Operations

Management
Introduction
 What is Operations Management?

• Manufacturing, service, and agriculture are the major economic activities

in any country.
• In India, manufacturing (29.6% in 2018-19) and services together (54.3% in
2018-19) constitute nearly 75 per cent of the gross domestic product (GDP).
• Management of manufacturing and service operations are considered as
important economic activities.
• Manufacturing firms essentially engage in production activities and the
concept of Production Management is used for specially for manufacturing
firms.
• Production management primarily focus on managing the production
related activities.
• Growth in service sector in recent times requires a more generalized
concept of managing all operational activities.
 What is Operations Management?
• Narayana Health (NH) started their journey with 300-bed hospital started
by Dr. Devi Shetty in the outskirts of Bangalore city in 2001.
• Currently, the group has 14 hospitals in multiple locations with multiple
specialties that offer a total of 5,700 beds. There are plans to add new
hospitals in Siliguri, Bhubaneswar, Mysore, Mumbai, and Delhi in addition
to Cayman Islands and Malaysia, which will add another 2,500 beds
capacity to the NH network*.
• A Heart surgery package at NH could be anywhere between 75,000 and
150,000 compared to a typical cost of 300,000 in other hospitals*.
• Issues – facility location selection, developing new facilities in a cost-
effective way, operating them in a daily basis, input cost reduction, process
innovation, resource deployment, Supplier development, patient volume.
• Like NH, every other service organizations as well as manufacturing
organizations face similar set of issues, although in varying degrees.
*Based on Babu, V. (2012), “Pulse on the future”, Business World, March 5, 2012, pp 40–45;
Chaki, D. (2013), “Straight from the heart”, Business India, Sep. 30–Oct. 13, 2013, pp 61–63.
 What is Operations Management?
• Operations Management consists of two terms : ‘Operations’ and
‘Management’.
• What is Operations?
o Transforming inputs into value added outputs.
• 1 ton of iron ore transforms into 1 ton of steel (High Value end
product)
• Vegetable products sell in urban market (location change – add
value)
• What is Management?
• Design of operation – Facility creation, design of product and service,
arranging layouts
• Management of operation – resource utilization, scheduling of work,
planning production.
• Growth of operation – process improvement, measuring performance,
controlling quality.
• Survival of operation – developing strategies, sustainability.
• Control - control all above activities.
• Operations management is a systematic approach to addressing issues in
the transformation process that converts inputs into useful, revenue-
generating outputs.
• The goal of operations management is to ensure that the organization is
able to keep costs to a minimum and obtain revenue in excess of costs
through careful planning and control of operations.
 Evolution of Operations Management
Era Events/Concept Dates Originator
Industrial Revolution Steam Engine 1769 James Watt
Division of Labor 1776 Adam Smith
Interchangeable of Parts/ 1790 Eli Whitney
Standardization
Scientific Management Principles of scientific management 1911 Frederick W. Taylor
Time and motion studies 1911 Frank and Lillian
Gilbreth
Moving assembly line 1913 Henry Ford (T model)
Human Relations Hawthorne studies 1930 Elton Mayo
Motivation theories 1940 Abraham Maslow
Operations Research Linear Programming 1947 Dantzig
Simulation, Waiting Line, PERT/CPM, 1960s Operations Research
Decision Theory Groups
MRP, CIM 1970s IBM and others
 Evolution of Operations Management
Era Events/Concept Dates Originator
Quality Evaluation JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (Total Quality Management), 1980s Edward Deming ,
Kanban Juran
Six Sigma 1990s Motorola
Internet Revolution ERP, MRP- II, SCM 1990s Dell
E commerce 2000s Amazon, Yahoo
Globalization European Union, World Trade 1990s Europe, China
Organization
Global Supply Chain, Service Science 2000s Emerging Economies
Sustainability, Triple Bottom Line 1990s Brundtland Report
(3PL)
Green Revolution, Era of advances of technologies for enhanced services, Industrial Revolution
and 4.0
 Manufacturing and Services
• Manufacturing Organizations: Organizations that primarily produce a
tangible product and typically have low customer contact.
• Service organizations: Organizations that primarily produce an
intangible product, such as ideas, assistance, or information, and typically
have high customer contact.
 Manufacturing and Services
• There are certain important differences between services and
manufacturing:-
Characteristics of Services Characteristics of Manufacturing
Intangible: Ride in an airline seat Tangible: The seat itself
Produced and consumed simultaneously: Product can usually be kept in inventory
Beauty salon produces a haircut that is (beauty care products)
consumed as it is produced
Unique: Your investments and medical care Similar products produced (iPods)
are unique
High customer interaction: Often what the Limited customer involvement in production
customer is paying for (consulting, education)
Inconsistant Product definition: Auto Product standardized (iPhone)
insurance changes with age and type of car
Often knowledge based: Legal, education, and Standard tangible product tends to make
medical services are hard to automate automation feasible
Quality may be hard to evaluate: Consulting, Many aspects of quality for tangible products
education, and medical services are
easy to evaluate (strength of a bolt)
Reselling is unusual: Musical concert or Product often has some residual value
medical care
 Operations as a key functional area
• Understand the role of operations in an organization and its relationship with
other functional areas of business.

• Every organization has a few important activities. These include operations,

marketing, finance, and human resources management.

• Operations management deals with the management of the conversion process

in an organization.

• The marketing function is responsible for understanding the requirements of

customers, creating a demand for the products and services produced, and
satisfying customer requirements by delivering the right products and
services to customers at the right time.

• Both operational and marketing activities require estimates of financial needs,

funds, and management of working capital. These set of activities constitute
the finance function.
 Operations as a key functional area
• Every organization employs a number of people who have varied skills,
backgrounds and work requirements. Managing the workforce is
considered under the purview of human resource management function.

• The four functions have mutual interactions among them. The decisions
made in each of these functional areas could form an important input in
another functional area.
 Operations as a key functional area
• Organizations typically begin their yearly plan with the marketing
function making an estimate of the next year’s sales.
• The above input forms the basis for production planning in the operations
area of business.
• Based on the production plans, procurement planning is done and all these
factors lead to a certain estimate of the fund requirements. This forms an
important input for the finance function.
• The interactions between these functions are even greater when the above
plans are executed.
• The human resource management function influences the productive
capacity of labour available in real time.
 Operations Management: A System Perspective
• System perspective helps to understand various activities of operations
management.
The basic inputs in an operating system are
labour, material and capital.

Processing includes the various activities

that an operating system undertakes to
convert the raw material into useful
products for customers.
• Every operations system must make
important decisions with respect to the type
of products and services to be offered.
• Issues are the type of technology to use, the
type of machines to be used in the
conversion process, and the process of
• For example, when low-cost airline Spice Jet started creating
its operations, It chose
the products andtoservices.
fly to only three
locations connecting Western India to Delhi. It had to decide on the type of aircraft to use, the in-
flight services to offer, and various other aspects, such as ticketing and reservation, airport
logistics, and passenger interfaces at the airport and outside
 Operations Management: A System Perspective
• After identifying the product and service design, an operations system
must focus on ensuring that the demand for products and services is met.
• At this stage, the organization may also require operations planning to
ensure the availability of adequate material and capacity to meet the
targeted production and service delivery.
• The conversion process pertains to ensuring adequate supply of materials
for the operations system. This requires that the suppliers of various
materials are identified and relationships established with them. It will be
possible to place orders for material with the suppliers and receive them
within time. This activity is labelled as purchasing and inventory control.
• The output of an operations system consists of goods and services.
An organization that manufactures passenger cars will provide many variants of
the passenger car. On the other hand, a fast-food restaurant may provide various
types of food for breakfast, as per its process and product design.
• From a systems perspective, the demand is an exogenous variable.
Planning for production, capacity and material clearly depend on the
demand. Therefore, an important aspect of operations management is to
estimate demand. This is done through what is known as forecasting.
 Decisions Making and Planning Horizons in
Operations Management
• Three different planning horizons:

Strategic (long Term Planning) – Design of products and services, selection

of locations, Process design, Capacity Planning, Quality Management.

Tactical (Mid Term Planning) – Forecasting, Inventory policies, Transport

and delivery arrangements, Supplier selection, Make or Buy.

Operational (Short Term Planning) – Operations Scheduling, Available

material handling and allocation.
 Efficiency and Effectiveness
• Efficiency is a ratio of the actual output of a process relative to some
standard.
• Example, consider a machine designed to package rice at a rate of 36
packets per minute. If during a shift the operators actually produce at a
rate of 30 boxes per minute, then the efficiency of the machine is 83
percent (30/36).
• Labor Efficiency – number of labor hours required to accomplish a given
task, when compared with the standard in industry or setting.
• Also, being “efficient” means doing something at the lowest possible cost.
• Efficiency means doing the things right.
• Effectiveness means doing the right things to create the most value for the
company.
• For example, to be effective at a grocery store it is important to have plenty
of operating check-out lines even though they may often stand idle.
• Maximizing effectiveness and efficiency at the same time creates conflict
between the two goals.
 Efficiency Measure

•
 Productivity Measurement
•
 Productivity Measurement
• Capital can include the value of equipment, facilities, inventory, and land.
Example:-
Osborne Industries is compiling the monthly productivity report for its
Board of Directors. From the following data, calculate (a) labor productivity,
(b) machine productivity, and (c) the multifactor productivity of dollars
spent on labor, machine, materials, and energy. The average labor rate is
$15 an hour, and the average machine usage rate is $10 an hour.
Units Produced 100,000
Labor hour 10,000
Machine hours 5000
Cost of Material $35,000
Cost of Energy $15,000
 Productivity Measurement

•
 Example-Productivity Measurement
•
•
 Competitiveness

• Competitiveness: How effectively an organization meets the wants and

needs of customers relative to others that offer similar goods or services.
• Marketing influences competitiveness in several ways, including
identifying consumer wants and needs, pricing, and advertising and
promotion.
• Operations has a major influence on competitiveness through product and
service design, cost, location, quality, response time, flexibility, inventory
and supply chain management, and service.
• A strategic planning exercise enables an organization to respond to market
needs in the most effective manner by aligning the various resources and
activities in the organization to deliver products and services that are
likely to succeed in the marketplace.
 Strategies

Strategy
• A plan for achieving organizational goals
• Serves as a roadmap for reaching the organizational destinations
• Organizations have
• Organizational strategies
• Overall strategies that relate to the entire organization
• Support the achievement of organizational goals and mission
• Functional level strategies
• Strategies that relate to each of the functional areas and that
support achievement of the organizational strategy
 Core Competencies
• The unique strengths of a business or the special attributes or abilities that
give an organization a competitive edge.
• A firm’s core competence can be exceptional service, higher quality, faster
delivery, or lower cost.
• Core competencies are more likely to be processes, a company’s ability to
do certain things better than a competitor.
• iPod was a breakthrough product, it is Apple’s ability to turn out hit
product after hit product such as iPhone, iPad, MacBook, etc. that gives it
that competitive advantage.
• Core competencies are not static. It changes over the time. Example: Dell,
Walmart.
• It helps define a business strategy is an understanding of the
company’s strengths.
• Companies need to continually evaluate the characteristics of their
products or services that prompt customer purchase; that is, the order
qualifiers and order winners.
 Order Winners and Order Qualifiers
• Order qualifiers are the characteristics of a product or service that qualify
it to be considered for purchase by a customer.
• The absence of any of these attributes will result in the customer removing
the product or service from his or her list of items under consideration.
• An order winner is a criterion, or possibly a set of criteria, that
differentiates the products or services of one firm from those of another.
• Depending on the situation, the order-winning criteria may be the cost of
the product (price), product quality and reliability, or any of the other
dimensions developed earlier.
• What constitutes order-winning and order-qualifying attributes might
change from time to time.
• Marketing helps to identify these qualifiers and winners.
• Characteristics under the purview of operations and supply chain
management, such as cost, speed to the market, speed of delivery, or
customization, are also considered as qualifiers and winners.
 The role of Operations Strategy

• The role of operations strategy is to provide a plan for the operations

function so that it can make the best use of its resources.
• Operations strategy specifies the policies and plans for using the
organization’s resources to support its long-term competitive strategy.
• Includes the location, size, and type of facilities available; worker skills and
talents required; use of technology, special processes needed, special
equipment; and quality control methods.
Organizational Examples of Companies or
Strategy Operations Strategy Services
Low Price Low cost Wal-Mart

Responsiveness Short processing times McDonald’s restaurants

On-time delivery FedEx
Differentiation: High performance Sony TV
High Quality design and/or high
quality processing
Coca-Cola
Consistent quality
Differentiation: Innovation 3M, Apple
Newness
Differentiation: Flexibility Burger King (Have it your way”)
Variety Volume McDonald’s (“Buses Welcome”)
Differentiation: Superior customer Disneyland
Service service IBM
Differentiation: Convenience Supermarkets; mall stores
Location
Achieving Competitive Advantage Through
Operations
• Firms achieve missions in three conceptual ways: (1) Differentiation, (2)
cost leadership, and (3) response.
• Differentiation is concerned with providing uniqueness. May be a product
differentiation or experience differentiation (service).
• Low-cost leadership entails achieving maximum value as defined by your
customer.
Walmart continues to pursue its low-cost strategy with superstores,
open 24 hours a day.
• Response, a set of values related to rapid (quickness), flexible (ability to
match changes according to market) and reliable performance .

• Operations managers are called on to deliver goods and services

that are (1) better, or at least different, (2) cheaper, and (3) more responsive.
Product Design
Product Design and Development: The
Key to Competitive Advantage
The goal of any successful business organization is to create value
for shareholders as well as the customers.
Operations Management address the issue by enabling the
organizations to bring some sort of distinctiveness.
Distinctiveness- product/service offers, the technology and channel
it employs, the process. Ex – Dell direct selling model had a high
degree of differentiation.
Witnessed a rise in customer requirements with respect to the
products and services offered
Product Design and Development: The
Key to Competitive Advantage
Organizations can take the advantage either by offering highly
differentiated products/services or by offering the cost effective products.
Organization can also have the advantage of bringing these products and
services much faster than its competitors and gain from the early-mover
advantages.
A good product development process addresses these issues and provides
a set of tools, techniques and concepts that an organization needs to bring
products into the market more quickly and cheaply, in order to realize the
associated gains.
 Reason for Product Design
Organizations may involved in product design or redesign for varieties of
reasons:

a. Economic (low demand, excessive warranty claims, and the need to

reduce cost)
b. Social and Demographic (population shifts)
c. Political, Liability or Legal (government changes, safety issues, new
regulations)
d. Competitive (new product or services, new advertising or promotion)
e. Cost or availability (raw material, components, labour, energy)
f. Technological (in product components and process)
Key Questions
Is there a demand for it?
• Market size
• Demand profile

Can we do it?
• Manufacturability - the capability of an organization to produce an item at
an acceptable profit

What level of quality is appropriate?

• Customer expectations
• Competitor quality
• Fit with current offering

Does it make sense from an economic standpoint?

• Liability issues, ethical considerations, sustainability issues, costs and profits
Steps Involved in Product Design
Phase 0 Planning

Phase 1 Concept Development

Phase 2 System-Level Design

Phase 3 Design Detail

Phase 4 Testing and Refinement

Phase 5 Production Ramp-up

 Phase 0: Planning

Output is the
project mission
Includes statement
assessment of which specifies
Precedes Begins with
technology the target
Project corporate
development market of the
Approval strategy
and market product,
objectives busines goal,
key
assumptions
Phase 1: Concept Development

One or more
Alternative
Needs of target concepts are
product concepts
market are selected for further
are generated and
identified development and
evaluated.
testing
 Phase 2: System Level Design

Geometric layout of
the product
functional
Decomposition of Final assembly specification of
the product into scheme for the each of the product
subsystem and production system subsystem
components is usually defined - Process flow
diagram for the
final assembly
process
 Phase 3: Detail Design

Complete
specifications
of all parts, Identification Tooling is
Process plan
materials, of all designed for
is established
and tolerance standard parts each part
of all the
unique parts
Phase 4: Testing and Refinement

Involves the construction

Prototypes are tested to
and evaluation of multiple
determine whether the
preproduction versions of
product will work as designed.
the product
 Phase 5: Production Ramp-Up

Products
Product is Need to train may be
Transition to
made using workers and supplied to
ongoing
the intended resolve any preferred
production
production remaining customers
is gradual
system problems for
evaluation
 Organization For Product
Development
Product design and development is an interdisciplinary effort.
Marketing, Design, Finance, Production Planning functions also play a
major role in translating the concept to meaningful products that can be
manufactured at an attractive cost.
An organizational structure is vital for a good product development
process.
In the traditional approach, each functional area addressed its part in the
product development process in isolation.
Traditional approach is a time consuming approach.
Marketin Procureme Producti
Design Planning Finance
g nt on
 Organization For Product Development
Concurrent Engineering-
▪ Basic idea behind this is to put together a team of cross-functional professionals and
provide them with necessary resources and mandate for product development process.
Customer
s
▪ Benefits of Concurrent Engineering:
a. Low Lead time
Marketing Planning
b. Increase productivity
c. Suppliers are involved in the
product development process.
Design Concurrent
Engineering
Procureme
nt
Suppliers can able to cut lead time
for capacity augmentation.
d. Promotes consensus-based
decision making and increase the
Productio
Supplier
n propensity for collective risk-
Finance taking.
 Quality Function Deployment (QFD)

Designing for the customers:

◦ QFD (Quality Function Deployment)- approach to getting the Voice of
Customer (VoC) into the
design specification of a product.
◦ Interfunctional teams from marketing, design engineering, and manufacturing.
◦ Begins with listening to the customer
❖ Market Research or Focus Group
◦ Converts the expectations and demands of customers into clear objectives and
then transform to product specifications.
◦ Customer requirements forms the basis for the house of quality.
◦ QFD uses a series of matrix diagrams that resemble connected houses.
 House of Quality (HoQ)
A: Determine the Voice of Customer (VoC).
B: Determine the various technical
D requirements with respect to VoC
C: Determine the relationship between the
B VoC and technical requirements.
D: Determine the correlation between the
technical requirements
A C E F E: Survey the customers to determine the
importance rating of various VoC
F: Survey the customers to determine the
importance rating of the company and its
G main competitors with respect to various VoC
G: Determine the rating of the company and
its main competitors with respect to various
technical requirements.
Illustrative example
Building a house of quality for a steam iron.
As per the customers’ requirements, the iron presses quickly, removes
wrinkles, doesn’t stick to fabric, provides enough steam, doesn’t spot
fabric, doesn’t scorch fabric.
We enter those attributes into the customer requirements section of the
house.
We ask our customers to rate the list of requirements on a scale of 1 to 10,
with 10 being the most important.
Next, we conduct a competitive assessment on a scale of 1 to 5. Customers
evaluate our iron (call it as ‘X’) against the competitor irons, A and B.
We observe that our iron excels on the customer attributes of presses
quickly, removes wrinkles, provides enough steam, automatic shutoff,
doesn’t break when dropped.
 Competitive
Assessment
Customer Requirements 1 2 3 4 5
Presses quickly 9 B A X
Removes wrinkles 8 AB X
Doesn’t stick to fabric 6 X BA
Irons
well

Provides enough steam 8 AB X

Doesn’t spot fabric 6 X AB
Doesn’t scorch fabric 9 A XB
Heats quickly 6 X B A
Automatic shut-off 3 ABX
safe to use

Quick cool-down 3 X A B
Easy and

Doesn’t break when dropped 5 AB X

Doesn’t burn when touched 5 AB X
Not too heavy 8 X A B
 Flow of water from holes

Time to go from 450º to

Energy needed to press

Time required to reach

Thickness of soleplate

Protective cover for

Automatic shutoff
Number of holes
Material used in
Size of soleplate
Weight of iron

Size of holes
soleplate

soleplate
450º F

100º
Customer Requirements
Presses quickly - - + + + -
Removes wrinkles + + + + +
Doesn’t stick to fabric - + +
Irons
well

+ +
Provides enough steam + + + +
Doesn’t spot fabric + - - -
Doesn’t scorch fabric + + + - +
Heats quickly - - + -
safe to use
Easy and

Automatic shut-off
+
Quick cool-down - - + +
Doesn’t break when dropped + + +
+
Doesn’t burn when touched +
+ + +
Not too heavy + - - - + -
Product design characteristics are also interrelated, shown in the roof of
the house.
For example, increasing the thickness of the soleplate would increase the
weight of the iron but decrease the energy need to press. Also, a thicker
soleplate would decrease the flow of water through the holes, and
increase the time it takes for the iron to heat up or cool.
Designers must take all these factors into consideration when determining
a final design.
Energy needed to press
Weight of iron
-

Size of soleplate
+

Thickness of soleplate
Material used in
-

soleplate
+

Number of holes
+

Size of holes
Flow of water from holes
Time required to reach
450º
Time to go from 450º to
100º
Protective cover for
soleplate
Automatic shutoff
 The last section of the house adds the quantitative measures to our design
characteristics.
Measuring our iron X against the competitors A and B, we find that our
iron is heavier, larger and has a thicker soleplate. Also, it takes longer to
heat up and cool down, but requires less energy to press and provides
more steam than other irons.
To decide which design characteristics to change, we compare the
estimated impact of the change with the estimated cost.
We rate these factors on a common scale from 1 to 5, with 5 being the
most.
As long as the estimated impact exceeds the estimated cost, we should
make a change.
 N
Objective
measures

Iron B

Target values
Estimated cost
4
Iron A 3

Design changes
Our Iron (X)
Estimated impact
3
3
2
1.2
1.4
Units of measure

*
3
4

1.2
1.7
8x4
8x4
ft-lb

*
3
4
1
2
lb

8x5
9x5

Energy needed to press

*
3
3
4
4
SS
in.

MG

Weight of iron
*
4
5
T

SS
27
27
cm

Size of soleplate
*
3
4
ty

Thickness of soleplate
30
35
15
15

Material used in soleplate

3
3
ea

15
0.3
0.5

Number of holes
3
2
35
45

0.7
mm

Size of holes
*
4
5

30
50
350
500
oz/s

Flow of water from holes

*
4
5
N
N
sec

Time required to reach 450º

500
600

5
3
Y
Y

Time to go from 450º to 100º

sec

Protective cover for soleplate

2
0
Y
Y/N

Automatic shutoff
Y/
 A Series of Connected QFD Houses

Product
characteristics
requirement
Customer

Part
A-1 characteristics

characteristic
s

Process
House A-2
Product
characteristics
of

characteristic
quality
s
Parts A-3 Operations
deployment

Part

characteristic
s
Process A-4

Process
planning

s
Operating
requirements
Value Engineering (VE) / Value Analysis (VA)
 Value Engineering (VE) / Value
Analysis (VA)
Value Analysis: Cost-Reduction Method
Value Engineering: Cost-Avoidance Method

Example:
TATA Nano project had ambitious cost targets to bring to the
market an Rs. 1,00,000 car. Expectedly, the supplier had to make
the use of Value Engineering efforts.
 Design for X (DfX)
Design for Excellence
Excellence in terms of manufacturing, in terms of assembly, in terms of cost.
Systematic design approach that entails wide range of guidelines and
standards targeting different phases of product life cycle.
Design for
manufactur
ing

Design for Design for

Recycling Assembly

Design
for
Reliabilit
Df Design for
Costing
y
X
Deign for Design for
Disassembly Service

Design for
Environment
 Design for Manufacturing (DfM)
Structured approach to ensure that manufacturing requirements and
preferences are considered fairly early in the design process.
Design guidelines are intended to be used by the designers during the design
phase.
DfM guidelines address three set of generic requirements:
a. Reducing cost Product
b. Considering Operational Convenience Design Design Product
Problem Process Design
c. Reducing Cost.

Reducing the variety:

◦ Minimize the sub-assemblies
◦ Avoid separate fasteners
◦ Use standard parts when possible Design
Guidelines
◦ Develop Modular Design
◦ Use repeatable & understood processes.
 Design for Manufacturing and Assembly
(DfMA)
Design for Manufacturing (DfM)
Design for Assembly (DfA)
Both these concepts have some similarities in terms cost reduction (material, overhead
and labour cost), shorten the product development cycle time.
Differences between DfA and DfM:
◦ DfA focuses on reduction of product assembly cost by minimizing the number of
assembly operations and individual parts
◦ DfM focuses on reduction of overall production cost by minimizing the
complexities of manufacturing operations
Tools for Mass Customization
One of the fallouts of increased competition is the need to be
more customer focused.
Increase the complexity of production planning and investment
in inventory.
Mass customization provides a structured set of ideas and tools to
provide a high level of customization without increasing the
operational and production complexity.
Facilitating Techniques:
◦ Delayed Differentiation
◦ Modular Design
 Delayed Differentiation and Modular Design
❑ Delayed Differentiation:
The process of producing a product or service but not quite completing
production until customer preferences are known.
◦ It is a postponement tactic
◦ Produce a piece of furniture, but do not stain it; the customer chooses the
stain.
❑ Modular Design:
A form of standardization in which component parts are grouped into modules
that are easily replaced or interchanged
◦ Advantages
◦ Easier diagnosis and remedy of failures
◦ Easier repair and replacement
◦ Simplification of manufacturing and assembly
◦ Training costs are relatively low
Performance Measures For The
Product Development Process

Cost Based Measure

Design Effectiveness

Strategic Measure

Market Impact
 Economic Analysis of Product
Development Project
Evaluate the economic impact of a new product on a company.
For Example, CI-700’s (New photograph printer) development, the team faces
several decisions that it knows could have a significant impact on the
product’s profitability:
• Should the team take more time for development in order to make the
product available on multiple computer “platforms,” or would a delay in
bringing the CI-700 to market be too costly?
Economic analysis is useful in at least two different circumstances
1. Go/no-go milestones
2. Operational design and development decisions
Building a base-case financial model
◦ Compute net present value
◦ Good estimates of cash flows
Economic Analysis of Product
Development Project

The most basic categories of cash flow for a typical new product
development project are:
a. Development cost (all remaining design, testing, and refinement costs up
to production ramp-up)
b. Ramp-up cost
c. Marketing and support cost
d. Production cost
e. Sales revenue
Thank You
Service Design
 Characteristics of Services
• Services are intangible
• Service output is variable
• Services have higher customer contact
• Services are perishable
• The service and the service delivery are inseparable
• Services tend to be decentralized and geographically dispersed
• Services are consumed more often than products
• Services can be easily emulated
Service Design Process
Service design is more comprehensive and occurs more often than
product design.
-Inherent variability of service processes requires that the service system be
carefully.
Service design process beginning with a service concept and ending with
service delivery.
The service concept defines the purpose of a service and the target
customer and the desired customer experience.
It also defines how our service is different from other and how it will
compete in the market place.
- Amazon excels at customer service for online orders.
From the service concept, a service package is created to meet customer
needs.
 Service Design Process
The service package consists of:
a. Physical items.
b. Sensual benefits.
c. Psychological benefits
• For a restaurant the physical items consist of the facility, food, drinks,
tableware, napkins, and other touchable commodities.
▪ The sensual benefits include the taste and aroma of the food and the
sights and sounds of the people.
▪ Psychological benefits are rest and relaxation, comfort, status, and a sense
of well-being.
Service Design Process
Finding the appropriate mix of physical items and sensual and psychological
benefits and designing them to be consistent with each other.
From the service package, service specifications are developed for
performance, design, and delivery.
◦ Performance specifications outline expectations and requirements for
general and specific customers.
◦ Converted into design specifications and, finally, delivery specifications.
◦ Design specifications must describe the service in sufficient detail for the
desired service experience to be replicated. (activities to be performed, skill
requirements, guidelines for service providers, cost and time estimates).
◦ Delivery specifications outline the steps required in the work process,
including the work schedule, deliverables, and the locations at which the
work is to be performed
Service Design
Process
Service-Process Matrix
Both Customers and Service Providers may be involved in determining
performance, design, and delivery specification.
Service processes can be classified according to:
a. Degree of customization (Involvement of customer in service design and
delivery).
b. Labor Intensity (involvement of the service provider in the service design
and delivery)
Service-process matrix is based on these two service characteristics.
Service-Process Matrix
A. Professional Service: Such as accountant, lawyer, or doctor, is highly
customized and very labor intensive.
B. Service Shop: such as schools and hospitals, is less customized and
labor intensive but still attentive to individual customers.
C. Mass Service: such as retailing and banking, offers the same basic
services to all customers and allows less interaction with the service
provider.
D. Service Factory: Services with the least degree of customization and
labor intensity, such as airlines and trucking, are most like manufactured
products.
High Vs. Low Contact Services
Design High-Contact Low-Contact
Decision Service Service
Facility Convenient to Near labor or
location customer transportation
source
Facility Must look presentable, Designed for
layout accommodate efficiency
customer needs, and
facilitate interaction
with customer
High Vs. Low Contact Services
Design High-Contact Low-Contact
Decisions Service Service

Quality More variable since Measured against

control customer is involved in established standards;
process; customer testing and rework
expectations and possible to correct
perceptions of quality defects
may differ; customer
present when defects
occur

Capacity Excess capacity Planned for average

required to handle demand
peaks in demand
High Vs. Low Contact Services
Design High-Contact Low-Contact
Decisions Service Service

Worker Must be able to Technical skills

Skill interact well with
customers and use
judgment in decision
making.
Service Mostly front-room Mostly back-room
Process activities; service may activities; planned
change during and executed with
delivery in response minimal
to customer interference
Service Blueprint
Service operations involve several different players, both front and back
room operations, and different opportunities for interaction among the
players during the service process.
Service blueprinting is the process of recording in graphical form the
activities and interactions in a service process.
◦ A specialized flow chart.
Line of interaction:
This lines separates all the activities in which the customer has to have a
direct interaction.
Service Blueprint
Line of Visibility:-
This includes all the structural planning and interactional elements of a
service delivery process that wall within the eyesight of the customer.
Example: In a restaurant, the kitchen is not in the line of visibility.
However, the parking lots, the washroom, the eating space, the cash
counter, the front lawns, the food delivery counter are all in the line of
visibility.
Front Office:- All aspect of the service delivery system that are in the line
of visibility of a customer will be part of the front office.
Back Office: - All aspects of a service delivery process that are behind (or
beyond) the line of visibility constitute the back office.
Process Design
PROCESS DESIGN
One of the important decision points of an operations system concerns the
capacity to be deployed in the system.
A process is the basic building block of operations.
Process design determines the capacity of a system.
It consists of a set of activities that need to be performed by consuming some
resources and time.
Determines the performance of the operations systems in terms of cost, time,
productivity, profit, etc.
 PROCESS DESIGN
Consider a fast food restaurant in Kolkata.
• When the customer goes to the counter and places an order for the food
items he or she would like to eat, the outcome is determined by the
process employed to satisfy this customer demand.
• The steps involved in serving the demand, the number of people involved,
the nature of resources consumed and the time taken to serve this
customer will all depend on the process design.
• The performance of the processes dictates the performance of an
operations system itself.
 Process Flow-charting
• Every activity that constitutes a process must be identified.
• It is also important to know the time taken for each activity and the
nature of flow of materials/information in the process.
• A pictorial representation of all this information could be developed using
process flow-charting.
• Process flow-charting employs a set of standard symbols and graphical
tools to represent all the information about the process.
Process Flow-Charting
A process flow chart helps an operations manager in many ways:

◦ It provides a pictorial and compact representation of the process and

enables a quicker and better understanding of the various aspects of
the process.

◦ Additional information - the time taken for each stage of the process,
certain useful measures can be computed. For instance, one may be
able to estimate the time required to complete the process. Using this
information, one can also identify the bottlenecks in the process and the
productive capacity of the process.
 Planning Premises and Process
Implication
Three generic planning premises are in use in operations management:
make to stock, make to order, and assemble to order.
❑ Make-to-Stock:-
◦ The basic approach to planning in the MTS system is to schedule
production for the purpose of replenishing stocks to some
predetermined level.
◦ Based on the estimate of the demand and the available inventory of
finished goods on hand, the exact production quantity for the planning
period is arrived at.
◦ Such systems are more applicable to organizations with fewer product
varieties and high production volume, as in the case of continuous and
streamlined flow systems.
◦ MTS is suitable for mass production systems.
 Planning Premises and Process Implication
❑ Make-to-order (MTO)-
• In this approach, no efforts are directed towards production until a firm
customer order is available.
◦ Once a customer order is launched into the production system, the
requirement details are computed and production is planned.
◦ It may be necessary for certain types of organizations to use the MTO
planning methodology. These organizations are typically manufacturers
of products with high variety and low volumes
 Planning Premises and Process Implication
❑ Assemble-to-order-
• Intermediate to MTS and MTO.
◦ The ATO planning framework incorporates some of the features of MTS
into the MTO planning methodology to create a hybrid version.
◦ The system utilizes MTS for the early stages of the manufacturing
process.
◦ At the later and final stages of the manufacturing system, the planning
changes to that of MTO.
◦ If there is a high degree of commonality in the parts and sub-assembly
level, then the volume of production and demand will be high.
Therefore, typical MTS planning will be efficient.
◦ More applicable in mid volume and mid variety manufacturing system.
◦ Also applicable in service.
Analyzing the process
Throughput time (flow time):- Throughput time (TPUT) is the elapsed time
from the first stage of the process to the last stage of the process. It is also
known as flow time.
Cycle time: Cycle time is the elapsed time between two successive outputs
from a process that is continuously operating in a given period of time.
◦ For instance, in a bread-making process, if a loaf of baked bread comes out
of the system every 20 seconds, then the cycle time for the process is 20
seconds.
Bottleneck: That stage of the process that dictates the output of a process is
the bottleneck.
• Let us assume that in the bread-making example, the baking of the bread in
the oven takes 20 seconds and all other processes take less than 20 seconds.
In this case, the baking process is the bottleneck. The processing time at
the bottleneck is the cycle time for the process.
The throughput rate is the output rate that the process is expected to
produce over a period of time. It is the mathematical inversion of the cycle
time.
Illustrative Example
A toy manufacturer receives crafted toys from local carpenters and
performs the final operations before stocking it for sale.
The process consists of five steps.
• The first step is to arrange a set of four toys in a pallet.
• After this, the pallet moves to the next station where the toys are pre-
treated.
• The next step is to send it to the spray-painting chamber, where it is
painted as per the specifications. At present, there is one spray-painting
machine.
• After painting, it is left in an open area for drying. The painting process
and the pre-treatment process are specialized so the paint dries quickly.
• Finally, the toys are inspected and packed.
 Illustrative Example
• Step 1 (Preparation of toys): 8 minutes
• Step 2 (Pre-treatment): 12 minutes
• Step 3 (Painting): 20 minutes
• Step 4 (Drying): 10 minutes
• Step 5 (Inspection and packing): 5 minutes
What is the throughput time for this manufacturing process?
Identify the bottleneck for this process.
What is the cycle time for this process?
What is the productive capacity of the process?
 Illustrative Example
❑ The throughput time for the process is the sum of all processing times. In
this example, the throughput time is 55 minutes. This implies that if all the
required resources are available, then from the time the job is launched
at the first step, a pallet consisting of four toys will come out of the system
after 55 minutes.
❑ The bottleneck is that stage of the process that dictates the output of the
process. In our example, the spray painting is the bottleneck.
❑ The cycle time is determined by the process time at the bottleneck station
in the process. In this example, cycle time is 20 minutes. The implication
of this is that when the process operates in a continuous manner, then
one can expect a pallet of finished toys to come out every 20 minutes.
❑ In order to compute the productive capacity of the process, we shall compute
the production rate at each stage of the process.

❑ Thus, the productive capacity of the process is 3 pallets/hour or 12 toys/hour

Illustrative example
Suppose the preparation process has two parts to it.
◦ The first part is setting up of pallets, which requires 4 minutes.
◦ The second part is the actual time of loading the pallet with toys.
Each pallet consisting of four toys requires 4 minutes to load.
Furthermore, the painting booth can hold up to three pallets during the
spraying operation.
Given this additional information, examine the system under the
following conditions:
(a) The revised process will paint two pallets at a time.
(b) The revised process will paint three pallets at a time.
(c) There are two pre-treatment units available.
Illustrative example
Illustrative example
Buffering, Blocking, and Starving
Buffer: a storage area between stages where the output of a stage is
placed prior to being used in a downstream stage.
Blocking: occurs when the activities in a stage must stop because there is
no place to deposit the item.
Starving: occurs when the activities in a stage must stop because there is
no work.
Buffering, Blocking, and Starving
Consider a two-stage process where the first stage has a cycle time of 30
seconds and the second a cycle time of 45 seconds.
If the process needs to produce 100 units, then each unit produced, the first
stage would be blocked for 15 seconds.
What would happen if an inventory buffer were placed between two stages?
In this case, the first stage would complete the 100 units in 3000 seconds.
During these 3000 seconds, the second stage would complete only 66 units.
The inventory would build to 34 units (100-66 units) over the first 3000
seconds.
All of the units would be produced in 4530 seconds.
The second stage is considered as a bottleneck because it limits the capacity
of the process.
Buffering, Blocking, and Starving
What would happen if the first stage required 45 seconds and the second
stage had 30 second cycle time?
In this case, the first stage is considered as a bottleneck and the second
stage is starved for 15 seconds.
It would still take 4530 seconds to complete all 100 units.
Production Process Mapping and Little law
Material in a process is in one of two states.
- The first state is where material is moving or “in transit”. Actually, we
refer to this material as “work-in-process” inventory.
- The second state is material that is sitting in inventory and acting as a
“buffer” waiting to be used.
This “buffer” inventory allows different entities in the process to operate
relatively independently.
Little's Law says that, under steady state conditions, the average number
of items in a queuing system equals the average rate at which items arrive
multiplied by the average time that an item spends in the system.
There is a long-term relationship between the inventory, throughput, and
flow time of a production system in steady state.
Production Process Mapping and Little law
Production Process Mapping and Little law
Production Process Mapping and Little law
We know from the problem that there are 8,000 batteries in raw material
inventory, so the total number of batteries in the pipeline, on average, is:
Total inventory = 8,000 + 300 = 8,300 batteries.
These batteries are worth 8,300 × $45 = $373,500.
Production Process Mapping and Little law
The throughput rate of the process is equal to average demand, and the
process is not producing any excess or shortage.
If demand averages 1,000 units per day and 20 days are needed for a unit
to flow through the factory, then the expected work-in-process in the
factory would be 20,000 units.
We can think of Little’s law as a relationship between units and time.
If we divide inventory by throughput, we get flow time.
EXAMPLE
For the manager of a bakery, a first priority is to understand the products
made and the process steps required.

Two steps are required: a. Bread making b. Packaging the loaves.

Bread is made of batches of 100 loaves every hour, which is the cycle time
for the activity.
Packaging needs only 0.75 hour to place 100 loaves in bag.
We can assume that packaging starts up an hour after bread making,
otherwise it would be idle for a full hour before getting any work at the
start of the day.
Example (Continue)
Based on the information, Bread Making is the bottleneck. It limits the
overall capacity of the process.
So, if we assume the bread making and packaging activities both operate
the same amount of time each day, then the bakery has the capacity of 100
loaves per hour.
Over the course of the day the packaging operation will be idle for quarter-
hour periods in which the next batch of bread is still being made.
Now, Instead of one bread making operation, we have now two operations.
Example (Continue)
The Cycle time for each individual bread-making operation is still one
hour.
The cycle time of both bread-making lines operating together is half an
hour.
Packaging operation takes 0.75 hours to bag 100 loaves, the packaging
operation now is the bottleneck.
However, if we operated the packaging operation for three eight-hour
shifts and bread making for two shifts each day, then the daily capacity of
each would be identical at 3,200 loaves a day.
Doing this requires building up inventory each day as work-in-process.
Packaging would bag this during the third shift. So what is the flow time
of our bakery?
Example (Continue)
In the original operation with just the single bread-making process, this is
easy to calculate because inventory would not build between the bread-
making and packaging processes. In this case, the flow time would be 1.75
hours.
In the case where we delay the start of the packing operation for one hour,
and then operate it for three shifts, the average wait in work-in-process
inventory needs to be considered.
This is a case where Little’s law can estimate the time that the bread is
sitting in work-in-process. To apply Little’s law, we need to estimate the
average work-in-process between bread making and packaging.
During the first two shifts, inventory builds from 0 to 1,200 loaves.
We can estimate the average work-in-process over this 16-hour period to
be 600 loaves
Example (Continue)
 Determinants of process characteristics in
Operations
Various factors that influence the choice of alternative process.
• Volume: Volume indicates the average quantity of products produced in
a manufacturing system.
- Turnkey project management organizations (BHEL, Larsen & Turbo)
will typically have a production Volume of just one.
- Organizations catering consumer non-durable and FMCG sectors have
high volumes of production.
- We have mid-volume manufacturers in consumer durables, white
goods, and several industrial products. Hindustan Motors, Earth-moving
equipment belong to the mid-volume category.
 Determinants of process characteristics in
Operations
• Variety: Number of alternative and variants of each product.
- Consider TATA motors. The TATA Indica is available in several
models. Basically Petrol and Diesel models. Within Petrol model and
Diesel model, there are variations such as GLX,VX, VXI, AX and so on.
• Flow: All manufacturing system requires certain input material with
which the process begin. The material undergoes a conversion process
from the raw material stage to the finished goods stage. Flow indicates the
nature and intensity of this phenomenon.
• In general, volume and variety will have an inverse relationship
a. High Volume – Low Variety
b. Mid Volume-Mid Variety
c. Low Volume-High Variety.
Determinants of process characteristics in
Operations

Two key questions in process selection:

1. How much variety will the process need to be able to handle?
2. How much volume will the process need to be able to handle?
 Types of Manufacturing Process
A. Projects:
▪ The product remains in a fixed location.
▪ Manufacturing equipment is moved to the
product rather than vice versa.
▪ The flow pattern is non-standard and
complex because there are unique process
designs for each and every customer order
▪ Jumbled flow
▪ It take a long time to complete, involve a
large investment of funds and resources,
and produce one item at a time to
consumer order.
 Types of Manufacturing Process
B. Workcenter: (referred to as a job shop)
▪ Similar equipment or functions are
grouped together, such as all drilling
machines in one area and all stamping
machines in another.
▪ A part being worked on travels, according
to the established sequence of operations,
from workcenter to workcenter, where the
proper machines are located for each
operation.
▪ Processing is intermittent.
▪ A workcenter sometimes is referred to as a
department and is focused on a particular
type of operation.
Dept. A Dept. C Dept. E

Dept. B Dept. D Dept. F

Intermittent Flow
 Types of Manufacturing Process
C. Manufacturing Cell: (Batch Processing)
▪ Batch processing is used when a moderate volume of goods or services is
desired, and it can handle a moderate variety in products or services.
▪ A manufacturing cell layout is a dedicated area where products that are
similar in processing requirements are produced.
▪ These cells are designed to perform a specific set of processes, and the cell are
dedicated to a limited range of products.
▪ processing is still intermittent
▪ It processes many different jobs through the production system at the same
time in groups or batches.
▪ Examples of batch systems include bakeries, which make bread, cakes, or
cookies in batches
 Types of Manufacturing Process
d. Assembly line: (Repetitive)
▪ An assembly line is where work processes are arranged according to the
progressive steps by which the product is made.
▪ It produces large volumes of a standard product for a mass market.
▪ The assembly line steps are done in areas (“stations”) and typically the
stations are linked by some form of material handling device.
▪ Process design for streamlined flow can be visualized at two levels in a
mass production system. At the overall level, each product will flow
across departments in a streamlined fashion. Furthermore, within each
department, there will be an orderly flow of components and materials.
• This type of arrangement of manufacturing resources for mass
production in known as flow shop.
 Types of Manufacturing Process
▪ Product demand is stable, and product volume is high. Goods that are mass
produced include automobiles, televisions, personal computers, fast food, and
most consumer goods.
Types of Manufacturing Process
d. Continuous Production: is used for very high-volume commodity
products that are very standardized. The system is highly automated and
is typically in operation continuously 24 hours a day. Refined oil, treated
water, paints, chemicals, and foodstuffs are produced by continuous
production.
Difference among the manufacturing
process
Repetitive/
Job Shop Batch Assembly Continuous
Description Customized Semi- Standardized Highly
goods or standardized goods or standardized
services goods or services Goods or
services services
Advantages Able to handle a Flexibility; easy Low unit Very efficient,
wide variety to add or cost, high very
of work change volume, high volume
products or efficient
services
Disadvantage Slow, high cost Moderate cost Low flexibility, Very rigid, lack
s per unit, per unit, high cost of of
complex moderate downtime variety, costly
planning and scheduling to change,
scheduling complexity very high cost
of downtime
 Process Selection With Break-Even Analysis
▪ Several Quantitative techniques are available for selecting a process.
▪ The choice of which specific equipment to use in a process often can be
based on an analysis of cost trade-offs.
▪ For example, if we need to drill holes in a piece of metal, the general-
purpose option may be to use a simple hand drill. An alternative special-
purpose drill is a drill press.
▪ The trade-offs involve the cost of the equipment (the manual drill is
inexpensive, and the drill press expensive), the setup time (the manual
drill is quick, while the drill press takes some time), and the time per unit
(the manual drill is slow, and the drill press quick).
▪ A standard approach to choosing among alternative processes or
equipment is break-even analysis.
 Process Selection With Break-Even Analysis
▪ The ‘best’ method depends on the anticipated volume of demand for the
product and the trade off between fixed costs and variable costs.
Example: Suppose a manufacturer has identified the following options for
obtaining a machined part: It can buy the part at $200 per unit (including
materials); it can make the part on a numerically controlled
semiautomatic lathe at $75 per unit (including materials); or it can make
the part on a machining center at $15 per unit (including materials).
There is negligible fixed cost if the item is purchased; a semiautomatic
lathe costs $80,000; and a machining center costs $200,000.
Process Selection With Break-Even Analysis
Process Selection With Break-Even Analysis
If demand is expected to be more than 2,000 units (point A), the machine
center is the best choice because this would result in the lowest total cost.
If demand is between 640 (point B) and 2,000 units, the semiautomatic
lathe is the cheapest.
If demand is less than 640 (between 0 and point B), the most economical
course is to buy the product.
Consider the effect of revenue, assuming the part sells for $300 each.
Profit (or loss) is the vertical distance between the revenue line and the
alternative process cost at a given number of units.
At 1,000 units, for example, maximum profit is the difference between the
$300,000 revenue (point C) and the semiautomatic lathe cost of $155,000
(point D)
Process Selection with Break-Even Part
Example 2: Travis and Jef, the owner of Up Right Paddlers, a new startup
company with the goal of designing, making, and marketing stand-up
paddle boards for streams and rivers. The boards are constructed from
heavy duty raft material that is inflatable, rather than the fiberglass
material used in surfboards. Travis design a process (semiautomatic) the
fixed cost for equipment and space will be $2,000, and the material and
labor costs will run $50 per unit. Jeff, the more optimistic owners, believes
that demand for paddle boards will exceed the breakeven point of 40
units He proposes spending $10,000 in fixed costs to buy more automated
equipment that would reduce the materials and labor cost to $30 per
board. The boards would sell for $100, regardless of which manufacturing
process is chosen. Compare the two processes and determine for what
level of demand each process would be preferred. Label Travis’ proposal
as Process A, and Jeff’s proposal as Process B.
 Manufacturing Process Analysis
❑ A company supplies a component from our emerging plant to several
large auto manufacturers. This component is assembled in a shop by 15
workers working an eight-hour shift on an assembly line that moves at
the rate of 150 components per hour. The workers receive their pay in the
form of a group incentive amounting to $0.30 per completed good part.
This wage is distributed equally among the workers. Management
believes that it can hire 15 more workers for a second shift if necessary.
Parts for the final assembly come from two sources. The molding
department makes one very critical part, and the rest come from outside
suppliers.
o 11 Machines are capable of doing the one part done in-house.
o One machine is being overhauled or repaired at any given time.
o Each Machines requires one full time operator.
o Machine can produce 25 parts per hour.
o Workers are paid $0.20 for each good parts.
o Overtime is $0.30 for each good parts.
o Employment is flexible. Currently 6 workers are available and 4 more are
available from the labor pool of the company.
o The raw materials for each part molded cost $ 0.10 per part; a detailed analysis
by the accounting department has concluded that $ 0.02 of electricity is used in
making each part.
o The parts purchased from the outside cost $ 0.3 for each final component
produced.
o This entire operation is located in a rented building costing $100 per week.
Supervision, maintenance, and clerical employees receive $1,000 per week. The
accounting department charges depreciation for equipment against this
operation at $50 per week.
Manufacturing Process Analysis
a) Determine the capacity of the entire process
◦ Are the capacities balanced?
b) If the molding process were to use 10 machines instead of 6, what
would be the capacity of the entire process?
c) If the company went to a second shift of eight more hours on the
assembly task, what would be the new capacity?
d) Determine the cost per unit output when the capacity is 6,000 per week
or 10,000 per week
Manufacturing Process Analysis
Manufacturing Process Analysis
Manufacturing Process Analysis
D.1. Cost Per unit when the output = 6000 units
Manufacturing Process Analysis
Cost per unit when output =10,000 units.
Facility Layout
Layout Planning
Layout planning in manufacturing and service organizations involves the
physical arrangement of various resources available in the system to
improve the performance of the operating system, thereby providing better
customer service.
The basic objective of layout design is to facilitate a smooth flow of work,
material, and information through the system.
Supporting objectives:
◦ To facilitate attainment of product or service quality.
◦ To use workers and space efficiently.
◦ To avoid bottlenecks.
◦ To minimize material handling costs.
◦ To eliminate unnecessary movements of workers or materials.
◦ To minimize production time or customer service time.
◦ To design for safety.
Types of Layout Planning
Operations management researchers and practitioners have evolved four
major types of layouts.
a. Product Layout
b. Process Layout
c. Fixed Position Layout
d. Group Technology Layout.
Product Layout
A product layout is an design for the arrangement of resources.
Product Layouts are used to achieve a smooth and rapid flow of large
volumes of goods or customers through a system.
In this case, the order in which the resources are placed exactly follows
the process sequence dictated by a product.
Resulting in smooth component flow in the shop.
The final assembly in several manufacturing plants follows a product
layout.
Product Layout
The assembly workstations are designed in such a manner that at each
workstation a part of the job is completed.
The feeder stations are linked to the assembly workstations to ensure
material availability. As the product moves through the assembly, the
process is completed. Testing, final inspection, and even packing could be
part of this layout, so that at the end of the line it is ready for dispatch to
the market.
If you visit the Chinchwad plant of Tata Motors at Pune, you will notice
that there are nearly 180 workstations involved in the final assembly of
the Tata Indica. As the chassis moves through these stations, the car is
assembled in a progressive fashion, and at the end the car is ready for
dispatch.
Product Layout
Product Layout
The major concern in a product layout is balancing the assembly line so
that no one workstation becomes a bottleneck and holds up the flow of
work through the line.

A product layout needs material moved in one direction along the

assembly line and always in the same pattern.
 Advantages and Disadvantages
of Product Layout
❑ Advantages:-
1.A high rate of output.
2. Low unit cost due to high volume. The high cost of specialized
equipment is spread over many units.
3. A high utilization of labor and equipment.
4. The establishment of routing and scheduling in the initial design of
the system. These activities do not require much attention once the
system is operating.
❑ Disadvantages:-
1.The system is fairly inflexible in response to changes in the volume of
output or changes in product or process design.
2.The system is highly susceptible to shutdowns caused by equipment
breakdowns.
Design of Product layout
A two-wheeler manufacturer sold nearly 3,422,400 motorcycles in
2013–2014, which translates into a monthly sale of 285,200.
It is expected that the daily production of vehicles is nearly 11,400.
Various sub-assemblies in the Bajaj plant need to be configured to match
the production rate.
Similarly, the final assembly stations also need to have the required
number of resources at each station to meet the targeted demand.
Required a balanced flow of components on the shop floor.
Design of Product Layout
Design of Product Layout
Line balancing is a method by which the tasks are optimally combined
without violating precedence constraints and a certain number of
workstations are designed to complete the tasks.
If there are three workstations, A, B, and C, in which 7 tasks are
performed in a manufacturing system, then the workstation times are
nothing but the summation of the task times assigned to each workstation.
Clearly, a balanced design is one in which the workstation times do not
vary widely.
Cycle time could be considered as the reciprocal of production rate. If in a
period of 20,000 seconds a shop produced 10,000 pieces of a component,
then the production rate is ½ per second. Conversely, the cycle time is 2
seconds.
Design of Product Layout
Design of Product Layout
Design of Product Layout
Two Constraints
a. Precedence requirements- are the physical restrictions on the
order in which operations are performed on the assembly line.
Which operations must precede others, which can be done
concurrently, which must wait until later- are the important input to the
product layout.
b. Maximum Desired cycle time
Design of Product Layout
A computer manufacturer needs to design assembly stations in the factory
where the cabinet housing the hard disk, mother board and other
accessories is to be made. The factory currently works for one shift of 8
hours. The tasks and their durations are given in Table below and the
precedence relationship among the tasks.
Tasks Description Duration (Seconds) Task(s) that must
precede
A Assemble & position the base 70 -
unit
B Install the hard disk 80 A
C Install the mother board 40 A
D Insert Ports 20 A
E Install Speaker 40 A
F Connect relevant modules 30 B,C
G Install Controller 50 C
H Visual Inspection and cover 50 F, G, D, E
plate
Design of Product Layout
A. If the cycle time is 80 seconds, what will the daily production of
cabinets be?
B. If the desired production rate is 320 cabinets per day, what is the
maximum permissible cycle time?
C. What is the minimum number of workstations required to maintain
this daily production rate?
D. Design an assembly set-up w.r.t to the production rate of 320 cabinets
per day
E. Design an assembly set-up when the cycle time is 80 seconds. What are
the key inferences of this exercise?
Design of Product Layout
Design of product layout
Design of product layout
D. Design of assembly line with five work stations:-

1. Draw the precedence diagram.

2. We assign tasks to the five workstations

on the basis of the following two criteria:

• The workstation times should not

exceed the maximum permissible cycle
time of 90 seconds.

• The precedence relationships among

the tasks need to be honoured
Design of product layout
Workstation Workstation Workstation Workstation Workstation
1 2 3 4 5
Task A, D B C,G E,F H
Assigned
Workstation 90 80 90 70 50
Times
Cycle Time 90 90 90 90 90
Idle Time 0 10 0 20 40
Resource 100% 89% 100% 78% 56%
Utilization
Design of product layout

Workstatio Workstatio Workstatio Workstatio Workstatio WorkStatio

n1 n2 n3 n4 n5 n6
Task A B C, D E, F G H
Assigned
Workstatio 70 80 60 70 50 50
n Times
Cycle Time 80 80 80 80 80 80
Idle Time 10 0 20 30 30
Resource 87.5% 100% 75% 87.5% 62.5% 62.5%
Utilization
Design of product layout
Second Example…..
The Model J Wagon is to be assembled on a conveyor belt. Five hundred
wagons are required per day. Production time per day is 420 minutes, and
the assembly steps and times for the wagon are given below. Assignment:
Find the balance that minimizes the number of workstations, subject to
cycle time and precedence constraints.
Second Example…..
Second Example…..
Second Example…..
Workstation Workstation Workstation Workstation Workstation
1 2 3 4 5
Task A D B, C, E, H F, G, I, J K
Assigned
Workstation 45 sec 50 sec 47 sec 44 sec 9 sec
Times
Cycle Time 50.4 sec 50.4 sec 50.4 sec 50.4 sec 50.4 sec
Idle Time 5.4 sec 0.4 sec 3.4 sec 6.4 sec 41.4 sec
Resource 89.2% 99.2% 93.2% 87.3% 17.8%
Utilization
Process Layout
A process or a functional layout is an arrangement of resources on the
basis of the process characteristics of the resources.
Each department in a process layout is typically organized into
functional groups.
For example, a low-volume toy factory might consist of the shipping and
receiving workcenter, the plastic molding and stamping workcenter, the
metal forming workcenter, the sewing workcenter, and the painting
workcenter.
Optimal placement often means placing workcenters with large amounts
of interdepartment traffic adjacent to one another.
Design of the process layout
The steps involved in design of process layout:
a. The first step is to identify the number of departments required and the
space requirements for each department.
b. The second step is to estimate the magnitude of flow across these
departments.
c. The last step is to use the above information to arrive at the final layout
of the departments so that the cost of material handing is minimized.
Design of process layout
Suppose we want to arrange the eight workcenters of a toy factory to
minimize the interdepartmental material handling cost. Initially, let us
make the simplifying assumption that all workcenters have the same
amount of space (say, 40 feet by 40 feet) and that the building is 80 feet
wide and 160 feet long (and thus compatible with the workcenter
dimensions). We find that all material is transported in a standard- size
crate by forklift truck, one crate to a truck (which constitutes one “load”).
Now suppose that transportation costs are $1 to move a load between
adjacent workcenters and $1 extra for each workcenter in between.
The expected loads between workcenters and the available space is depicted for
the first year of operation are given below:
Design of Process Layout
Based on the above information, interworkcenter flow by a model
Design of Process Layout
The second step is to determine the cost of this layout by multiplying the
material handling cost by the number of loads moved between each pair
of workcenters
Design of Process Layout
A popular heuristic for the assignment problem forms the basis for the
computerized procedure known as computerized relative allocation of
facilities (CRAFT).
Automated layout design programme (ALDEP), Computerized relationship
layout planning (CORELAP), and plant layout evaluation techniques
(PLANET) are three known software packages that utilize construction
logic
Inventory
Management
 Inventory Management
• An inventory is a stock or store of goods.
• Manufacturing firms carry supplies of raw materials, purchased parts,
partially finished items, and finished goods, as well as spare parts for
machines, tools, and other supplies.
• Department stores carry clothing, furniture, carpeting, stationery,
cosmetics, gifts, cards, and toys. Some also stock sporting goods, paints,
and tools.
• Hospitals stock drugs, surgical supplies, life-monitoring equipment, sheets
and pillow cases, and more.
• Supermarkets stock fresh and canned foods, packaged and frozen foods,
household supplies, magazines, baked goods, dairy products, produce,
and other items.
What do we understand by
Inventory?
Necessary Evil!

❑ Necessary: ❑ Evil:
• Decoupling • Capital tied up unused – no
• Disruption control value addition at present
• Reduction of no. of orders / • Obsolescence, depreciation
machine setups • Risky for perishable products
• Hedging against inflation • Resistance to NPD / use of
• Availing quantity discounts substitute materials
• Facing uncertainty
 Inventory Classification Problem
• In several ways we can define an inventory problem.
• What are the factors actually determined the inventory problem?
Repetitiveness
• Single Order
• Repeat Order
Supply Source
• Outside Supply
• Inside Supply
Knowledge of Demand
• Constant demand or Variable demand
• Independent demand or Dependent demand
Inventory Classification Problem
Knowledge of Lead Time
• Constant Lead Time
• Variable Lead Time
Kinds of Inventory System
• Q-System or Continuous Review
• P-System or Periodic Review.
• MRP
• Single order quantity
Types of Inventory
Cyclic inventory – regular production or purchase in batches
Safety stock – safeguard against uncertainty of demand & supply
Decoupling stocks – manage mismatch or independent operations among
depts, decision making units
Anticipation inventory – seasonal stock.
Pipeline inventory – in-transit inventory, work-in-process inventory
 Inventory planning for
independent Item
Inventory planning of independent demand items must address the
following two key questions:
• How Much?
- The replenishment could be of a fixed quantity or variable.
- It could be based on the cost associated.
- It could also satisfy certain practical considerations such as truck
capacity, quantity discount, minimum order quantity restriction
posed by the suppliers.
• When?
- The other issue is related to timing of the replenishment.
- Since demand is continuous and uncertain, the timing of
replenishment is equally important.
 Inventory Related Costs
There are several costs associated with inventory planning and control.
These costs could be classified under three broad categories:
• The cost of carrying an inventory.
• The cost associated with ordering material and replenishing it in
cyclic intervals.
• The cost arising out of shortages.
▪ Inventory control models should take these into consideration and aim at
minimizing the sum of all these costs.
• Sometimes, the unit cost of the item for which inventory planning is done
is also a relevant cost for decision making.
• This is because when large quantities are ordered, there could be some
discount in the unit cost of the item.
Inventory Carrying Cost
The most significant component is the interest for the short-term
borrowals for the working capital required for inventory investment.
The second significant cost relates to the cost of stores and warehousing
and the administrative costs related to maintaining inventory and
accounting for it.
The elements of storing and warehousing costs include the following:
• Investment in store space and storage and retrieval systems.
• Software for maintaining the inventory status.
• Managerial and other administrative manpower to discharge various
activities related to stores.
• Insurance costs.
• Cost of obsolescence, pilferage, damages, and wastage.
All the costs related to carrying inventory are directly related to the level
of inventory
Inventory Ordering Cost
Replenishment of cyclic inventory is achieved by ordering material with
the suppliers.
Organizations perform a series of tasks related to ordering material.
• Search and identification of appropriate sources of supply.
• Price negotiation.
• contracting and purchase-order generation.
• Follow-up and receipt of material.
Ordering cost is independent of size of replenishment i.e. fixed in nature.
Ordering a larger quantity could reduce the total costs of ordering.
As the order size increased the number order will decrease.
 Trade off between total ordering
cost and total inventory carrying
cost
• The total cost of carrying and the cost of ordering are fundamentally two
opposing cost structures in inventory planning.
• When the order quantity becomes smaller, the total cost of carrying
inventory decreases.
• On the other hand, since a large number of orders are to be placed to
satisfy the demand, the total ordering costs will go up.
• Balancing these two opposing costs will be central to inventory planning
and control in any organization
 Shortage cost
Shortage costs result when demand exceeds the supply of inventory on
hand.
Shortage costs includes
▪ cost of the adverse effect due to non-availability of materials (includes
intangibles like loss of image to customers, loyalty etc.),
▪ lost sales / backorder etc.
• When the demand is not met and the order is canceled, this is referred to
as a stock out.
• A backorder is when the order is held and filled at a later date when the
inventory for the item is replenished.
 How much to order: Economic
Order Quantity (EOQ)
EOQ models identify the optimal order quantity by minimizing the total
inventory cost that vary with order size and order frequency.
It is used to identify a fixed order size that will minimize the sum of the
annual costs of holding inventory and ordering inventory.
The unit purchase price of items in inventory is not generally included in
the total cost because the unit cost is unaffected by the order size unless
quantity discounts are a factor
This basics model involves some basic assumptions
• Only product is involved.
• Annual demand requirements are known
• Demand rate is reasonably constant
• Instantaneous replenishment.
• No quantity discount.
How much to order: Economic
Order Quantity (EOQ)

• Inventory ordering and usage occur in

cycles.
• A cycle begins with receipt of an order of
Q units, which are withdrawn at a
constant rate over time.
• The optimal order quantity reflects a
balance between carrying costs and
ordering costs.
How much to order: Economic
Order Quantity (EOQ)
Problem
A two-wheeler component manufacturing unit uses large quantities of a
component made of steel. Although these are production items, the
demand is continuous and inventory planning could be done independent
of the production plan. The annual demand for the component is 2,500
boxes. The company procures the item from a supplier at the rate of 750
per box. The company estimates the cost of carrying inventory to be 18
per cent per unit per annum and the cost of ordering as 1,080 per order.
The company works for 250 days in a year. How should the company
design an inventory control system for this item? What is the overall cost
of the plan?
Solution
Solution
Problem -EOQ
Demand for the computer at XYZ retail store is 1,000 units per month. XYZ
incurs a fixed order placement, transportation, and receiving cost of
$4,000 each time an order is placed. Each computer costs XYZ $500 and
the retailer has a holding cost of 20 percent. Evaluate the number of
computers that the store manager should order in each replenishment lot.
How much time each computer spends on average before it is sold?
Solution
Practice
A local distributor for a national tire company expects to sell
approximately 9,600 steel-belted radial tires of a certain size and tread
design next year. Annual carrying cost is $16 per tire, and ordering cost is
$75. The distributor operates 288 days a year.
a. What is the EOQ?
b. How many times per year does the store reorder?
c. What is the length of an order cycle?
d. What will the total annual cost be if the EOQ quantity is ordered?
Re-order point with constant
Lead time
 Price Discount – Order size
calculation
• Large order sizes result in price discounts.
• There are other reasons for placing a larger order than what the EOQ
suggests.
• Sometimes, it will be economical to transport a truckload of items and
save on transportation cost.
• In other cases, the supplier may impose a minimum order quantity.
• In all these cases, the relevant cost for analysis includes cost elements
other than carrying and ordering.
Price Discount – Order size
calculation
Price Discount – Order size
calculation
Price Discount – Order size
calculation
Price Discount – Order size
calculation
Drugs Online (DO) is an online retailer of prescription drugs and health
supplements. Vitamins represent a significant percentage of sales.
Demand for vitamins is 10,000 bottles per month. DO incurs a fixed order
placement, transportation and receiving cost of $100 each time an order
for vitamins is placed with the manufacturer. DO incurs a holding cost of
20 percent. The manufacturer uses the following all unit discount pricing
schedule. Evaluate the number of bottles that DO manager should order
in each lot. Order Quantity Unit Price
0-4999 $3.00
5,000-9,999 $2.96
10,000 or more $2.92
Price Discount – Order size
calculation
Price Discount – Order size
calculation
Price Discount-Problem
Let, D = 2500 boxes; Price of each box = Rs 750
Inventory carrying cost = 18%; So, Cc = 0.18 *750 = Rs 135; Co = Rs 1080:
EOQ = 200 boxes
If discounts available like:
for 400 – 799 boxes, discount = 2%
for 800 – 1000 boxes, discount = 3%
Selective Control of Inventory
Managing inventory invariably amounts to handling a large number and
variety of items.
For instance, an automobile manufacturer such as Ashok Leyland may
have an inventory of about 50,000 items in their stores.
A vast majority of them will be consumed and will require a mechanism
for monitoring inventory on-hand, establishing reorder points, order
quantity, and the type of inventory control system that needs to be
adopted.
Establishing the same level of monitoring and control for all the items
may not be practically feasible.
Therefore, organizations devise suitable ways of categorizing the items
and adopt mechanisms that have variable levels of control on the
different categories of items.
Selective control of
inventories
ABC analysis:
Pareto principle / 80-20 rule / Vital Few and Trivial Many
On the basis of value or cost of annual consumption.
A: 5-10% of items contributing to 70-80% of value
B: 20-30% of items contributing to 10-25% of value
C: 60-70% of items contributing to 5-10% of value
 Example of ABC Analysis

Item no. Unit Value Annual Consumption Cum number Cum Value
(Rs) Consumption Value (Rs) of items (%) (%)
1 30000 80 2400000 5.00 62.96
2 450 1200 540000 10.00 77.12
3 590 400 236000 15.00 83.32
…… …… …… …… ...... …….
18 80 100 8000 90.00 99.90
19 25 100 2500 95.00 99.96
20 1 1500 1500 100.00 100.00
 Percentage of Annual Cummula
Item Stock Unit Value Annual Dollar Percentage of Annual
number of Consumption tive Class
Number ($) Volume Dollar Volume
Item stocked (units) percent
#10286 1000 90 90,000 0.387835747 38.8
20% A
#11526 500 154 77,000 0.331815028 72
#12760 1550 17 26,350 0.113549688 83.3
#10867 30% 350 42.86 15001 0.0646436 89.7 B
#10500 1000 12.5 12500 0.053866076 95.1
#12572 600 14.17 8502 0.03663755 98.8
#14075 2000 0.6 1200 0.005171143 99.3
#01036 50% 100 8.5 850 0.003662893 99.7 C
#01307 1200 0.42 504 0.00217188 99.9
#10572 250 0.6 150 0.000646393 1
8550 2,32,057
VED analysis:
On the basis of criticality of items in operations.
V: Vital or highly critical items
E: Essential or moderately critical items
D: Desirable or non-critical items
FSN analysis:
On the basis of movement of inventory or period of stocking.
F: Fast moving items
S: Slow moving items
N: Non - moving items
Forecasting
 Forecasting
• Forecasts are a basic input in the decision processes of operations
management because they provide information on future demand.
• The primary goal of operations management is to match supply to
demand.
• Having a forecast of demand is essential for determining how much
capacity or supply will be needed to meet demand.
• For instance, operations needs to know what capacity will be needed to
make staffing and equipment decisions, budgets must be prepared,
purchasing needs information for ordering from suppliers, and supply
chain partners need to make their plans
• Many businesses, most or all of anticipated demand is derived from
forecasts.
 Forecasting
• Two aspects of forecasts are important.
One is the expected level of demand.
The degree of accuracy that can be assigned to a forecast.
• The expected level of demand can be a function of some structural
variation, such as a trend or seasonal variation.
• Forecast accuracy is a function of the ability of forecasters to correctly
model demand, random variation, and sometimes unforeseen events.
• Forecasts are made with reference to a specific time horizon.
 Components of Forecasting
Demand
• The type of forecasting method to use depends on several factors,
including
• The time frame of the forecast (i.e. how far in the future is being
forecasted).
• The behavior of demand and the possible existence of patterns (trends,
seasonality, cycle)
• The causes of demand behavior.
❑ Time Frame:-
• Forecasts are either short-to-mid-range, or long-range.
• Short-range (to mid-range) forecasts are typically for daily, weekly, or
monthly sales demand for up to approximately two years into the future.
• They are primarily used to determine production and delivery schedules
and to establish inventory levels.
 Components of Forecasting
Demand
• A long-range forecast is usually for a period longer than two years into the
future.
• A long-range forecast is normally used for strategic planning—to establish
long-term goals, plan new products for changing markets, enter new
markets, develop new facilities, develop technology, design the supply
chain, and implement strategic programs.
❑ Demand Behavior:-
• Demand exhibits predictable behavior, with trends or repetitive patterns,
which the forecast may reflect.
• The four types of demand behavior are trends, cycles, seasonal patterns,
and random
• A trend is a gradual, long-term up or down movement of demand.
◦ For example, the demand for houses has followed an upward trend during the
past few decades
 Components of Forecasting
Demand
• Random variations are movements that are not predictable and follow
no pattern (and thus are virtually unpredictable). They are routine
variations that have no “assignable” cause.
• A seasonal pattern is an oscillating movement in demand that occurs
periodically (in the short run) and is repetitive. Seasonality is often
weather-related.
For example, every winter the demand for sweaters and Jackets increases,
demand of firecrackers increase during Diwali.
• A cycle is an up-and-down movement in demand that repeats itself over a
lengthy time span (i.e., more than a year).
◦ For example, The demand for winter sports equipment increases every
four years before and after the Winter Olympics.
Components of Forecasting
Demand
Forecasting Process
1. Identify the purpose of 2. Collect historical data 3. Plot data and identify
forecast patterns

6. Check forecast accuracy 5. Develop/compute 4. Select a forecast model

with one or more measures forecast for period of that seems appropriate for
historical data data

7.
Is accuracy of No 8b. Select new forecast
forecast model or adjust
acceptable? parameters of existing
model
Yes
9. Adjust forecast based on 10. Monitor results and
8a. Forecast over planning
additional qualitative measure forecast accuracy
horizon
information and insight
 Sources of Data
• Forecasting is often only as good as the quality and quantity of data
available.
• Therefore, it is important to know the type of data required and the
normal sources through which such data could be collected.
Sales-force Estimates-
• For every organization, one of the most valuable sources of data is the
sales force that operates in the field.
• The sales force spans the entire geographical range of operation, they
have access to data on the actual consumption and the changing patterns
in consumption.
• Using this data, organizations can make an end-use analysis to project
emerging scenarios in market demand
 Sources of Data
Point of Sales (POS) Data System-
• Advances in information technology have enabled organizations to
capture data at the point of sale using POS systems.
• Using POS technology, as a customer buys a unit of an organization’s
product at a retail counter, the information is captured and
instantaneously transferred to a common database
• Giant retail chains such as Wal-Mart is attributed to the use of POS
systems. You may find similar systems in use in Indian retail chains such
as Big Bazaar, More, and Reliance Mart
 Sources of Data
Forecasts from supply chain partners:-
• Organizations often have to rely on their supply chain partners to obtain
data on actual sales during a period.
• Moreover, supply chain partners provide vital information on market
trends, competitor performance, and overall market sentiments and
projections. These estimates are crucial for accurate forecasting of future
demand, particularly during annual planning exercises.
Trade/Industry Association Journal
Economic surveys and Indicators- Economic research agencies such as
the Central Statistical Organization (CSO) and the Centre for Monitoring
Indian Economy (CMIE) provide useful data to model these situations and
estimate the emerging demand for such products.
 Forecasting Methods
• Three basic types of forecasting: Time series methods, Causal methods, and
Qualitative methods.
❑ Time Series Forecasting: -
• Time series methods are statistical techniques that make use of historical
data accumulated over a period of time.
• Time series methods assume that what has occurred in the past will
continue to occur in the future.
• These methods assume that identifiable historical patterns or trends for
demand over time will repeat themselves.
• These methods relate the forecast to only one factor—time.
• They include the moving average, exponential smoothing, and linear
trend line; and they are among the most popular methods
Simple Moving Average
Three months Moving Average
ORDERS MOVING 3
MONTH PER MONTH AVERAGE
Jan 120 Σ
i = 1 Di
Feb 90 MA3 =
Mar 100 3
Apr 75
May 110
June 50
July 75
Aug 130
Sept 110
Oct 90
Nov -
Three months Moving Average
ORDERS MOVING 3
MONTH PER MONTH AVERAGE
Jan 120 – Σ
i = 1 Di
Feb 90 – MA3 =
Mar 100 – 3
Apr 75 103.3
May 110 88.3 90 + 110 + 130
= 3
June 50 95.0
July 75 78.3
Aug 130 78.3 = 110 orders for Nov
Sept 110 85.0
Oct 90 105.0
Nov - 110.0
Five Months Moving Average
ORDERS MOVING 5
MONTH PER MONTH AVERAGE
Jan 120 Σ
i = 1 Di

Feb 90 MA5 =
Mar 100 5
Apr 75
May 110
June 50
July 75
Aug 130
Sept 110
Oct 90
Nov -
Five Months Moving Average
ORDERS MOVING 5
MONTH PER MONTH AVERAGE
Jan 120 – Σ
i = 1 Di

Feb 90 – MA5 =
Mar 100 – 5
Apr 75 –
May 110 – 90 + 110 + 130+75+50
= 5
June 50 99.0
July 75 85.0
Aug 130 82.0 = 91 orders for Nov
Sept 110 88.0
Oct 90 95.0
Nov - 91.0
Smoothing Effects
Weighted Moving Average

MONTH WEIGHT DATA

August 17% 130
September 33% 110 3
October 50% 90
November Forecast WMA3 Σ
i = 1 Wi Di
=
Weighted Moving Average
MONTH WEIGHT DATA
August 17% 130
September 33% 110
October 50% 90 3

November Forecast WMA3 = Σ

i = 1 Wi Di

= (0.50)(90) + (0.33)(110) + (0.17)(130)

= 103.4 orders
 Exponential Smoothing
• Exponential smoothing is also an averaging method that weights the
most recent data more strongly.
• The forecast will react more to recent changes in demand.
• This is useful if the recent changes in the data are significant and
unpredictable instead of just random fluctuations (for which a simple
moving average forecast would suffice).
• Exponential smoothing is one of the more popular and frequently used
forecasting techniques.
Exponential Smoothing
Effect of Smoothing Factor

0.0 ≤ α ≤ 1.0
If α = 0.20, then F t +1 = 0.20 Dt + 0.80 F t

If α = 0, then F t +1 = 0 Dt + 1 F t = F t
Forecast does not reflect recent
data
If α = 1, then F t +1 = 1 Dt + 0 F t = Dt
Forecast based only on most
recent data
PERIOD MONTH DEMAND
1 Jan 37 F2 = αD1 + (1 - α)F1
2 Feb 40
3 Mar 41
4 Apr 37
5 May 45
F3 = αD2 + (1 - α)F2
6 Jun 50
7 Jul 43
8 Aug 47
9 Sep 56
10 Oct 52 F13 = αD12 + (1 - α)F12
11 Nov 55
12 Dec 54
PERIOD MONTH DEMAND
1 Jan 37 F2 = αD1 + (1 - α)F1
2 Feb 40 = (0.30)(37) + (0.70)(37)
3 Mar 41
4 Apr 37
= 37
5 May 45
F3 = αD2 + (1 - α)F2
6 Jun 50
7 Jul 43 = (0.30)(40) + (0.70)(37)
8 Aug 47 = 37.9
9 Sep 56
10 Oct 52 F13 = αD12 + (1 - α)F12
11 Nov 55 = (0.30)(54) + (0.70)(50.84)
12 Dec 54 = 51.79
 FORECAST, F t + 1
PERIOD MONTH DEMAND (α = 0.3) (α = 0.5)
1 Jan 37 – –
2 Feb 40
3 Mar 41
4 Apr 37
5 May 45
6 Jun 50
7 Jul 43
8 Aug 47
9 Sep 56
10 Oct 52
11 Nov 55
12 Dec 54
13 Jan –
 FORECAST, F t + 1
PERIOD MONTH DEMAND (α = 0.3) (α = 0.5)

1 Jan 37 – –
2 Feb 40 37.00 37.00
3 Mar 41 37.90 38.50
4 Apr 37 38.83 39.75
5 May 45 38.28 38.37
6 Jun 50 40.29 41.68
7 Jul 43 43.20 45.84
8 Aug 47 43.14 44.42
9 Sep 56 44.30 45.71
10 Oct 52 47.81 50.85
11 Nov 55 49.06 51.42
12 Dec 54 50.84 53.21
13 Jan – 51.79 53.61
Linear Trend
Linear Trend
 Linear Trend
• Cell phone sales for a California-based firm over the last 10 weeks are shown in
the following table. Plot the data, and visually check to see if a linear trend line
would be appropriate. Then determine the equation of the trend line, and predict
sales for weeks 11 and 12.
Week Unit Sales
1 700
2 724
3 720
4 728
5 740
6 742
7 758
8 750
9 770
10 775
 Linear Trend
• The coefficients of the line, a and b, are based on the following two
equations:-
Week(t) Unit Sales (y) ty t^2
1 700 700 1
2 724 1448 4
3 720 2160 9
4 728 2912 16
5 740 3700 25
6 742 4452 36
7 758 5306 49
8 750 6000 64
9 770 6930 81
10 775 7750 100
 Forecast Accuracy
▪ A forecast is never completely accurate; forecasts will always deviate
from the actual demand.
▪ This difference between the forecast and the actual is the forecast error.
▪ The objective of forecasting is that it be as slight as possible.
A large degree of error may indicate that either the forecasting technique
is the wrong one or it needs to be adjusted by changing its parameters (for
example, in the exponential smoothing forecast).
 Mean Absolute Deviation
• The mean absolute deviation, or MAD, is one of the most popular and
simplest to use measures of forecast error.
• MAD is an average of the difference between the forecast and actual
demand, as computed by the following formula
 Mean Absolute Percent Deviation
• The mean absolute percent deviation (MAPD) measures the absolute
error as a percentage of demand rather than per period.
• As a result, it eliminates the problem of interpreting the measure of
accuracy relative to the magnitude of the demand and forecast values, as
MAD does.
• The mean absolute percent deviation is computed according to the
following formula:
 Cumulative Error and Bias
• Cumulative error is computed simply by summing the forecast errors, as
shown in the following formula

▪ A large positive value indicates that the forecast is probably

consistently lower than the actual demand, or is biased low.
▪ A large negative value implies that the forecast is consistently higher
than actual demand, or is biased high.
▪ A measure closely related to cumulative error is the average error, or
bias. It is computed by averaging the cumulative error over the number
of time periods:
          3-month 5-month
Deman 5- Absolute Absolut
Period d Naïve 3-month month Error Error Error e Error
January 37 -            
February 40 37           
March 41 40           
April 37 41 39.33   -2.33 2.33    
May 45 37 39.33   5.67 5.67    
June 50 45 41.00 40 9.00 9.00 10 10
July 43 50 44.00 42.6 -1.00 1.00 0.4 0.4
August 47 43 46.00 43.2 1.00 1.00 3.8 3.8
September 56 47 46.67 44.4 9.33 9.33 11.6 11.6
October 52 56 48.67 48.2 3.33 3.33 3.8 3.8
November 55 52 51.67 49.6 3.33 3.33 5.4 5.4
December 54 55 54.33 50.6 -0.33 0.33 3.4 3.4
January 54 53.67 52.8        
557 28.00 35.33 38.40 38.40

3-month 5-month
MAD 3.93 5.49
MAPD 0.08 0.11
E 28.0 38.40
3.11 5.49
 No. of demand
Input: periods 12
Alpha 0.30 0.5

Deman Forecast Absolut Absolut

Period d (0.3) Error e Error Forecast (0.5) Error e Error
January 37
February 40 37.00 3.00 3.00 37.00 3.00 3.00
March 41 37.90 3.10 3.10 38.50 2.50 2.50
April 37 38.83 -1.83 1.83 39.75 -2.75 2.75
May 45 38.28 6.72 6.72 38.38 6.63 6.63
June 50 40.30 9.70 9.70 41.69 8.31 8.31
MAD 4.85 4.04
July 43 43.21 -0.21 0.21 45.84 -2.84 2.84
MAPD
August 47 43.15 3.85 3.85 44.42 2.58 2.58
0.10 0.09
September 56 44.30 11.70 11.70 45.71 10.29 10.29
E 33.21 33.21
October 52 47.81 4.19 4.19 50.86 1.14 1.14
November 55 49.07 5.93 5.93 51.43 3.57 3.57 4.48 3.02
December 54 50.85 3.15 3.15 53.21 0.79 0.79
January 51.79 53.61
Aggregate
Production
Planning
Operations Planning
Operating systems in a business play the vital role of providing a continuous
flow of goods and services to customers.
For example, a bicycle manufacturer may be producing at a daily rate of
10,000 bicycles in its factory.
Or, for example, an airline operating between the metropolitan cities of
Mumbai and Delhi may be offering 2,000 passenger seats daily.
Changing the daily production rate at the bicycle manufacturer to 15,000 or
the seating capacity in the case of the airline to 2,500 are not simple and
instantaneous decisions.
Operating systems are characterized by complex relationships between
people, resources, market, and materials, and often involve lead time,
affecting several of the processes.
Prior planning and strategies for dealing with real-time changes play a very
important role in managing operating systems
Planning hierarchies in
Operations
It is important to understand that planning the operations in a manufacturing
or a service system happens at different levels and at different time horizons.
Demand for products/services is estimated using medium-level forecasting
techniques.
Based on this input, a firm needs to begin the planning exercise.
The business plan is strategic in nature and addresses the key level of
resources to be committed to meet the demand.
• Should we meet the projected demand entirely or a portion of the projected
demand?
• What are the implications of this decision on the overall competitive
scenario and the firm’s standing in the market?
• How is this likely to affect the operating system and planning in other
functional areas of the business, such as marketing and finance?
• What resources should we commit to meet the chosen demand during the
planning horizon?
Planning hierarchies in
Operations
These questions (in the previous slide) enable the top management to link
the strategic intent to various operational choices to be made during the
planning horizon.
Provide some clarity on the level of resources to be committed and and
the investments and policy decisions to be taken to execute the
operational plans.
Once the level of resources to be committed is arrived at, rough-cut
capacity planning needs to be done.
During this stage, planning is done to adjust the demand and the available
capacity on a period-by-period basis and ensure that the available
capacity could match the demand.
At this level of planning, information regarding to products and resources
is aggregated.
Planning hierarchies in
Operations
For example, a fan manufacturer such as Crompton Greaves Limited
(CGL) manufactures three variations of fans: standard, deluxe, and
premium. Assume that manufacturing a unit of standard fan requires 1
hour of machine capacity. Let us also assume that the deluxe model
requires 1.5 hours and the premium one 2 hours.
This information could be used to convert the demand of all variants into
a single measure of capacity.
For example if the demand for standard is 100, deluxe is 200, and
premium is 75, then the aggregated requirement in terms of machine-
hours is 100 × 1.00 + 200 × 1.5 + 75 × 2 = 450 hours.
Then, planning is done to ensure that capacity, material, and other
resources are available to meet the projected demand on a period-by-
period basis.
Aggregate Operations Planning
As the name suggests, it is a planning exercise done for operations using
data at an aggregate level.
Aggregation in terms of same products/service or same resources.
The decisions involve the amount of resources (productive capacity and
labour hours) to be committed, the rate at which goods and services need
to be produced during a period, and the inventory to be carried forward
from one period to the next.
For example, a garment manufacturer, at the end of an aggregate
operations planning exercise, may arrive the following plan:
◦ Produce 9,000 metres of cloth everyday during the period
January–March, increase it to 11,000 metres during April–August, and
change the operations rate to 10,000 metres during
September–December.
Aggregate Operations Planning
◦ Carry 10 per cent of monthly production as inventory during the first
nine months of production.
◦ Work on a one-shift basis throughout the year with 20 per cent
overtime during July–October.
The entire planning exercise is done on the basis of some aggregate unit.
It is evident that for several reasons, supply and demand may not match
exactly on a period-by-period basis in an organization.
Matching the supply with demand can be possible in any of the following
ways:
• Matching between supply and demand by suitable modified the
demand.
• Matching between supply and demand by adjusting the supply.
 Aggregate Operations Planning
Alternatives For Managing Demand
◦ Reservation of Capacity
◦ Influencing Demand
Alternatives For Managing Capacity
❑ Inventory Based Alternatives: Matching the demand with supply
could be done in three ways using inventory.
◦ One is to build inventory during periods of lean demand and consume
them during periods of high demand.
◦ Another option is to back order the current periods demand in a future
period.
◦ Another possibility is the stock-out. By stock-out, we mean a deliberate
strategy of leaving a portion of the demand unfulfilled.
 Aggregate Operations Planning
❑ Capacity Adjustment Alternatives - Another possibility available to
organizations is to adjust the available capacity to meet the demand
during the planning horizon.
◦ Two factors affect capacity in any organization: the number of working
hours and the number of people employed.
◦ Varying these parameters one can adjust the capacity to match the
demand.
1. Hiring/Lay-off workers.
2. Varying shifts.
3. Varying the work-hours
4. Capacity Augmentation.
 Aggregate Operations Planning
Basic Strategies of Aggregate Operations Planning:
• There are two generic approaches to AOP that can use a combination of these
alternatives:
a. Level Strategy
b. Chase Strategy
• These two approaches represent alternative modes of thinking towards
employing the available alternatives for AOP.
In the level strategy, the emphasis is on not disturbing the existing operations at
all. Inventory plays the vital role of linking one period with the other.
In the Chase Strategy, the supply–demand mismatch is addressed during each
period by employing a variety of capacity-related alternatives. during periods of
high demand, additional workers are hired, the number of working hours is
increased, workers are permitted to do overtime, and more capacity is obtained
by outsourcing the unmet demand.
Difference between the Level
and Chase Strategy
Problem –APP (level Strategy)
A manufacturer of electrical switchgears is in the process of preparing the
aggregate production plan for the next year. Let us assume that a good
measure of capacity is the number of working hours available per month.
Table given in the next Slide, presents details pertaining to the forecast
demand for the “equivalent” model of switchgears and the number of
working days available during the planning horizon.
The following relevant details are also available:
1. The manufacturer currently works on a single-shift basis and employs
125 workers.
2. One unit of switchgear requires 100 hours of production time.
3. It is expected that at the beginning of the planning horizon, there will
be a finished-goods inventory of 200 switchgears.
Problem –APP (level Strategy)
4. Inventory carrying costs are Rs.1,000 per
switchgear per month and unit shortage/
backlogging costs are Rs. 200 per cent of unit
carrying cost.

Devise a level production strategy with

constant workforce and constant working
hours and compute the cost of the plan.
 Problem –APP (level Strategy)
Computation of Demand and Supply Mismatch period-by-period
Hours
Number of Capacity
Demands (in required to Demand Working No. of Supply-
Month Working Available
Units) per unit (Hours) Hours Per day Workers Demand
Hours (Hours)
production
April 250 100 25000 23 8 125 23000 -2000
May 220 100 22000 22 8 125 22000 0
June 300 100 30000 21 8 125 21000 -9000
July 290 100 29000 24 8 125 24000 -5000
August 260 100 26000 22 8 125 22000 -4000
Septemb
er 180 100 18000 22 8 125 22000 4000
October 200 100 20000 19 8 125 19000 -1000
Novemb
er 220 100 22000 23 8 125 23000 1000
Decemb
er 250 100 25000 21 8 125 21000 -4000
January 200 100 20000 23 8 125 23000 3000
Februar
y 240 100 24000 20 8 125 20000 -4000
March 270 100 27000 24 8 125 24000 -3000
 Level Strategy

Capacity Supply - Supply -

Demand
Month Available Demand (in Demand (in Opening Closing Averge Inventory
(Hours)
Hour Hours) Units) Inventory Inventory Inventory cost
April 25000 23000 -2000 -20 200 180 190 190000
May 22000 22000 0 0 180 180 180 180000
June 30000 21000 -9000 -90 180 90 135 135000
July 29000 24000 -5000 -50 90 40 65 65000
August 26000 22000 -4000 -40 40 0 20 20000
Septemb
er 18000 22000 4000 40 0 40 20 20000
October 20000 19000 -1000 -10 40 30 35 35000
Novemb
er 22000 23000 1000 10 30 40 35 35000
Decembe
r 25000 21000 -4000 -40 40 0 20 20000
January 20000 23000 3000 30 0 30 15 15000
February 24000 20000 -4000 -40 30 -10 15 35000
March 27000 24000 -3000 -30 -10 -40 0 80000
Total Cost 830000
Problem –APP (Chase Strategy)
Considering the previous problem of Level Strategy. Assume the
switchgear manufacturer has no opening stock of inventory and chooses
to devise a chase production strategy. The following additional
information is available:
1. Overtime costs are Rs. 40 per hour and undertime costs are Rs. 20 per
hour.
2. Temporary workers can be hired on a monthly basis. The relevant cost
of this option including firing them at the end of the month amounts to Rs.
7,500 per worker.
Evaluate the following options for chase strategy and offer your
suggestions to the switchgear manufacturer.
(a) Utilizing overtime and undertime alternatives
(b) Using hiring and laying-off alternatives for capacity adjustment
Problem –APP (Chase Strategy)
Chase Strategy using Overtime/Undertime
Capacity Supply-
Demand Overtime Undertime
Month Available (in Demand (In OT/UT cost
(Hours) (hours) (hours)
Hours) hour)
April 25000 23000 -2000 2000 0 80000
May 22000 22000 0 0 0
June 30000 21000 -9000 9000 0 360000
July 29000 24000 -5000 5000 0 200000
August 26000 22000 -4000 4000 0 160000
September 18000 22000 4000 4000 80000
October 20000 19000 -1000 1000 0 40000
November 22000 23000 1000 1000 20000
December 25000 21000 -4000 4000 0 160000
January 20000 23000 3000 3000 60000
February 24000 20000 -4000 4000 0 160000
March 27000 24000 -3000 3000 0 120000
Total Cost 1440000
 Problem –APP (Chase Strategy)
Chase Strategy using hire-lay off
Capacity Supply- Number of Working Hiring and
Demand Undertime
Month Available (in Demand (In Working Hours Per Number of Lay-off cost
(Hours) hours
Hours) hour) Hours day Worker hired and UT cost
April 25000 23000 -2000 23 8 11 24 82,980
May 22000 22000 0 22 8
June 30000 21000 -9000 21 8 54 72 406440
July 29000 24000 -5000 24 8 27 184 206180
August 26000 22000 -4000 22 8 23 48 173460
September 18000 22000 4000 22 8 4000 80000
October 20000 19000 -1000 19 8 7 64 53,780
November 22000 23000 1000 23 8 1000 20,000
December 25000 21000 -4000 21 8 24 32 180640
January 20000 23000 3000 23 8 3000 60000
February 24000 20000 -4000 20 8 25 187500
March 27000 24000 -3000 24 8 16 72 121440
Total Cost 15,72,420
AOP - Problems
XYZ Company makes a variety of candies in three factories worldwide. Its
line of chocolate candies exhibits a highly seasonal demand pattern, with
peaks during the winter months and valleys during the summer months.
Given the following costs and quarterly sales forecasts, determine how
XYZ will satisfy the demand of chocolate candies at a minimum cost.
Beginning Workforce = 100 workers Quarter Sales Forecast
(units)
Production per employee = 1000 units per quarter
Spring 80,000
Regular production cost per units = $2.00
Summer 50,000
Inventory carrying cost = $0.50 per units per quarter
Autumn 120,000
Firing cost = $500 per worker Winter 150,000
Hiring Cost =$100 per worker.
AOP-Level Strategy
 Level Strategy Solution
Supply Supply- Opening Closing Average Inventory
Quarter Demand (Reg Prod) Demand Inventory Inventory Inventory Cost
Spring 80,000 1,00,000 20,000 0 20,000 10,000 5000
Summer 50,000 1,00,000 50,000 20,000 70,000 45,000 22500
Autumn 1,20,000 1,00,000 -20,000 70,000 50,000 60,000 30000
Winter 1,50,000 1,00,000 -50,000 50,000 0 25,000 12500

Total
Inventory
cost 70000

Total Cost =Production Cost + Total Inventory Cost =$800,000+$70,000

=$870,000
Chase Strategy Solution
For the chase demand strategy, production each quarter matches demand.
To accomplish this, workers are hired at a cost of $100 each and fired at a
cost of $500 each.
We begin with 100 workers.
Supply Workers Workers Workers
Quarter Demand (Reg Prod) Needed Hired Fired Total Cost
Spring 80,000 80,000 80 - 20 10000
Summer 50,000 50,000 50 - 30 15000
Autumn 1,20,000 1,20,000 120 70 - 7000
Winter 1,50,000 1,50,000 150 30 - 3000

Total Cost 35000

Total cost of chase strategy = $800,000+$35,000 =$835,000

The Linear Programming Model
for AOP
Pure Strategies for production planning may be easy to evaluate, but they
do not necessarily provide an optimal solution.
The optimal production plan is probably some combination of inventory
and workforce adjustment.
We should try different combinations and compare the costs (i.e. trial and
error approach), or we should find the optimal solution by using Linear
Programming.
The Linear Programming Model
for AOP
XYZ Company makes a variety of candies in three factories worldwide. Its
line of chocolate candies exhibits a highly seasonal demand pattern, with
peaks during the winter months and valleys during the summer months.
Given the following costs and quarterly sales forecasts, determine how
XYZ will satisfy the demand of chocolate candies at a minimum cost.
Beginning Workforce = 100 workers
Quarter Sales Forecast Production per employee = 1000 units per
(units) quarter
Spring 80,000 Regular production cost per unit = $2.00
Summer 50,000 Inventory carrying cost = $0.50 per unit per
Autumn 120,000 quarter
Firing cost = $500 per worker
Winter 150,000 Hiring Cost =$100 per worker.
The Linear Programming Model
for AOP
The Linear Programming Model
for AOP
Material
Requirements
Planning (MRP)
MRP
Material requirements planning (MRP): the logic that ties production
functions together from a material planning and control view.
◦ MRP has been installed almost universally in manufacturing firms
◦ Even small ones
A logical, easily understood approach to the problem of managing the
parts, components, and materials needed to produce end items.
 MRP
The MRP system works as follows:
❑ The master production schedule states the number of items to be
produced during specific time periods.
❑ A bill-of-materials file identifies the specific materials used to make each
item and the correct quantities of each.
❑ The inventory records file contains data such as the number of units on
hand and on order.
❑ These three sources—master production schedule, bill-of-materials file,
and inventory records file—become the data sources for the material
requirements program, which expands the production schedule into a
detailed order scheduling plan for the entire production sequence.
Master Production Scheduling
The master schedule deals with end items and is a major input to the MRP
process.
All production systems have limited capacity and limited resources
◦ The aggregate plan provides the general range of operation; the master
scheduler must specify exactly what is to be produced.
Aggregate production plan shows overall quantities to produce.
◦ Does not specify type
Master production schedule shows quantities of each type, with
information about the production time frame.
Master Production Scheduling
Multiple Levels in Products
Multiple levels of relationships exist in a product.
While computing the requirement for an item, it is important that we
proceed level by level. Otherwise, the amount of inventory that we make
available will be different from what is required.
Let us study the example of a basic telephone instrument.
The telephone instrument consists of a base unit and a handset. The
handset has a speaker and a microphone and is covered by a pair of cover
plates firmly held together using a pair of screws. There is a wire that
connects the handset to the base unit.
Let us assume that we have in stock an inventory of 30 telephones, 27
handsets and 16 cover plates. Suppose that we want to plan for the
production of 100 telephones during the next week. How much inventory
do we need in each of these components?
Multiple Levels in Products
One method (Method A) is to merely subtract the on-hand inventory from
the requirement at each level to arrive at the number.
Another method (Method B) is to proceed level by level in the
computation. In this method, after computing the requirement at one
level, we use the parent–child relationship to compute the requirement at
the next level.
Product Structure
The product structure graphically depicts the dependency relationships
among various items that make up the final product.
Consider, the example of telephone. If we disassemble the telephone
instrument progressively, we will be able to understand the product
structure. In our example, two assemblies and two components make up
the final product: the base unit assembly, the handset assembly, a
connecting cable, and a pair of jacks to connect the ends of the cable with
the base unit and the handset.
At the next level, we can identify the sub-assemblies that make up each
assembly.
In several real-life examples, it is not possible to represent the dependency
information in the form of a product structure. This is because the number
of components that make up a final product could be numerous and the
number of levels involved could also be many.

One can represent this information using a standard data structure. Such a
structure is known as the bill of materials (BOM).
Bill of Materials (BOM)
Contains the complete
product description, listing Often called the product
the materials, parts, and structure file or product
components along with the tree because it shows how
sequence in which the a product is put together
product is created
The BOM
shows how the
product is put
together
Single Level BOM-simplest Modular bill of material
format are very useful to
Indented BOM-Multi-level represent product
format structures with several
Modular BOM varieties.
Bill of Material (BOM)
Parts List in a indented BOM List
Low-Level Coding
Level 0 in the independent demand item
Lower levels (higher numbers) refer to components and raw materials
In low-level coding, all identical items are placed at the same level of the
Bill of material
◦ This makes it a simple matter for the computer to scan across each level
and summarize the number of units of each item required
Problem
Consider a product, code-named A, manufactured by a company. Product
A is made of three Sub-assemblies B, C, and D. One unit of B, four units of
C, and two units of D are required for assembling one unit of Product A.
Sub-assembly B is made of two units of E and four units of F. Sub-
assembly C is made of two units of E and four units of D, whereas Sub-
assembly D is made of one unit of G and three units of H.
(a) Develop a BOM for Product A.
(b) How many units of D are required to manufacture 10 units of A?
The total number of D’s required for manufacturing
A =180
Lead Times for the components
Once managers determine when products are needed, they determine
when to acquire them.
The time required to acquire (that is, purchase, produce, or assemble) an
item is known as lead time.
Lead time for a manufactured item consists of move , setup , and assembly
or run times for each component.
For a purchased item, the lead time includes the time between recognition
of need for an order and when it is available for production.
Lead Times for the components
For example, consider the bill of material of product (“Awesome A”).

Component Lead Time

A 1 week
B 2 weeks
C 1 week
D 1week
E 2 weeks
F 3 weeks
G 2 weeks
Time-phased Product Structure
Gross Requirements and Net
Requirements
Gross material requirements, which assumes that there is no inventory on
hand.
A net requirements plan adjusts for on-hand inventory.
Consider a product, code-named A, manufactured by a company. Product
A is made of three Sub-assemblies B, C, and D. One unit of B, four units of
C, and two units of D are required for assembling one unit of Product A.
Sub-assembly B is made of two units of E and four units of F. Sub-
assembly C is made of two units of E and four units of D, whereas Sub-
assembly D is made of one unit of G and three units of H. (Slide No 15 and
16).
How many units of D are required to manufacture 10 units of A if there is
already an inventory of 10 units each of C and D?
Gross Requirements and Net
Requirements
If the gross requirement for product A (speaker) is 100 and there are 20
of those speakers on hand, the net requirement for product A is 80 (i.e.,
100 – 20). However, each Product A on hand contains 2 Bs (based on the
BOM in the previous slide). As a result, the requirement for Bs drops by 40
Bs (20 product As on hand × 2 Bs per A). Therefore, if inventory is on hand
for a parent item, the requirements for the parent item and all its
components decrease because each product A contains the components
for lower-level items
Gross and Net Material
Requirement Plan
Consider the example of Slide No. 18. We need to develop the gross
requirements plan with a production schedule that will satisfy the
demand of 50 units of A by week 8.
Gross and Net Material
Requirement Plan
Now, suppose we consider the following on-hand inventory. Based on this
information, we are trying to develop the net requirement plan.

Item On-hand
Inventory
A 10
B 15
C 20
D 10
E 10
F 5
G 0
Gross and Net Material
Requirement Plan
Week
Item
  1 2 3 4 5 6 7 8
Gross Requirements 400
Scheduled Receipts 100
Projected on hand 100 100 100
Net Requirements 300
Planned Order
Receipts 300
Planned Order
  Releases 300
Lead time of two weeks
Project Management
Project Management
Project management offers alternative tools and techniques to address
the planning and control issues pertaining to large-scale activities
performed in a non repetitive manner.
• Non-repetitive and single shot – no opportunity for correction
• Huge investment and future return – risk involvement
• Main objectives – time, cost and outcome of project
• Project may be composed of subprojects or a portfolio of simultaneous
projects
Project Life Cycle
1. Concept, definition and detailing
2. Feasibility Analysis – technical, market/commercial and financial
3. Project Scheduling
4. Project monitoring and control
Project Management
Project Scheduling
1. Decompose the project to small element of activity – by work
breakdown structure
2. Find out the precedence relationships among them
3. Apply network techniques
Network technique
Activity On Node (AON) or Activity On Arrow (AOA) diagram
Critical Path Method (CPM) – deterministic
Program Evaluation and Review Techniques(PERT) - probabilistic
Project Management-Tools and
Techniques
Activity Precedence
• The elementary unit of analysis in a project network is an activity.
• An activity constitutes an amount of work done towards the
completion of the project. Each activity consumes a set of resources
and takes a finite amount of time for completion.
• Every activity may have certain technological or logical constraints
that link it with its preceding and succeeding set of activities.
Let us consider a new product launch project. The broad set of activities
involved is as follows:
(a) Identify market needs (b) Develop the conceptual design (c) Develop
the detailed design (d) Create the market infrastructure (e) Plan
Production (f) Reach the market.
Project Management-Tools and
Techniques
Constructing the network
• A project has a set of activities that are
interlinked with each other in some fashion, a
graphical representation of the project
simplifies the portrayal of these relationships.

• Two conventions exist in constructing a

network: representing the activity on arc
(AOA) and representing the activity on node
(AON).
 AOA Network

AON Network
Critical Path Method (CPM)
XYZ (P) Ltd specializes in constructing quality homes in the city of
Bangalore. XYZ is known for timely completion of its projects. Consider
one of the projects of XYZ. List of activities and the precedence
relationship with other activities and their duration.
Critical Path Method (CPM)
There are alternative paths leading from the start to the end point in any
project. In this example, the paths are:
Path 1: 1–2–3–5–7–8 (32 weeks)
Path 2: 1–2–3–4–5–7–8 (28 weeks)
Path 3: 1–2–6–7–8 (16 weeks)
Path 4: 1–2–3–5–6–7–8 (35 weeks)
Path 5: 1–2–3–4–5–6–7–8 (31 weeks)
The sum of the activity times along each path indicates the total time to
complete the set of activities in that path.
The time required for the completion of the project is the maximum of the
duration of all paths in a network. The path that has the maximum
duration is the critical path.
 Critical Path Method (CPM)
Early start and late start schedules
• There are several activities in a project that are less critical. Shifting the
commencement of these activities back or forth to an extent may not have
an adverse impact on project completion.
• Activity C could start as soon as Activity A is over (8 weeks). However,
even if we delay commencement of Activity C by as much as 19 weeks, the
project completion will still not be affected. In other words, the earliest
start schedule for Activity C is Week 8 and the latest start schedule is Week
27.
• One can compute the early start schedules for all activities by going from
the beginning to end of the project.
• Similarly, one can compute late finish and late start schedules by going
from the end to the beginning of the project.
(ES,EF)=(Early Start, Early Finish)-moving from beginning
to end
[LS,LF]=[Late Start, Late Finish]- moving from end to
beginning
Critical Path Method (CPM)