There are two basic schools of thought in job design: efficiency school and behavioral
school
Efficiency school emphasizes on traditional engineering approaches to job design
such as job specialisation, methods study etc. But most of the specialised jobs are
found to be boring. monotonous and less satisfying, thereby leading to problems like
absenteeism, turnover and rejects. This has been highlighted by behavioural aspects
which point out that most workers do not like specialised jobs. They feel that
specialised jobs are not interesting and they want more control over these jobs. This
has led to attempts to make jobs interesting and meaning through approaches like Job
Rotation, Job Enlargement, Job Enrichment, Socio-technical system.
Job Rotation involves assigning different kinds of jobs to workers in turn. For
example, a clerk can be assigned jobs in recruitment, accounts, establishment,
academic sections on a rotating basis.
Job Enlargement involves giving the worker a larger proportion of work. This is also
called horizontal loading i.e. assigning additional work of same skill and
responsibility.
Job Enrichment involves giving the worker work of higher skill and responsibility.
For example, an assembly worker can be given the additional job of inspection.
However, before introducing the above approaches, one has to carry out further studies
on the need of such changes since all workers or jobs are not amenable to job
enlargement/ enrichment.
The Socio-technical Systems approach to job design attempts to develop jobs that
adjust the needs of the technology to the needs of the worker and workgroup. The
approach developed from studies of weaving mills in India and Coal mines in England
around 1950. These studies revealed that work groups could effectively deal with
many production problems better than management if they were allowed to make their
own decisions. The Socio-technical approach has been adopted in many countries. The
rationale underlying these studies is that the individual or work group requires a
pattern of work activities incorporating Task variety, Skill variety. Feedback, Task
Identity and Task Autonomy:
Task variety aims at providing optimum variety of tasks within each job. Too much
variety leads to inefficiency and too less variety leads to boredom.
Skill variety enables workers derive satisfaction from using a number of different
kinds of skill levels
Feedback means informing employees quickly about their performance
Task identity implies that sets of tasks should be separated from others by some clear
boundary
Task autonomy enables employees to exercise some control over their work.
One of the major drawbacks of this approach is the reluctance of managers to give
38 more authority to workers.
Work Systems Design
Activity D
Do you think job rotation & enlargement is necessary for an employee?
.........................................................................................................................................
.........................................................................................................................................
........................................................................................................................................
In the snapback method, the watch is also started from the zero position at the
beginning of the study. At the end of each reading, the analyst simultaneously notes
down the stopwatch reading and snaps back (by depressing the crown). As soon as the
pointer reaches zero reading, the crown is released and the pointer begins moving
again. Element times are computed as shown below.
Element number Stopwatch relation elemental times ,
minutes
1 0.15
2 0.33
3 0.32
4 0.22
5 0.18
40
Work Systems Design
41
Managing Information for
UNIT 10 MANAGING INFORMATION Production System
10.1 INTRODUCTION
Knowledge is the key resource with which Management operates. Information and
intelligence are two essential ingredients of such knowledge. Utilization of
information from data source to decision-making is the index of management
efficiency. Management is responsible for important components of information, such
as, recognition of need, planning, implementing and operating the system. Attempt has
been made to make an understanding of corporate activities and the need of the
information flow among different departments. It has been explained how the
interdependence of functions shows the need for resource balance. Other issues like
information needs of business appraisal, objective of appraisal, methods of appraisal
are discussed. Information need of production content operational planning, product
information and the common database required for the production system etc, arc
highlighted at the end.
Make a list of management reports that the MIS might provide to ensure control
throughout for
i) a manufacturing firm
ii) a bank
iii) a hospital
iv) a chain of department stores.
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
11.1 INTRODUCTION
If the demand for a company products was absolutely stable, there would be no need
for aggregate planning. The company can develop a production process and a
workforce level that would produce exactly the amount demanded every month in a
repeating cycle, while maintaining practically no inventory. However this is seldom
found to be true and the demand mix among the products do fluctuate over time.
The problem facing the company is to create production, inventory and the workforce
plans far enough in advance to satisfy the anticipated demand at minimum total cost
without harming the company's long terms strategy and viability. The output of the
planning process should be a period by period plan of how much of each product type
to produce, how much to add or remove from the inventory, how much the workforce
to be increased or decreased, how much over time work should be planned and, if
applicable, how much production should be subcontracted.
As the aggregate plan is based on satisfying expected intermediate term demands, it is
necessary that accurate forecasts of these demands be made. Due importance must be
given to seasonal factor while arriving at forecasts. In addition, intermediate range
wage rates, material prices and holding costs also affect optimal plans. All these
parameters must be properly considered.
Aggregate Planning is necessary in Production and Operations Management (POM)
because it provides for,
Fully loaded facilities and minimizes overloading and underloading, thus reducing
costs.
Adequate production capacity to meet expected aggregate demand.
Getting the most output for the amount of resources available, which is important in
times of scarce production resources.
Aggregate planning is the key to managing change in POM because the changing
patterns of customer demand and the plans for providing production resources that
adapt to those changes are fundamental to aggregate planning. 5
Production Planning & Scheduling
11.2 LINKING LONG TERM AND SHORT TERM
PLANNING
Decisions involving design and mix of products, the location and capacity of facilities
and design of production process are long term decision and they decide the
environment within which the production system must operate.
On the other hand Aggregate planning is the process of determining the company's
production, inventory and personnel levels etc. for three to twelve month ahead.
Aggregate plans act as interface (Fig-11.1) between strategic decision, which fix the
operating environment, and short term scheduling and control decisions, which guide
the company's day-to-day operations.
Aggregate planning typically focuses on manufacturing several aspects of
operations-aggregate production, inventory, and personnel levels-to minimize costs
over some planning horizon while satisfying demand and policy requirements.
Intermediate term planning is normally performed in terms of aggregate production
units and resources (hence the term aggregate planning) rather than for individual
products. Although in the intermediate term major facility and process changes usually
be expanded by using overtime - work, subcontracting production, hiring addition
workers, or even adding entire work shifts. This approach takes the demand pattern as
forecasted and focuses on minimizing the costs.
Fig. 11.1
11.3 THE PURPOSE. OF AGGREGATE PLANS
In this section we explain why companies need aggregate plans and how they
use them to take a macro view of their business. We also discuss how the
aggregate plan relates to a company's long-term and short-term plans. Only
qualitative aspect of the aggregate planning in discussed. Quantitative
explanation of aggregate planning is given in block -4 of MS-5.
Aggregation
The aggregate plan is useful because it focuses on a general course of action, consistent
with the company's strategic goals and objectives, without getting bogged down in
detail's, for example, it allows managers to determine whether they can satisfy
6 budgetary goals without having to schedule each of the company's thousands of
products and
Aggregate Production Planning
employees. Even. if a planner could prepare such a detailed plan, the time and effort
required to update it would make it uneconomical. For this reason, production and
stiffing plans are prepared by grouping together, or aggregating , similar products,
services, units of labour, or units of time. For instance, a manufacturer of bicycles that
products 12 different models of bikes might divide them into two groups, mountain
bikes and road bikes, for the purpose of preparing the aggregate plan, it might also
consider its work-force needs in the terms of unit of labour needed per month. In
general, companies aggregate products or services, labour, and time.
Following Definitions may be used for Aggregating Products:
− Items are the end products sold to customers.
− Families are groups of items that are processed on the same equipment and share
the same general machine setup.
− Product types are groups of product families that have similar cost structures,
holding costs per unit, productivities, and seasonal demand patterns.
Aggregate planning is normally done at the product type level of aggregation and at the
facility level, rather than at the corporate level.
Assigning items to families and product types is easier than it may at first appear. One
of the tricks to making this assignment is somewhat counter intuitive. Product types,
families, and item from a hierarchy, with product types being the highest level of the
three.
Selecting the aggregate measures of production and inventory is normally straight
forward because items within the same product type should be very similar physically
for example, the units may be expressed in terms of the number of appliances, number
of refrigerators, thousand of TV, or tones of steel produced and stored. Production
resources and capacity should be expressed in aggregate form as well. For example,
one of the variables to be determined by the plan is the amount of direct labour
(workforce level) needed, including the amount of overtime labour to use in each time
period. The measure of workforce or overtime would be expressed in labour-hours or
resources consumed in production, such as gallons of paint or hours of machine time
should be expressed in terms of the aggregate amount of each resource consumed to
produce one unit of the aggregate product.
Product Families: Sometimes, products families relate to market grouping or in the
case of production plans, to specific manufacturing processes. A fur can aggregate its
products or services into a set of relatively broad families, avoiding too much detail at
this stage of the planning process. Common and relevant measurements, such as units,
rupees, standard hour or litre, should be used. For example, consider the bicycle
manufacturer that has aggregated all products into two families: mountain bikes and
road bikes, this facilitates production planning for the assembly lines in the plant. A
firm that socializes in quick oil changes might aggregate the services it offers into two
categories: the basic service and special services.
Labour: A company can aggregate labour in various ways, depending on workforce
flexibility. For example, if workers at the bicycle manufacturer are trained to work on
either mountain bikes or road bikes, for planning purposes management can consider
its work force to be a single aggregate group, even through the skills of individual
workers may differ.
Alternatively, management can aggregate labour along product family lines by
splitting the work force into subgroups and assigning a different group to the
production of each product family devoting production lines and even entire plants to
separate product families. in service operations, such as a city government, workers are
aggregated by the type of service they provide: fire fighters, police officers, Sanitation
workers, and administrators.
Companies that aggregate labour along product lines must plan for change in economic
conditions and consumer demand that may cause cutbacks in production of some
product families and increases in production of others when such shifts occur, labour
may not be interchangeable. For example, in automobile assembly, production of
different product families takes place in scattered locations. In such cases, planning for
changes in work-force levels and the use of overtime by aggregating labour around
product families is the most practical approach. 7
Production Planning & Scheduling
Time: A planning horizon is the length of time covered by an aggregate plan.
Typically, the planning horizon is one year, although it can differ in various situations
to avoid the expense and disruptive effect of frequent changes in output rates and the
work force adjustment usually are made monthly or quarterly. In other words, the
company rather than days or hours. Some companies use monthly planning periods for
the near portion of the planning horizon and quarterly periods for the later portion. In
practice, planning periods reflect a balance between the needs for (i) a limited number
of decision points to reduce planning complexity and (ii) flexibility to adjust output
rates and work-force levels when demand forecasts exhibit seasonal variations. The
bicycle manufacturer for example may choose monthly planning periods so that timely
adjustments to inventory levels can be made without excessively disruptive changes to
the work force.
12.1 INTRODUCTION
In financial parlance, inventory is defined as the sum of the value of raw materials,
fuels and lubricants, spare parts, maintenance consumables, semi-processed materials
and finished goods stock at any given point of time. The operational definition of
inventory would be : the amount of raw materials, fuel and lubricants, spare parts and
semi-processed material to be stocked for the smooth running of the plant. Since these
resources are idle when kept in the stores, inventory is defined as an idle resource or
any kind having an economic value.
Inventories are maintained basically for the operational smoothness which they can
effect by uncoupling successive stages of production, whereas the monetary value of
inventory serves as a guide to indicate the size of the investment made to achieve this
operational convenience. The materials management department is expected to
provide this operational convenience with a minimum possible investment in
inventories. The objectives of inventory, operational and financial, needless to say, are
conflicting. The materials department is accused of both stock outs as well as large
investment in inventories. The solution lies in exercising a selective inventory control
and application of inventory control techniques.
Inventory control has been attracting the attention of managers in India for a long time. 13
Production Planning & Scheduling
12.1.1 Raw Material, WIP, Finished Goods
For control purposes, it is very essential to study the inventory in detail- raw materials,
production components, work-in-progress and finished goods inventories should be
segregated as the reasons for their existence and the causes for their size are different.
Raw materials and production components are purchased from outside suppliers and
the reason for their existence is to uncouple the purchasing function from the
production function. The size of this inventory is depend upon factors such as internal
lead time for purchase, supplier lead time, vendor relations availability of the material
government import policy, in the case of imported material, the annual consumption of
the materials (ABC classification) and the relative criticality of the material (VED
classification).
Work-in progress inventory might exist merely because of the production cycle time or
could also be maintained for decoupling successive manufacturing operations. The
decoupling could be employed either for implementing an incentive scheme or to
enable each of the production departments to plan independently. The size of this
inventory is dependent on the production cycle time, the percentage of machine
utilization, the make/ buy policies of the company, and the management policy for
decoupling the various stages of manufacturing.
The finished goods inventory is maintained to assure a free-flowing supply to the
customers and for this the marketing department insists on substantial finished goods
inventory. The size also depends on the ability of the marketing department to push the
products, the, company's ability to stick to the delivery schedule of the client, the shelf
life and the warehousing capacity.
Two factors which influence the inventories of all types are: the accuracy and details of
the final forecast-all the inventories are geared for future requirements and are
therefore sensitive to this factor-and the available storage space-the logical sequence to
this factor is the shelf life of the items stored, a factor for consideration in the case of
perishable goods.
12.2 STOCK POINTS IN A PRODUCTION -
DISTRIBUTION
Figure 12.1 identifies the main stock points that occur in a production- distribution
system from raw materials and ordering of supplies through the productivity process,
culminating in availability for use. At the head of the system, we must have raw
materials and supplies in order to carry out the production process. If we are to be able
to produce at minimum cost and by the required schedule, these materials and supplies
need to be available. Therefore, we need to develop policies for deciding when to
replenish these inventories and how much to order at one time. These issues are
compounded by price discounts and by the need to ensure that delays in supply time
and temporary increases in requirements will not disrupt operations.
Processes are designed so that there is less specialization of workers. The physical
layout is arranged so that a worker can operate two or three different machines, thus
providing flexibility in processes that might precedes the assembly line. The benefits
that result from this organisation of multi-function workers are:
There are three elements of job standardization that are included on a standard
operation sheet stacked up for all workers to see:
Based on the computed cycle time that is derived from market demand, the aggregate
number of workers required to produce one unit of output in the cycle time is
determined. Rebalancing may then be necessary to schedule for minimum labour input
for a given output objective. The standard quantity of work input for a given output
objective. The standard quantity of work in process indicates the in-process inventory
required for smooth flow.
Given your current understanding of Japanese business practices, would you like to
work for a Japanese corporation in your homeland? What would be the positive aspects?
The negative aspects?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
S1 4.75 0.03
S2 4.76 0.02
S3 4.78 -
S4 4.70 0.08
S5 4.74 0.06
S6 4.75 0.05
S7 4.76 0.04
S8 4.76 0.04
38.00 0.32
In this revised line balancing,
= 94.14
say 94
It is observed that with small changes in the work content of stages of production on
the assembly line, we are able to increase the output rate. Parameter of line efficiency
is often used for measuring the effectiveness of line balancing.
It is the ratio of the total stage time and total cycle time
39 ×100
Line efficiency = for case (b)
8 × 4.88
= 99.89%
39 × 100
Line efficiency = case (c)
8 × 4.88
36
= 99.37%
Scheduling & Sequencing
Activity A
Maruti 800 is assembled on a conveyor belt with 30 stages, roughly well balanced in
terms of cycle time for each stage. The slowest stage has a cycle time of 1.5 minutes
and the cycle time at other stages is no more than 1.4 minutes. Each stage is manned by
3 to 5 workers depending upon the total work content at that stage. What would be the
increase in production per shift if the work content of the slowest stage is brought
lower than 1.4 minutes.
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
Consequently, value of Q obtained when first derivative will be equal to zero, will
correspond to overall cost minimisation i.e. 37
Production Planning & Scheduling
Often, a batch size `Q' is made at a machine and then transferred in one lot to the next
machine in sequence.
Another variant of this mode of production is when the material is transferred to the
next stage while the lot is being manufactured at the first machine.
Since the second derivative will be positive, value of Q for overall cost minimization
can be determined by
Activity B
For an item of product, annual demand is 26,000 units and can be produced at the rate
of 1000 pieces per week, at a cost of 1000 pieces per week, at a cost of Rs 26/- per unit.
If the cost of changeover is Rs 50/- per occasion and cost of carrying inventory is 20%,
what is the economic size of production batch ?
…………………………………………………………………………………………
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38 …………………………………………………………………………………………
Issues in Materials Management
3) Because materials form major part of total cost. these offer a very good scope for
reduction of total cost. A small per cent in material cost can result in large per
cent increase in profitability.
Example: Suppose a small company has total sales of rupee 1000. Total cost is
Rs.900/- . Thus profit is Rs.100/- Which amount to 10 per cent of the
6 sales. Suppose out total cost of Rs. 9001-, material cost is Rs.600/-.
Issues in Materials Management
If one per cent saving in material cost can he achieved, then resultant saving is
Rs.6/-(1 per cent of 600) which directly adds to the profit, thus profit becomes
Rs.106/-
Therefore, in this case, I per cent saving in material cost results into 6 per cent
increase in profit.
4. End product quality apart from other factors, largely depends on quality of input
materials.
5. Any interruption or shortage in supply of materials when needed by the
production department, in many situations can result in complete stoppage of
production.
6. Because of growing concern for pollution, some contribution has to be materials
manager by finding substitutes which are less polluting or less damaging.
7. In the long term welfare and interest of the mankind, the natural resources (most
of the materials ultimately come from one or the other natural resource ) need to
be conserved and regenerated along with planned usage.
14.4 NEED FOR MATERIALS MANAGEMENT
In manufacturing organisations hundreds of items, materials, components spare parts
etc., of varying dimensions and quality are daily needed. To keep track of these
items, to identify sources of their supply, to negotiate purchase, to coordinate
between manufacturing operations needs, engineering and drawing department,
finance department and suppliers, stores etc. there is a need to have a separate
department / division, which can manage all these efficiently. In large organisations
where the number of such items may run into thousands and the. value of these items
may run into hundreds of eaves: the need for proper management is all the more
important.
Also, because about fifty percent of total revenue, usually is consumed in materials,
its efficient management can directly contribute to the profitability of the
organisation. Since, every manufacturing organisation has production management
for production activity, financial management for finance of the organisation,
personnel management of human resource management or development as is now
being termed, it is but natural to have materials management for efficient
management of materials which account for a major part of a companies total budget.
Materials Management Defined
Lee and Dobler define material management as, "A confederacy of traditional
materials activities hound by a common idea. -- the idea of a an integrated
management approach to planning, acquisition, conversion, flow and distribution of
production materials from the raw material state to the finished product state".
Bailey and Fanner define materials management as, “The management of the flow of
materials into an organisation to the point where those materials arc converted into
the firm's end product(s)”.
The process of planning, procuring, storing, handling and distribution of required
materials within the firm, is termed as materials management.
The scope of materials management is wide. It has impact directly or indirectly on
the activities of many related departments in the organisation.
Its scope spans from the indentification and specification of materials, indentifying,
the sources and suppliers, negotiating prices, purchasing, arranging for in bound
transportation, receiving, and inspection for quantity and quality, efficient, storage,
issueing to respective manufacturing departments, maintaining proper records, and in
some cases disposal of scrap and surplus/obsolete materials and components. Thus its
scope spans from the suppliers to the production shops of the organisation, till the
end product.
Objectives
The main objective of materials management is to make available the right materials,
in right quantity, of right quality, at the right time and right prices. Thus some of the
objectives can be: 7
Materials Planning
Right Material : Identification and specification of materials required to he decided
in consultation with engineering and production. Making efforts to locate suppliers
who are capable to supply exactly what is required. Make available that which is
required and specified.
Right Quality: For every item, supply to be made according to quality specification,
neither of very high quality than specified ( depends on pricing also) nor below, so
that end product quality and process operations are not unduly affected. The quality
of incoming materials be consistently maintained.
Right Quantity: Based on annual or periodic estimates of consumption, the
purchases be made in right quantity i.e. neither too high (storage and handling cost
may increase) nor too low (sometimes material may not be available when needed in
production department).
Right Time: Adherence to timing (as and when required) by the production can be_
achieved through storage. But making purchases too much advance so that the items
will remain in the stores for longer period (increasing the cost of storage and chances
of obsolence / damage etc.) or just in the nick of the time increasing the risk of stock
out, would not amount to the right time. Proper timing of purchase and requirement
he balanced.
Right Prices: Negotiation of purchase price should be competitive without
sacrificing on quality and the reliability of supply. Bulk purchase or long term
purchase contract can also be used effectively in negotiation of prices. Major savings
in overall cost of materials can be effected at this stage thus directly contribution to
the organisation.
Low Payroll Costs: This not only refers to the total payroll of the materials
management department but overall total expenditure of the materials department. If
the department's overall annual expenditure is more than the savings it can achieve in
the total material cost, than the department is not operating efficiently and rather
helping the organisation in savings in overall material costs it would actually he a
burden on the organisation. But the expenditure need not be unduly curtailed at the
cost of undermining the functioning of the department itself.
Proper Records: Maintenance of meticulous records is necessary from company
point of view, because materials management function is responsible for
approximately fifty per cent of the companies budget. Proper record and
administrative control supplemented by rigorous audit can contain temptations of
corruption. Also proper records should constitute part of companies overall data base,
which can be used in future for related planning and management decisions.
Activity A
Kindly evaluate the quantity, quality, delivery schedule and record keeping of the
purchase section of your organisation and prepare a report on discripancy if any.
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
INVENTORY SYSTEMS
Objectives
After going through this unit, you will be able to learn
15.1 INTRODUCTION
Inventory items can be broadly. classified into two types: (a) Independent defined
inventory items and (b) Dependent demand inventory items. The former is based on
the items own usage history and statistical variations in demand, while the later is
based on the production schedules of end items of which the inventoried item is a
part. Hence, the former is based on a replenishment philosophy while the later is
based on a requirements philosophy. In this chapter we will be discussing the
independent demand inventory system.
1. If the goods are not available in the warehouse the activities of the
distributors would suffer unless they have an inventory to depend on.
2. Similarly the retailer functioning suffers if the distributor fails to meet the
requirements.
Even though the problems faced at each stage are different the basic questions asked
all through while determining inventory policies are:
• When to order
We will try to address some of the complexities mentioned above with help of
several inventory models. First we will make several assumptions (see Figure 15.4)
to define a idealized situation with the help of a basic inventory model. Then we will
relax the assumptions and move towards more practical situations.
(Note: Situation B is much better than A. But then is this the best?)
To find out if there is a still better solution, let us depend on a graphical model
showing the various costs as Q varies from 0 to 12000. By substituting different
values for Q we plot the results to give the holding cost curve, the ordering cost curve
and the total cost curve (Figure 15.3). The minimum point on the total cost curve is
given by Q0.
This Q0 is the optimal value of Q and is known as the economic order quantity
(EOQ). This is the quantity for which the cost of inventory is minimum. This EOQ
formula is known as Wilson’s Lot Size Formula Substituting the expression for Q0 in
the total cost expression and simplifying it we get:
22
Independent Demand Inventory
Systems
The same expression for Q. can be obtained with the help of differential calculus
where we minimize the total cost expression w.r.t. the variable Q. Figure 15.4 shows
the basic inventory model along with its assumptions.
23
Materials Planning
[Note: If LT is greater than 2t but less than 3t, then there will be two orders
outstanding. If it is greater than 3t but less than 4t, then three orders will be
outstanding and so on]
24
Independent Demand Inventory
The assumptions in Fig 15.4 make the model somewhat trivial and remove it tar from Systems
reality. Real life situations are quite complex. For example we might be faced with
the cases of non-instantaneous replenishment, shortages, uncertain demand patterns,
resource constraints and so on. These cases can be handled by modifying the
assumptions in the basic model. Before discussing these other models let us first
study the sensitivity of this model.
Activity A
A manufacturer carries stock of an item with an annual demand of 30,000 units.
Although the inventory manager cannot estimate setup cost (s) or holding cost (h)
precisely. She feels that the ratio of the two is somewhere between 100 to 1 and 150
to 1; that is 5/h=100 to s/h=150. Calculate EOQ on both conditions.
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
Activity B
With annual demand of 30,000 units, s/h ratio of 100 to 1, and a lead time of ten
days, what recorder point should a Macro company use? Macro is open for business
250 days per year, and sales are assumed to occur at a constant rate. What would
happen if the lead time sometimes went up to 15 days?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
Activity C
How sensitive is the optimal Q to the s/h ratio? If s/h doubles or triples, what happens
to Q*? s is the setup cost and h is the holding cost.
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
25
Materials Planning Activity D
Bow sensitive is Q to annual demand? If annual demand doubles or triples, what
happens to, Q*?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
26
Independent Demand Inventory
Systems
Note:
27
Materials Planning
Activity F
A company orders is lot size of 2000 units. The holding cost per unit per year is $8,
and the back order penalty per unit per year is $15. What should be the optimal
inventory held, and what should be the maximum backorder position?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
Activity G
With an annual demand of 2000 units, setup costs of $250, holding costs of $8 per
unit per year and back order penalty costs of $24 per unit per year, what is the
optimal time between orders? Use 250 day working Year and specify the time in
days.
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………………….
28
Independent Demand Inventory
15.6 BULK DISCOUNT MODEL Systems
In the basic model we assumed there are no quantity discounts and the material price
was considered to be fixed (say p per unit).
Material cost in the basic model = (price/unit) * R
=p*R
and Holding cost which is a function of price,
Ch = f(price)
= constant * price
= Fh * p
where Fh is the carrying charge (expressed as a fraction of inventory value)
Hence, the optimal quantity, Q0 = 2*R*Cp/(Fh*p)
Quite often suppliers give us price breaks. For example the supplier in our example
says that he would give us a discount on the unit price if we ordered in the following
quantity ranges as per the following price discount schedule:
If we want to take advantage of these price discounts then our order quantities will
increase. Note:
We find there is a net advantage in ordering 1000 units for a minimum total
cost of Rs 48520.
Also note: As observed earlier. for EOQs
ordering cost = holding cost
30 (within rounding off errors in our example)
Materials Planning
UNIT 16 DEPENDENT DEMAND
INVENTORY SYSTEMS
Objectives
Upon completion of this unit you will be able to:
• understand the concept of dependent demand systems and independent demand
systems;
• know Material Requirement Planning (MRP) and Manufacturing Resource
Planning (MRP II);
• get into the elements of MRP;
• the difference among the MRP, EOQ and Part period method;
• the application of MRP in different environment;
• difference between MRP and JIT;
• experience the changing role of production and hive fury control managers.
Structure
16.1 Introduction
16.2 What is MRP?
16.3 Material Requirement Planning (MRP)
16.4 MRP versus Order-Point Systems
16.5 Some Important elements of MRP
16.6 Manufacturing Resource Planning (MRP II)
16.7 MRP Computations
16.8 MRP Implementation
16.9 Some Misconception About MRP
16.10 Comparison with JIT
16.11 Summary
16.12 Self-Assessment Exercises
16.13 Further Readings
16.1 INTRODUCTION
Independent demand inventories are subject to market condition and thus
independent of operations. Demand for product or service is termed independent
when it occurs independently of demand for any other product or service. With
independent demand, demand for one item is unrelated with demand for another
item. In a movie theater, for example, demand for film postage is independent of
demand for popcorn. Examples of independent demand inventories are also finished
goods and spare parts in a manufacturing company that are used to satisfy final
customer demand. These inventories should be managed by the order point methods
described in unit 15.
Dependent demand inventories, on the other hand, are not subject to market
conditions. They are dependent on demand. When demand for one product is linked
to demand for another product, the demand is termed dependent. Dependency may
occur when one item demand is derived from a second item. If the demand for one
item is known, then the demand for one or more related items can be deduced. If, for
example, the demand for an end product is known, one can calculate how many of its
sub-components are needed, because their demand is directly dependent on end-item
demand. Example of dependent demand inventories are raw materials and work-in-
process inventories used in manufacturing companies. These inventories should be
managed by material requirement planning (MRP) or Just-in-time (JIT) system. The
scope of this unit is Material requirement Planning (MRP), whereas JIT is discussed
in unit 12.
Only independent demand needs forecasting; dependent demand can be derived from
44 the independent demand to which it is linked.
Dependent Demand
16.2 WHAT IS MRP? Inventory Systems
Material Requirement Planning (MRP) is a system of planning and scheduling the
time-phased materials requirement for production operations. If the delivery schedule
for the end products is known, then Me sue and timing of the requirements of the
various lower-level work-in-process items and raw-materials can he planned exactly
by simple arithmetical calculation. Such planning is known as Material Requirement
Planning (MRP).
Although MRP is easy to understand, it can he used in two different ways: MRP-I
and MRP-II.
MRP-I: It is an inventory control system, which releases manufacturing and
purchase orders at the right time to support the maser schedule. This system launches
orders to control work-in-process and raw materials inventories through proper
timing of order placement. MRP-I doesn't include capacity planning. Henceforth the
terminology MRP-I and MRP will be used interchangeably.
MRP-II: It is an information system used to plan and control inventories and
capacities in manufacturing companies. The MRP-fl system coordinates sales,
purchasing, manufacturing, finance, and engineering by adopting a focal production
plan and by using one unified data tame to plan and update the activities in all the
systems. The subsequent sections shall cover MRP followed by MRP-II.
16.3 MATERIAL REQUIREMENT PLANNING (MRP)
MRP provides the following objectives:
• Inventory reduction: MRP enables a manager to determine how many of a
component are needed and when, in order to meet the master schedule. It avoids
the costs of excessive inventory.
• Reduction in production and delivery lead times: MRP identifies materials
and component quantities, timings, availability, and procurement and
production actions required to meet delivery dead lines. MRP help avoid delays
in production. It prioritises production activities by putting due dates on
customers job orders.
• Increased efficiencies: MRP provides close coordination among various works
centers as products progress through them. MRP focuses on having all
components available at appropriately scheduled times. The information
provided by MRP encourages production efficiencies.
Total process of Material Requirement Planning (MRP) is explained clearly in Figure
16.1 below:
Source: Theory and problems in production and Operations Management, S.N.Chary, TMH
outline series. 45
Materials Planning
16.4 MRP VERSUS ORDER-POINT SYSTEMS
Prior to the advent of MRP, there was no choice. The typical manufacturing
companies managed all inventories with order-point systems. Some of the key
distinctions between MRP and order-point systems are summarised in the table-
below.
Comparison of-MRP and Order-point systems
Fig. 16.2: MRP IT: An integrated system for planning and control
Source. Production and Operation Management E.E. Adam and R.J. Ebert
48
Dependent Demand
16.7 MRP COMPUTATIONS Inventory Systems
a) Lot-for lot
In order to make these MRP computations, one needs to know
1) The product structure showing how the end-product is made up of certain
assemblies, sub-assemblies, down to the components, a Bill of Materials being
derived therefrom. The Bill of Material (BOM) is a structured list of all the
materials or parts needed to produce a particular finished product, assembly,
sub-assembly, manufactured part, or purchased parts. If there errors in BOM,
the proper materials will not be ordered and the product cannot be assembled
and shipped. As a result, the ordered parts which are available will wait in
inventory while the missing parts are expedited. Management must insist that
all BOMs are accurate 100 percent. It is not too costly to have 100 percent
accuracy. Rather it is too costly to tolerate imperfect BOMB.
2) The lead times to produce/procure the different items at the various levels (from
components to the end products).
3) The demand or the delivery schedule of the end products.
4) The current on hand stock of the various items as also the schedule receipts of
the items being planned.
MRP is thus a calculation of the requirements of the dependent demand items, i.e.
items whose demand in dependent upon the demand for their respective higher level
items. The end products in a company would be the independent demand items if the
demand for these is not easily computable based on the demand for other items some
where else.
The MRP system generates planned order releases. Each order is associated with a
set up cost i.e. cost of placing and receiving an order. This raises the question of how
much to order. One must consider the tradeoff of ordering costs and holding costs.
Various lot-sizing policies are possible. Lot-for-lot ordering is one important lot
sizing policy. Lot-for-lot is a lot sizing policy in which order quantity equals net
requirements for the period. The definition will be more cleared through examples
discussed subsequently. The main advantage of an MRP system is that it avoids
unnecessary stocks of items and produces/procures them only when required and in
the quantities required. Classical inventory systems use `averaging' techniques suffer
from a predictable drawback: in some periods there is more of the stock when less is
needed and in others there is less when more is needed. This type of averaging
technique is of an unrealistic approach. For most dependent demand items their
demand is `bunched' or `lumpy'. MRP treats the discrete distribution as discrete and
not continuous. In the classical production-inventory systems, averaging is a part of
the system. In such cases the economies in materials are sought through Economic
Order Quantities (EOQ) or Optimal Period of Review which try to balance the order
cost with carrying costs for the materials. MRP obviates this need and treats the
problem of costs due to the materials directly, by producing/procuring the materials
in the quantity and the time these are required.
The timing of the order quantities are not `averaged' and made uniform. The material
is .ordered in the lot sizes, but only at the -time they are required for production.
There is no extrinsic trigger for placing an order quantity or a review period.
Computing the MRP for releasing a production/procurement order, involves
following steps.
1) To determine the time the higher level item are required and in what quantity?
2) To determine the time when and in what quantity the next lower level item is
required? This gives the gross requirement of the material.
3) To obtain the real or net requirement, the `on hand' and `schedule to receive'
quantities of the item are deducted from the gross requirement. If there is
sufficient quantity on hand then there is no need to order for a further quantity.
4) The MRP so calculated are checked for viability vis-à-vis the production
capacity. If there is mismatc5 then the master schedule is modified and the
MRP is calculated again.
49
Total Productive Maintenance
UNIT 17 TOTAL PRODUCTIVE
MAINTENANCE (TPM)
Objectives
Upon completion of this unit, you will be able to:
• get into the origin of Total Productive Maintenance (TPM)
• know the characteristics of TPM and getting motivated towards the TPM
• eliminate variety of losses of an organisation and thereby aiming at maximising
the equipment utilisation
• identify chronic defects and sporadic defects associated with the equipment
• sharpen the understanding of autonomous maintenance and its relevance in
operational context
• acquire the concept of TPM promotion and its structure
Structure
17.1 Introduction
17.2 Motivation and Identifying Characteristics of TPM
17.3 Eliminating Six Big Losses
17.4 Chronic and Sporadic Losses
17.5 Autonomous Maintenance
17.5.1 Prerequisite for Autonomous Maintenance
17.6 TPM Promotion
17.6.1 Concept of TPM Promotion
17.6.2 TPM Promotional Structure
17.7 Summary
17.8 Self-Assessment Exercises
17.9 References
17.1 INTRODUCTION
The origin of total productive maintenance (TPM) can be traced back to 1951 when
preventive maintenance was first introduced in Japan. The Japanese took the
concepts and techniques of preventive maintenance from the U.S.A. The induction of
preventive maintenance from the U.S.A. heralded the modernisation of plant
maintenance in Japan. Nippondenso Company Limited first introduced plant-wide
preventive maintenance in 1960. This was the usual form of preventive maintenance,
wherein operators devoted themselves only to production jobs and the maintenance
personnel were responsible for the maintenance of plant and equipment. In the mid
1960's, Nippondenso undertook the automation of its production with the result that
the manufacturing and assembly operations became largely automated. This brought
in a new problem - one of maintenance of automated equipment. It was found that the
maintenance crew, only by itself, could not effectively maintain the greatly increased
number of automated equipment. Accordingly, the management of the company
decided to change the allotment of duties of the operators of automated equipment in
as much as each operator was made responsible for routine maintenance of his
equipment. This was the origin of one of the important features of TPM, which is
autonomous maintenance by production operators.
Thus, Nippondenso had already recognized the importance of preventive
maintenance in improving equipment availability and had also by then introduced
autonomous maintenance by production operators, as noted above, thereby freeing
the maintenance personnel from the routine maintenance tasks and making it possible
for the maintenance department to take up the essential tasks of maintenance
planning based on equipment 5
Emerging Issues in Planning/
Operations Management performance, plant and equipment modification for improved reliability and
maintainability, development of reliability and maintainability specifications for new
equipment and designing-out-of-maintenance. These tasks are aimed at maintenance
prevention (MP). Thus preventive maintenance together with MP and maintainability
improvement (MI) activities gave birth to productive maintenance (PM). The aim of
productive maintenance is, therefore, the maximisation of plant and equipment
effectiveness in the pursuit of economic effectiveness and achievement of optimum life
cycle cost of production equipment. This was the origin of the second important feature
of TPM which involves activities to maximise equipment effectiveness. Moreover,
Nippondenso, by then, had already developed quality circle activity with all the
employees participating in it. It recognized the use of small group voluntary activity for
promoting the adsorption of PM and getting the total involvement of plant personnel in
productive maintenance of plant and equipment. Based on this, Nippondenso decided
to evolve PM with all employees participating in it total participation through small
group voluntary activity. This essentially was the origin of the third important feature
of TPM which is the use of company-led small group activity.
Based on the above developments, Nippondenso evolved TPM between 1969 and
1971, and it was awarded the 1971 Distinguished Plant Prize (PM Prize) for the
development and effective implementation, of TPM by the Japanese Institute of Plant
Engineers (JIPE). Thereafter, the formal definition of TPM was enunciated by JIPE in
1971.
17.2 MOTIVATION AND IDENTIFYING
CHARACTERISTICS OF TPM
Having discussed in chronological sequence the origins of the three important
features of TPM, we can now take up in sequence the basic motivations, and
identifying characteristics of TPM. Takahashi has identified three specific motives
for the advocation and subsequent adoption of TPM in Japan. These three motives
are as follows:
1) Adoption of the life cycle approach for improving the overall performance of
production equipment.
2) Improving productivity through a highly motivated workforce which can be
achieved through job enlargement in which all workers are given a range of
challenging jobs in order to develop their skills at different crafts.
3) The use of voluntary small group activity for identifying the likely cause and
frequency of failure of critical equipment, possible plant and equipment
modifications which will result in significant savings; and efforts to fully utilize
existing equipment through improved availability.
The formal definition of TPM was also enunciated along the same lines. Two specific
parts of the first motive are as follows:
i) pursuit of economic life cycle cost of physical assets, which must include
building in of reliability and maintainability features and the extension of the
useful life of the assets, and since TPM deals primarily with production
equipment and is used in manufacturing industries, such assets are plant and
machinery, and
ii) improving the overall performance of plant and machinery, which should also
take into account the effective use of such production equipment through the
minimisation of losses not only due to breakdowns, but also due to poor quality and
losses due to set-up, adjustment. idling and minor stoppages of the equipment and
equipment operating at reduced speeds.
Although the contribution of the last four causes, namely set-up, adjustments, idling
and minor stoppages, and operation at reduced speeds, may seem small as compared
to breakdowns and defective products, in actual practice, these four losses add up to a
significant amount. This recognition differentiates productive maintenance (PM)
from preventive maintenance. Whereas the practical application of preventive
maintenance nowadays (Nakajima has taken preventive maintenance to include
routine maintenance and periodic inspections, whereas productive maintenance (PM)
must include not only routine or periodic preventive maintenance activities but also
the concept of maintenance prevention (MP) and designing-out-of-maintenance.)
covers much more than just `routine' or periodic preventive maintenance, and
6 includes condition-based maintenance, or
Total Productive Maintenance
predictive preventive maintenance, plant modifications and designing-out-of-maintenance,
activities aimed at the minimisation of quality losses and set-up, adjustment, idling and minor
stoppages, and speed losses do not come under the purview of preventive maintenance.
To be able to stay in business, the manufacturing organisations have to ensure much higher
levels of equipment availability. Such high levels of equipment availability cannot be
achieved with the `I operate - you fix' altitude wherein the production operators only run the
machines and the maintenance department attends to all maintenance activities, including
routine activities which are carried out to keep the machines in good running order, such as
cleaning of the machines, periodic lubrication, periodic checks and inspections and minor
adjustments and repair. The maintenance departments are finding it difficult to attend to such
routine tasks. Moreover, attending to such routine tasks is resulting in a situation wherein the
necessary preventive maintenance activities, such as preventive replacement of critical
components, equipment overhauls and necessary plant modifications, are getting backlogged
for lack of available manpower, and this, in turn, is resulting in greater incidence of failures
and loss of equipment availability.
As against this backdrop, let us consider a situation wherein the production operators perform
basic maintenance activities on their own machines. They not only maintain their own
machines in good running order but also are capable of detecting potential problems before a
major breakdown occurs (at which time, the maintenance department is called in to take the
necessary preventive action to avoid a long shutdown). This will not only leave the
maintenance department free to attend to more pressing tasks which require higher levels of
skills, but also bring back in the production operators the pride of craftsmanship. The
production operators will then cherish their machines and tools with care and this, in turn,
will inculcate in them a sense of belonging to the organisation. Thus, the integration of
simpler and routine maintenance tasks with the production work not only enlarges the
production job and makes it more interesting but also fosters in the production operators a
commitment to the plant. Moreover, with this the maintenance tradesmen are also able to
carry out their tasks properly and under a more congenial atmosphere and this brings with it a
feeling of job satisfaction in them. This, as we had noted earlier, is what is meant by
autonomous maintenance and a key ingredient of TPM is that the production operators
perform basic maintenance tasks on their own equipment.
The objectives of maximisation of equipment availability, minimisation of quality loss, and
minimisation of set-up, adjustment, idling and minor stoppages and speed losses are major
challenges to any manufacturing organisation and these challenges call for reforms and
improvements in standards, processes, methods and procedures. Such reforms and/or
improvements cannot be carried out by a few technical people working in production and
maintenance departments; these challenges require the active participation and involvement
of all employees in the organisation.
In the preceding paragraphs we have discussed the need for having a highly motivated
workforce, that is, the need for a high level of motivation in the persons who carry out the
essential tasks, or activities, whether they are production operators, maintenance tradesmen,
or quality control inspectors. After all, in the final analysis, these persons perform the
important tasks which directly affect equipment availability, product quality and productivity.
These persons must not only do their allotted task to the best of their capability, but they
should also for ever attempt to reach higher levels bf performance. Higher levels of
performance require commitment to the job, motivation and a sense of belonging to the
organisation. This sense of belonging to the organisation also inculcates in the employee a
sense of belonging to the larger group, wherein the maintenance fitter not only identifies with
the plant/equipment, he also identifies with the production operators and the quality control
inspectors, who are also a part of the same group. Thus innovative ideas and suggestions for
reforms and improvements must be preceded by an attitudinal change in the workmen leading
to involvement, which, in turn, comes from a conscious effort through a synchronization of
hand, head and heart and from creative work which is beneficial to the larger group. One of
the practical and time-tested ways of inducing involvement and a sense of belonging in the
workman is through active participation, wherein he voluntarily joins a group of people who
sit down to discuss their problems and suggest better ways of doing what they are doing; a.
voluntary small group of people who meet to discuss problems with housekeeping, quality,
equipment availability and productivity and to suggest reforms and improvements. This is
active participation and quality circles and ZD groups are its different forms. In the context of
TPM, we call these PM circles (and PM sub-circles).
7
Emerging Issues in Planning/
Operations Management Involvement of the workmen on the shop-floor is not enough since, as discussed
earlier, the objectives of maximisation of equipment availability, minimisation of
quality loss and the minimisation of four other types of losses cannot be achieved
without the involvement and active participation of all employees in the organisation.
To be able to effectively deal with these challenges, the organisation has to ensure the
involvement of all functions in the organization, namely marketing/sales,
design/engineering, materials management/purchasing, production, maintenance
amid quality control. Thus the promotion and adsorbtion of TPM requires the
development of the TPM Promotion System which links the various PM sub-circles
and PM circles to the Departmental PM Committees and the Departmental PM
Committees, in turn, are linked tip ward to the Corporate PM Committee. The
Corporate PM Committee establishes the company PM policies and objectives and
oversees the activities of the various Divisional/Departmental PM Committees.
Similarly, Divisional/Departmental PM Committees establish the PM policies and
objectives for the division/department and oversee the activities of the PM circles
which come under them. There is an overlap and the shop manager/foreman wino is a
member of the Divisional/ Departmental PM Committee is the PM circle leader. The
PM sub-circles come under the overall direction and guidance of a PM circle and
consist of volunteers who may be operators, maintenance tradesman etc and is
headed by a leader, who is typically also a volunteer.
Activity A
What is preventive maintenance? Is it different from productive maintenance? Give
examples.
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
Activity B
Productive maintenance is a superset of preventive maintenance. Explain with your
own experience.
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
Activity C
Think of your company's maintenance management activities. Which one is in
practice now: Preventive maintenance or Productive maintenance?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
17.3 ELIMINATING SIX BIG LOSSES
We had noted that the first of the three motives for the advocation and subsequent
adoption of TPM, as identified by Takahashi, was the adoption of the life cycle
approach for improving the overall performance of production equipment. Efforts at
improving the overall performance of plant and machinery must not only be directed
at losses due to ineffective maintenance, but also towards time other losses which
limit the effectiveness of production equipment. After all, the formal definition of
TPM clearly states that the aim of TPM is the maximisation of equipment
effectiveness and as a further clarification, it is also noted that this implies efforts
directed at the improvement of the overall effectiveness of production equipment.
Wireman, in his book on TPM, explains the first two clauses of the formal definition
of TPM, namely maximising equipment effectiveness and establishment of a total
system of PM covering the whole life of equipment, as ensuring equipment capacity
and implementing a programme of maintenance for the entire life of the equipment.
He goes on to state that ensuring equipment capacity implies efforts directed at
ensuring that the equipment performs to its specifications 'operates at its design
speed, produces at the design rate and results in quality product at these speeds and
rates'. This implies efforts aimed at the maximisation of equipment utilisation (and
8 not just the maximisation of
Total Productive Maintenance
equipment avail - ability), and there are six significant causes of reduction of
equipment utilisation. These are as follows:
1) Losses due to ineffective maintenance, and these, in TPM terminology, are called
breakdown losses.
2) Setup and adjustment losses.
3) Losses due to idling and minor stoppages of equipment.
4) Loss due to operation at reduced speed, or at less than full (design) load-this
Wireman calls `reduced capacity loss'.
5) Losses due to poor product quality - due to defects in process and production of
defective items.
6) Loss due to reduced yield from the startup of the equipment to the point of stable
production - and this Wireman calls 'startup/restart loss'.
These are the six major equipment losses and the stress it places on the elimination of
these major losses is one of the three identifying characteristics of TPM.
The reduction of equipment utilisation has three constituents, which have to do with
the availability of the equipment, the rate at which the equipment is performing, and
the product quality performance of the production equipment (this, in TPM literature,
is called the 'quality rate', in keeping with the performance rate). Thus the overall
equipment effectiveness has three constituents, namely, availability, performance
rate, and quality rate and overall equipment effectiveness
= availability x performance rate x quality rate.
Note: These three constituents are also measures of equipment effectiveness.
These three constituents, the six big losses and the method of calculating these three
constituents from the shop. or equipment performance, data are given in Fig. 17.1.
The terns used in the figure are as explained below:
i) Loading time is the available time on the equipment for production/productive
work. This is the total time available minus the necessary time for planned or
essential activities, such as time lost due to meetings, scheduled tea/coffee
breaks or precautionary rest periods, and also breaks in production schedule or
planned production stoppages for planned/preventive maintenance work, and,
on rare occasions, scheduled production stoppages for non maintenance
reasons.
ii) Operation time is loading time minus the downtime, or the time the machine is
down for reasons other than given above under (i). Such downtime includes
time lost due to equipment breakdowns, setup of equipment, tools, dies and
accessories, and adjustments to the equipment. These adjustments are generally
carried out by operators, and take less than 10 minutes.
iii) Net operation time is the time the equipment or the machine is operated at its
design speed, or at the design rate of production, or at the design load. The time
lost due to idling and minor stoppages of the machine, and operating it at a
reduced speed or at a reduced rate of production are subtracted from the
operation time to get the net operation time. The term 'design load' has also
been included to take account of process plant equipment which are either
derated and/or operated at low loads for various reasons. An example of this
would be a 210 MW thermal power unit being operated at 150 MW because
two out of six pulverizers are down. In thermal power plant terminology, such
outages are called partial outages.
iv) Value-added operation time is the net operating time during which actual value
addition is carried out. This is obtained by subtracting the total estimated time
for rework of defective/nonconforming products from the net operation time.
Thus the time required to make tap for the quality losses is subtracted from the
net operation time to get the value-added operation time.
Activity D
Carry out an analysis of machine utilisation in ,your organisation. Find out the
significant causes of reduction of equipment utilisation.
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9
Emerging Issues in Planning/
Operations Management
10
Total Productive Maintenance
17.4 CHRONIC AND SPORADIC LOSSES
What we will discuss in this section relates to all the six major losses. The effect of
chronic losses is most acutely felt in the cases of equipment breakdowns and product
quality problems. Chronic is used to refer to an undesirable condition, or
phenomenon, which is either deep seated and continued over a long time, or occurs
repeatedly over a long period of time. As opposed to this, a sudden, or an unexpected,
occurrence which occurs rarely is referred to as sporadic. The difference between
chronic and sporadic losses is illustrated in Fig. 17.2.
Chronic breakdowns, or chronic defects, occur repeatedly over a long period of time
and keep on occurring till something radical, or different, is done to get rid of the
cause, or causes, of such breakdowns, or defects. Chronic losses are caused by
conditions, which, over a period of time, get to be perceived as normal, and such
losses only become obvious, or come to be recognized, when they are compared with
the optimum conditions. The figure illustrates a case wherein after the chronic loss
had been recognized, necessary efforts had been made to bring the level of loss down
to the desired optimum level. Sporadic breakdowns, or sporadic defects, on the other
hand, are sudden and unexpected occurrences and these occur only occasionally. The
cause for a sporadic problem can be easily found out. Sporadic breakdowns, or
sporadic defects, are usually due to a single cause (recall control charts and the
existence of an `assignable cause'). Sporadic. losses can thus be removed by
restoration – are pair or corrective action which restores the equipment, or the
process, to its original, satisfactory condition. On the other hand, simple restoration
actions are usually ineffective when it comes to chronic problems. This is primarily
because chronic problems are usually due to multiple causes and these causes are
usually difficult to find since they are hidden in the structure of the equipment and
also the operational and maintenance practices. Thus chronic losses call for
innovation, as opposed to restoration.
There are many other differences between chronic and sporadic losses. The
differences leave been summarized in the form ofa table and this is given as Table
17.1. From the table. Ave find that one may summarize by noting that sporadic
problems, or conditions, are
11
Emerging Issues in Planning/
Operations Management conspicuous, have easily identifiable causes and therefore call for simple and easily
designed corrective actions which can be implemented by line personnel. As opposed
to this, chronic problems are hidden and are usually due to a complex combination of
causes. Coming to the type of analysis required, for sporadic problems, since the
cause-and-effect relationship is rather simple to trace and such losses are generally
due to a single cause, the type of analysis required is simple and straight-forward.
Usually logical step-by-step deduction would be adequate, and in most cases, the true
cause can be detected by 'asking why five times', in keeping with the teachings of
Taiichi Ohno of Toyota. As opposed to this, the type of analysis required for chronic
problems is usually intricate and complex. It also calls for detailed knowledge of the
system/process and the equipment. This, together with the need for the application of
sophisticated techniques, such as correlation analysis; design of experiments and
analysis of variance etc., calls for the involvement of specialists in identifying,
planning and implementation of corrective action(s).
Table 17.1:Differences between Chronic and Sporadic Losses
The characteristics of different types of equipment losses are given in Table 17.2. A
closer look at the table would show the reader that five out of the six big losses have
been included in the table and the only loss which has not be explicitly included is
the startup loss. Implicitly, the startup loss is also included since yield loss is also a
form of quality loss. We have noted earlier that the difference between sporadic and
chronic losses is clearly felt (or seen) incases of equipment breakdowns and product
quality inadequate ILS. However, the table shows us that, in addition to chronic
breakdowns and chronic defects, idling and minor stoppage and speed Losses are also
hidden. Moreover, there are some setup and adjustment losses which are hidden
12 (whereas the others are quite obvious). As a
Emerging Issues in Planning/
Operations Management
UNIT 18 ADVANCED MANUFACTURING
SYSTEMS
Objectives
Upon completion of this unit, students will get to know:
• What is a manufacturing system
• Process-oriented view of the firm
• Competitive priorities and the Indian fine
• Manual; mechanized & automated systems
• What is automation
• Hard, soft and hybrid systems
• Conceptual view of CIM
• Major components of CIM
• Benefits of CAD
• Intelligent design tools for manufacturing
• Classification of parts into families
• Evolution of NC machines
• What are robots
• Closing the design-manufacturing gap
• Retrieval & Generative Systems
• What is AGVS and ASRS
• Components of FMS
• What are wastes
• Elements of HT
• A systems approach to quality
• MRP, ERP and CSMRP systems
• What are bottlenecks
• What is a sociotechnical system
Structure
18.1 Introduction
18.2 Manufacturing Systems: Evolution & Competitiveness
18.3 Classification of Process Technology
18.4 Computer Integrated Manufacturing (CIM)
18.5 Computer-Aided Design (CAD)
18.6 Group Technology (GT)
18.7 Computer-Aided Manufacturing (CAM)
18.8 Robotics
18.9 Computer-Aided Process Planning (CAPP)
18.10 Manufacturing Planning. & Control Systems
18.11 Flexible Manufacturing Systems (FMS)
18.12 Just-in-Time (JIT) Manufacturing Systems
22 18.13 Total Quality Management (TQM)
Advanced Manufacturing Systems
18.14 Advanced MRP Type Systems
18.15 Optimized Production Technology (OPT)
18.16 Summary
18.17 Glossary
18.18 Self-Assessment Exercises
18.19 Further Readings
18.20 References
18.1 INTRODUCTION
A manufacturing system comprises of man, machine and processes working together
as a whole guided by a set of ideas, theories and principles. It is normally driven by
customer needs and wants. In modern systems it is very_ important to listen to the
voice of the customer and deploy his needs through the entire manufacturing process.
Figure 18.1 shows such a system along with the necessary feedback loops which help
transform the raw material into finished goods (through a series of value added
stages) for the satisfaction of either the stated or unstated needs of the customer. The
basic functions of this generic manufacturing system are product & process design,
planning & control and the manufacturing process. Modern concepts are aimed at
integrating these functions to form a sensitive system, which is responsive to the
ever-changing customer needs.
Under the liberalized economy, we are facing global competition in our own soil.
Foreign capital, in the form of advanced manufacturing systems, is compelling Indian
companies to rethink their manufacturing strategies for competing on the dimensions
of cost, quality, flexibility and deliverability. Hence it is important for us to
understand the various modern-manufacturing systems available today.
In this chapter we will be seeing several advanced technologies that can help
organizational functions to excel as independent sub-systems. However, it is
important for us to adopt strategies through which these technologies can be
integrated to form manufacturing and/or business systems appropriate for our
sociotechnical environment.
Take a manufacturing firm you know. Draw the complete process. Show value
addition taking place. Identify the non value-added stages.
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Activity E
Take five different firms belonging to the same industry. Compare their respective
competitive priorities.
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The evolving process technologies over the last few decades can be also categorized
under their respective area of applications as suggested by Shani et al2: 25
Emerging Issues in Planning/
Operations Management
• Level 2 - cells consisting of groups of equipment and materials for the production
of parts, typically utilizing group technology (GT) and computer-aided
manufacturing (CAM). At their highest level of integration, a cell might form a
flexible manufacturing system (FIMS).
• Level 3 - linked islands involving cells from level 2 being linked together into
larger production systems which typically utilize CAD/CAM, automated storage
and retrieval systems, JIT, and MRP II.
Literature4 also provides a further classification of the various emerging hard and soft
technologies currently in use by world class companies. As per this classification we
have hard technologies, soft technologies and hybrid technologies. Table 18.2 below
shows this classification along with the grouping of technologies under each class.
26 In the following sections, we will discuss CIM and its components to understand how
advanced manufacturing systems work.
Advanced Manufacturing Systems
Activity C
Visit few manufacturing organizations. List all the design and manufacturing
activities that have been computerized.
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29
Emerging Issues in Planning/
Operations Management 18.7 COMPUTER-AIDED MANUFACTURING (CAM)
These are specialized computer systems that translate the CAD information into
instructions for automated production machines. CAM involves the effective use of
computer technology in the planning, monitoring and control of manufacturing
processes Figure 18.7 shows some applications of CAM.
CAM includes several technologies, such as, computer-run machine tools (NC, CNC
and DNC machines), flexible manufacturing systems (discussed later), automated
assembly systems, and computer-aided quality control systems. A numerically
controlled (NC) machine tool is a form of programmable automation, which can
accommodate a variety of part configurations. It can be programmed to perform tasks
either directly, or with a disc or tape. Figure 18.8 shows the evolution of NC
machines to CNC (computerized NC) and DNC (direct NC) machine tools-with the
help of computing technology. The operating principle in all forms of NC machines
is the control of the relative position of a tool or processing clement with respect to
the work-part being processed. The basic components include a program, (with
detailed step-by-step instructions for positioning the spindle, selecting the speed,
tools and other functions), machine control unit (which reads the program of
instructions and runs the processing equipment) and the processing equipment (e.g. a
drilling, milling or turning machine).
large number of machine tools per part: (b) new machine tools in the shop floor,
which effect the old optimal routings and (c) machine breakdowns, which force
temporary routings to be documented as permanent routings.
The above issues are better managed with the help of automated process planning. A
CAPP system helps generate production routings that are rational, consistent and
even optimal. There are two types of CAPP systems: (a) Retrieval type CAPP
systems and (b) Generative CAPP systems. Retrieval systems are also known as
variant systems, which use group technology (GT) to group parts into families that
are distinguished according to their manufacturing characteristics. For each family a
standard process plan is established. This plan is stored and retrieved when
necessary. For parts having slightly different manufacturing requirements, existing
process plans are customized (through editing) to accommodate the variation (hence
also known as variant systems).
Thus, the basic components of an FMS are: (i) Automated processing stations, which
use a variety of programmable machine tools having large tool banks; (ii) Automated
material handling systems, for handling the parts contained in pallets and transferring
them between machines in any routing sequence; (iii) Computer control systems, for
coordinating the activities between the other two components; and (iv) Human
operator, for loading raw parts onto the system, unloading finished parts (or
assemblies), changing tool settings, maintaining and repairing equipment, NC part
32 programming and operating the computerized system.
Advanced Manufacturing Systems
An FMS combines flexibility with efficiency. When properly applied, these systems
reduce manufacturing lead times, reduce work-in-progress, achieve higher average
machine utilization (through off-line setups and better scheduling), and provide
greater flexibility in production scheduling. One example from a foreign country is
General Electric's electric-meters plant: in New Hampshire, USA, which produces
2000 different meters on the same flexible equipment.
Activity D
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Waste is anything other than that which adds value to the product. Every moment
from order entry to delivery is meant to add value to the product. Non-value adding
moments are reduced to a minimum. Thus, waste is also defined as anything other
than the minimum amount of equipment, materials, parts, space, and time, which are
absolutely essential to add value to the product. There are several types of wastes.
Toyota motor company of Japan has identified seven wastes after years of continuous
improvement activities (see figure 18.12). These are1 : waste from overproduction,
waste of waiting time, waste of transportation, processing waste, waste of motion,
inventory waste, and waste from product defects. As high-lighted in Figure 18.12.
Japanese manufacturing systems focus on producing what the customer desires
without any delays or defects, and without wasting any resources (i.e., labor,
material, or equipment). They employ methods through which employees are bound
to develop.
33
Computers in Operations
Management
UNIT 19 COMPUTERS IN OPERATIONS
MANAGEMENT
Objectives
After studying this unit, students will be able to:
The approach towards effective operations management has been in flux for quite
some time. Japanese management practices have brought into the centre of the radar
screen of operations management, following seven issues, represented by the ultimate
performance standards by moving towards -zero' progressively and positively:
1. Zero Defects
2. Zero Set-up Time
3. Zero Handling
4. Zero Batch Size
5. Zero Breakdown
6. Zero Lead Time
7. Zero Surging
These may not be attainable in practice but they do provide a guiding framework for
46 continuous improvement in performance.
Computers in Operations
The above seven-pronged approach in improving effectiveness of operations Management
management can be realised by increasingly integrating computer and information
technology with all facets of working of the conversion process viz.
- Computers in marketing (or more specifically in demand forecasting and order
processing)
- Computers in design and drafting
- Computers in purchasing and outsourcing
- Computers in materials management, including inward logistics and stores
- Computers in operations planning, scheduling and control
- Computers in manufacturing
- Computers in process control and quality management
- Computers in tero technology and productive maintenance systems
- Computers in productivity measurement, performance evaluation and reward
systems
- Computers in automatic assemblies
- Computers in finished product warehousing
- Computers in distribution or outbound logistics
We would now describe role of computers now and in future, in the above twelve
functional areas:-