Operations Management

(1)

1 1

OPERA

(2)

2 2

OPERATIONS MANAGEMENT-INDEX

S

SN

NO

O

T

TO

OP

PIIC

CS

S

P

PA

AG

GE

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1 1 IINNTTRROODDUUCCTTIIOONN 4 to 184 to 18 2 2 KKEEY Y TTEERRMMS S IIN N OOPPEERRAATTIIOONNS S MMAANNAAGGEEMMEENNTT 19 to 2119 to 21 3

3 FFIIVVE E GGUUIIDDIINNG G PPRRIINNCCIIPPLLEES S IIN N TTQQMM 2222 4 4 TTHHEEOORRY Y OOF F COCONNSSTTRRAAIINNTTSS 2323 5 5 OOPPEERRAATTIIOONNS S SSTTRRAAGGEEGGYY 24 to 2924 to 29 6 6 PPRROODDUUCCT T DDEESSIIGGN N AANND D PPRROOCCEESSS S DDEESSIIGGNN 30 to 3530 to 35 7

7 AAGGGGRREEGGAATTEE//CCAAPPAACCIITTY Y PPLLAANNNNIINNGG 36 to 6136 to 61 8 8 TTYYPPEES S OOF F PRPROODDUUCCTTIIOONN 62 to 7162 to 71 9 9 FFAACCTTOORRY Y LLOOCCAATTIIOONN 72 to 8272 to 82 1 100 FFAACCTTOORRYYLLAAYYOOUUTT 83 to 9783 to 97

(3)

OPERATIONS MANAGEMENT-INDEX

S

SN

NO

O

T

TO

OP

PIIC

CS

S

P

PA

AG

GE

E

N

NO

OS

S

11

11 MATERIAL MATERIAL HANDLINGHANDLING 98 to 10998 to 109 1 122 PPRROODDUUCCTTIIVVIITTYY 110 to 112110 to 112 1 133 BBAASSIICCS S OOF F JJOOB B SSCCHHEEDDUULLIINNGG 113 to 116113 to 116 1 144 BBAASSIICCSSOOFFEERRPP 117 to 120117 to 120 1 155 BBAASSIICCS S OOF F PPRROOJJEECCT T MMAANNAAGGEEMMEENNTT 121121 1 166 MMEETTHHOODDSSTTUUDDYY 122 to 125122 to 125 1

177 QQUUAALLIITTY Y CCOONNTTRROOL L AANND D IINNSSPPEECCTTIIOONN 126 to 134126 to 134 1 188 BBAASSIICCS S OOF F IISSO O 99000000 135 to 138135 to 138 1 199 BBAASSIICCS S OOF F IISSO O 1144000000 139139 1 199 JJOOBBSSEEQQUUEENNCCIINNGG 140 to 143140 to 143 144 to 145 144 to 145

(4)

4 4

OPERATIONS MANAGEMENT-INTRODUCTION

Definition

Production and Operations Management (³POM´) is about transformation of

production and operational inputs into ³outputs´ that when dis

production and operational inputs into ³outputs´ that when distributed, meets

tributed, meets

the needs of customers.

the needs of customers. Operations Management is the systematic

Operations Management is the systematic

direction and control of processes that transform inputs into finished

goods and services.

The process in the above diagram is often referred to as the ³Conversion

Process´. There are different methods of handling the conversion or production

process-Job, Batch,

process-Job, Batch, Flow.

Flow.

INPUTS

TRANSFORMATIONTRANSFORMATION PROCESS PROCESS

OUTPUTS

(5)

OPERATIONS MANAGEMENT-INTRODUCTION

POM incorporates many tasks that are interdepend

POM incorporates many tasks that are interdependent, but which can be

ent, but which can be

grouped under five main headings:

PRODUCT

Marketers in a business must ensure that a business sells products that

meets customers needs and wants. The role of P

meets customers needs and wants. The role of Production and Operations is

roduction and Operations is

to ensure that the business actually makes required products in accordance

with the plan. The role of Product in POM therefore concerns the area such

as:

Performance

Aesthetics

Quality

Reliability

Quantity

Production cost

Delivery dates

(6)

6 6

OPERATIONS MANAGEMENT-INTRODUCTION

PLANT

T

To make Product, Pl

o make Product, Plant of some k

ant of some kind is needed. This

ind is needed. This will compromise

will compromise

the bulk of the fixed cost of the business. In determining the Plant to

use, management must consider areas such as:

Future demand (volume, timing)

Design and layout of f

Design and layout of factory

actory, equipment, offic

, equipment, offices

es

Productivity and reliability of equipment

Need for maintenance

Health and safety (particularly the operation of equipment)

Environmental issues (e.g. disposal of waste products)

PROCESSES

There are many different ways of producing a product. Management

must choose the best process or series o

must choose the best process or series of processes. They will

f processes. They will

consider:

(7)

OPERATIONS MANAGEMENT-INTRODUCTION

Available capacity

Available skills

T

Type of

ype of production

production

Layout of plant and equipment

Safety

Production cost

Maintenance requirements

PROGRAMMES

The production programme concerns the dates and times of

The production programme concerns the dates and times of the products

the products

that are to be produced and

that are to be produced and supplied to the customers. The decision made

supplied to the customers. The decision made

about programme will be influenc

about programme will be influenced by factors such as:

ed by factors such as:

Purchasing patterns (e.g. lead time)

Cash flow

Need for/availability of storage

(8)

8 8

OPERATIONS MANAGEMENT-INTRODUCTION

PEOPLE

Production depends on people, whose skills

Production depends on people, whose skills, experience and motivation

, experience and motivation

vary

vary. Key peopl

. Key people related decisions will

e related decisions will consider the f

consider the following areas:

ollowing areas:

Wages and salaries

Safety and training

Leadership and motivation

Unionization

Communication

(9)

OPERATIONS MANAGEMENT-INTRODUCTION

Definitions

The terms production management and operations management are often

interchanged. ³Production´ is directly related to the manufac

interchanged. ³Production´ is directly related to the manufacturing of

turing of

goods. In the world of services

goods. In the world of services, production refers to the service delivery.

, production refers to the service delivery.

³Operations´ refers to the daily actions necess

³Operations´ refers to the daily actions necessary for the system to work.

ary for the system to work.

A

A ³Production System´ is a system whos

³Production System´ is a system whose function is to transf

e function is to transform an input

orm an input

into desired output by means of a

into desired output by means of a process (the production process) and of

process (the production process) and of

resources.

Production Process

IIn

np

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Ou

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Resources

(10)

10 10

OPERATIONS MANAGEMENT-INTRODUCTION

Automobile

Factory

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Examples of Production Systems

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Nurses,Medical supplies,

Equipment

(11)

OPERATIONS MANAGEMENT-INTRODUCTION

The Makeoffee production system

Preparing coffee in the morning is a

Preparing coffee in the morning is a nice example of production systemnice example of production system Preparing coffee in the morning is a

Preparing coffee in the morning is a nice example of production systemnice example of production system

Coffee machine

Electricity

Operator

Prepare

Water,filter,coffee

_{Drinkable coffee}

When somebody prepares coffee in the morning, she/he performs different operations and makes When somebody prepares coffee in the morning, she/he performs different operations and makes different decisions. Here we will review these operations and decisions and draw a

different decisions. Here we will review these operations and decisions and draw a parallelparallel between the problems the coffee maker faces and those

between the problems the coffee maker faces and those faced by a production manager infaced by a production manager in his/her company.

(12)

12 12

OPERATIONS MANAGEMENT-INTRODUCTION

0.When do you make coffee in the morning?

³Before washing´ is convenient because it is

³Before washing´ is convenient because it is ready when you come back ready when you come back from the bathroom. Yfrom the bathroom. Youou must here schedule the production of coffee and t

must here schedule the production of coffee and t he other activities.he other activities.

Scheduling

Scheduling/project

/project management

management

In a company, you need to organize the different In a company, you need to organize the different activities(sequence,priority,----)

activities(sequence,priority,----)

1. 1. Get

Get water

water,coffee,filte

,coffee,filter and

r and coffee m

coffee machine.

achine.

Where is the coffee machine? Usually

Where is the coffee machine? Usually, t, the coffee machine is in the coffee machine is in the kitchen wherehe kitchen where you get the water and drink the coffee. You locate the production system where you get the water and drink the coffee. You locate the production system where you get the raw materials and where you use the finished products.

you get the raw materials and where you use the finished products.

Location

Where are the

Where are the different ingredients? Usuallydifferent ingredients? Usually, , the coffee and the coffee and the filters arethe filters are together and close to the

together and close to the coffee machine. The coffee machine is close to coffee machine. The coffee machine is close to thethe water filter. Y

water filter. You place ou place the different elements to the different elements to avoid useless trips and avoid useless trips and handling.handling.

Layout

In a company, where to locate your plant or your shop is a strategic In a company, where to locate your plant or your shop is a strategic question. The layout is also critical. It

(13)

OPERATIONS MANAGEMENT-INTRODUCTION

2.Estimate how much coffee must be prepared.

How many people will drink coffee today and what time? You take account your How many people will drink coffee today and what time? You take account your experience, the day of the week and anything you know.

experience, the day of the week and anything you know.

Forecasting

Then, you must decide whether you

Then, you must decide whether you prepare the coffee for the breakfast or prepare the coffee for the breakfast or for the wholefor the whole day. Your aim is a compromise between work and quality.

day. Your aim is a compromise between work and quality.

Lot sizing

You do not want to run out of coffee this morning but you do not want to waste coffee You do not want to run out of coffee this morning but you do not want to waste coffee either.

either.

Inventory control

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14 14

OPERATIONS MANAGEMENT-INTRODUCTION

3.Prepare the coffee

How do you really prepare coffee? Which operations are needed? In

How do you really prepare coffee? Which operations are needed? In which order? If which order? If it

it takes a long time to fill the can with watertakes a long time to fill the can with water, you prepare the filter while the can is, you prepare the filter while the can is filling. Here, you want to minimize the time needed to prepare the coffee.

filling. Here, you want to minimize the time needed to prepare the coffee.

Process design

Y

You measure each operation in order to ou measure each operation in order to check whether your process is check whether your process is still optimal. If still optimal. If itit takes much time, perhaps you should buy other filters or a new machine?

takes much time, perhaps you should buy other filters or a new machine?

Productivity measurement

In a company

In a company, the , the production process are specified with lot of production process are specified with lot of details. They are permanentlydetails. They are permanently controlled and many redesigns take place.

controlled and many redesigns take place.

4.Drink coffee

Y

You want to ou want to check the quality of check the quality of the products and of the products and of the process. By drinking a the process. By drinking a single cup,single cup, you decide about the quality of the whole pot. You do not want to drink the whole pot before you decide about the quality of the whole pot. You do not want to drink the whole pot before deciding it¶s a good coffee.

deciding it¶s a good coffee.

Quality control: Statistical process

control

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15 15

OPERATIONS MANAGEMENT-INTRODUCTION

5.Wash and descale the coffee machine

If you do not want the machine to

If you do not want the machine to require one hour for one coffee can, you should descale itrequire one hour for one coffee can, you should descale it from time to time.

from time to time.

Maintenance

Y

You should keep ou should keep your production system in your production system in good shape. Keeping a good shape. Keeping a clean environment alsoclean environment also prevents dirt from mixing with c

prevents dirt from mixing with coffee when you prepare it.offee when you prepare it.

Quality

Quality control: T

control: Total Quali

otal Quality

ty

Management

Getting the opinion of the

Getting the opinion of the customers is another important quality controlcustomers is another important quality control check.

check.

6.Buy filters and coffee

How much coffee and how many

How much coffee and how many filters are required depends on thefilters are required depends on the consumption of coffee.

consumption of coffee.

Material requirement

(16)

16 16

OPERATIONS MANAGEMENT-INTRODUCTION

If you have a long way to buy the raw material, you will buy in big quantities. If the coffee is If you have a long way to buy the raw material, you will buy in big quantities. If the coffee is very expensive, you will buy quite

very expensive, you will buy quite often small quantities. A compoften small quantities. A compromise must be foundromise must be found

..

Lot sizing

Y

You do not want to run out ou do not want to run out of coffee or of filters. But of coffee or of filters. But if the shop is quite often closed, youif the shop is quite often closed, you could keep some safety stock of raw material.

could keep some safety stock of raw material.

Inventory control

How to choose between different coffee qualities at different prices in

How to choose between different coffee qualities at different prices in different shopsdifferent shops which are accessible at different times?

which are accessible at different times?

Purchasing

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OPERATIONS MANAGEMENT-INTRODUCTION

7. Buy a new coffee machine?

You must choose between different options here too. However, the size( or type) of the machine You must choose between different options here too. However, the size( or type) of the machine will first depend on the amount of coffee you drink everyday.

will first depend on the amount of coffee you drink everyday.

If you foresee that the people you would invite in the near future are hard coffee drinkers, you If you foresee that the people you would invite in the near future are hard coffee drinkers, you could perhaps already buy higher capacity machine. Furthermore, this machine can be used f could perhaps already buy higher capacity machine. Furthermore, this machine can be used f or or normal coffee in the morning and for ³expresso´ in

normal coffee in the morning and for ³expresso´ in the evening.the evening.

Forecasting

Aggregate/

Capacity

planning

If you need this

If you need this higher capacity only in few higher capacity only in few months, delaying could perhaps be moremonths, delaying could perhaps be more profitable.

profitable.

Investment analysis

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18 18

OPERATIONS MANAGEMENT-INTRODUCTION

Here is the list

Here is the list of problems/subjects encountered during the description of theof problems/subjects encountered during the description of the makoffee production system.

makoffee production system.

Scheduling/Project mngt.Scheduling/Project mngt. When do you schedule ³makoffee´?When do you schedule ³makoffee´? Facility LocationFacility Location Where is the coffee machine?Where is the coffee machine? Facility layoutFacility layout Where are the components?Where are the components? ForecastingForecasting How much coffee for today?How much coffee for today? Lot sizingLot sizing Do I prepare coffee for the whole day?Do I prepare coffee for the whole day? Inventory controlInventory control What is the risk of running out of coffee?What is the risk of running out of coffee? Process designProcess design How do I make coffee?How do I make coffee? Work measurementWork measurement Can I improve the time it takes?Can I improve the time it takes? Quality controlQuality control Is the coffee good?Is the coffee good? Maintenance and reliabilityMaintenance and reliability How often do I clean the coffee machine?How often do I clean the coffee machine? Material req. planningMaterial req. planning How many filters do I need and when?How many filters do I need and when? Lot sizingLot sizing Do I buy them one by one?Do I buy them one by one? Inventory controlInventory control What if the shop is closed?What if the shop is closed? PurchasingPurchasing What is the best shop?What is the best shop? ForecastingForecasting Will I always drink as much coffee?Will I always drink as much coffee? Aggregate planningAggregate planning Shall I buy a bigger pot now?Shall I buy a bigger pot now? Investment analysisInvestment analysis Or do I go on my small pot?Or do I go on my small pot?

(19)

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OPERATIONS MANAGEMENT-KEY TERMS

(20)

20 20

6

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OPERATIONS MANAGEMENT-KEY TERMS

(21)

1

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15 5.. V

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ce at

at a

a lo

lowe

werr co

cost

st..

OPERATIONS MANAGEMENT-KEY TERMS

(22)

22 22



 R R

esults through processes



Continuous improvement of processes



Managing with facts



Management establishing priorities



Involveme

Involvement of

nt of everyone through teamwork

everyone through teamwork

OP

OPERA

ERATIO

TIONS

NS MAN

MANAGE

AGEMEN

MENT-

T- FI

FIVE

VE

GUIDING PRINCIPLES IN TQM

W

_{hen things go wrong, first ask w}

_{hen things go wrong, first ask what in the}

_{hat in the process br}

_{process broke}

_oke

down, not who did it.

(23)

F

_IVE

FF

_{OCUSSING STEPS O}

FF

_{TOC -}

_TOC

-



Identify the system constraints (No improvement is possible unless

the constraint or weakest link is found)



Decide how to exploit the system cons

Decide how to exploit the system constraints (Make the constraints as

traints (Make the constraints as

effective as possible)



Subordinate everything else to that decision (Align every

Subordinate everything else to that decision (Align every other part

other part

of the system to support the co

of the system to support the constraints even if this reduces the

nstraints even if this reduces the

efficiency of non constraint resources).



Elevate the system constraints (If output is still

Elevate the system constraints (If output is still inadequate, acquire

inadequate, acquire

more of this resource so it no longer is a constraint).



If in the previous steps the constraints have been

If in the previous steps the constraints have been broken, go back to

broken, go back to

Step 1, but do not let

Step 1, but do not let inertia become the system constraint. (After this

inertia become the system constraint. (After this

constraint problem is solved, go

constraint problem is solved, go back to the

back to the beginning and start

beginning and start over

over..

This is a continuous process of improvement : identifying constraints,

breaking them and then identifying the new ones that

breaking them and then identifying the new ones that result)

result)

OPER

OPERATIO

ATIONS

NS MANAG

MANAGEMENT

EMENT -- THEOR

THEORY O

Y OF

F

CONSTRAINTS

(24)

24 24

OPERATIONS MANAGEMENT-OPERATIONS

STRAGEGY

Definition of Strategy

Strategy is a deliberate search for a plan of action that will develop a

business¶s distinctive competence and compound it.

Definition of Operations Strategy

An operations strategy consists of sequence of dec

An operations strategy consists of sequence of decisions that, over

isions that, over

time, enables a business unit to achieve a desired operations

structure, infrastructure, and set of speci

structure, infrastructure, and set of specific capabilities in support of

fic capabilities in support of

the competitive priorities.

(25)

OPERATIONS

MANAGEMENT-OPERATIONS STRAGEGY

OPERATIONS STRAGEGY

Levels of Strategy

Corporate

What business are we in? What business are we in?

Divisional

(Business)

How do we compete?How do we compete?

Fin

HR

_Mkt

Prod

Dev

Ops

Role of Role of each each function function

(26)

26 26

OPERATIONS

MANAGEMENT-OPERATIONS STRAGEGY

OPERATIONS STRAGEGY

Operations/manufacturing strategy has to be

an integral part of the overall organizational

strategy. Without deciding the mission and

objectives of the organization, checking up on

the external and internal environment,

performing the SWOT analysis for the

organization and then deciding on the basis for

competing and/

competing and/or k

or key factors for success

ey factors for success, no

, no

operation strategy can be formulated.

(27)

27 27

OPERATIONS

MANAGEMENT-OPERATIONS STRAGEGY

OPERATIONS STRAGEGY

Population Population Characteristics Characteristics

Opportunities?

RBI RBI intervention intervention Interest rates Interest rates Exchange rates Exchange rates Limited access to Limited access to world markets. world markets. Competitors Competitors plans plans Threats? Threats? New Competitors New Competitors New New Technologies Technologies New New Products Products New Markets New Markets Govt& Govt& Policy Policy changes changes

Strengths?

Quality Quality Motivation Motivation Cost Cost Structure Structure Resource Resource availability availability Capacity Capacity Skills Skills Technology Technology

Weaknesses?

Manage Manage ment ment systems systems Equipment Equipment age

age EmployeeEmployee age

age

IR IR

(28)

28 28

OPERATIONS

MANAGEMENT-OPERATIONS STRAGEGY

OPERATIONS STRAGEGY

Components of Operations Strategy

Structural decision categories:

Structural decision categories: CapacityCapacity Facilities Facilities Vertical Integration Vertical Integration Technology Technology

Infrastructural decision categories:

Infrastructural decision categories: WorkforceWorkforce Organization Organization

Information/Control systems Information/Control systems

Capabilities:

Capabilities: Unique to each firmUnique to each firm

Competitive priorities:

Competitive priorities: CostCost Quality Quality



 High performance designHigh performance design



 Consistent qualityConsistent quality Time

Time



 Fast delivery timeFast delivery time



 On-time deliveryOn-time delivery Development speed Development speed Flexibility Flexibility   CustomizationCustomization 

(29)

OPERATIONS

MANAGEMENT-OPERATIONS STRAGEGY

OPERATIONS STRAGEGY

Clients look to Operations Strategy for help with these critical

business issues:

Cost efficiency and performance improvement

Focus on company¶s core business

Increasing shareholders value

Continuous process improvement

Maintaining competitive edge

Improving customer service quality

Migration to new technology

Product innovation management

Merger synergy realization

(30)

30 30

OPERATIONS MANAGEMENT-PRODUCT

AND PROCESS DESIGN

Product Design

Product Design can be defined as the idea generation, concept development,can be defined as the idea generation, concept development, testing and manufacturing or implem

testing and manufacturing or implementation of a physical object or service.entation of a physical object or service. The development of a new product passes through

The development of a new product passes through seven distinct stages asseven distinct stages as shown in the figure below:

shown in the figure below:

N

Neeeedds s IIddeennttiiffiiccaattiioonn AAddvvaanncce e PPrroodduucct t PPllaannnniinngg Advance Design Advance Design

Detailed Engineering Design Detailed Engineering Design

Product Process Product Process Design and Design and Development Development Product Evaluation Product Evaluation And Improvement And Improvement

Product use and Product use and

support support

(31)

OPERATIONS MANAGEMENT-PRODUCT

AND PROCESS DESIGN

Process Design

Process Design is concerned with the overall sequences of operationsis concerned with the overall sequences of operations required to achieve the product specifi

required to achieve the product specification. It specifies the type of workcation. It specifies the type of work stations that are to be used, the m

stations that are to be used, the machines and equipments necessary and theachines and equipments necessary and the quantities in which each is required.

quantities in which each is required.

The sequences of operations in the manuf

The sequences of operations in the manufacturing process is determined byacturing process is determined by The nature of product

The nature of product The materials used. The materials used.

The quantities being produced and The quantities being produced and

The existing physical layout of the plant. The existing physical layout of the plant. Major Factors affecting Process Design Dec

Major Factors affecting Process Design Decisionsisions Nature of product/service demand.

Nature of product/service demand. Degree of vertical integration.

Degree of vertical integration. Product/service and volum

Product/service and volume flexibilitye flexibility.. Degree of automation.

Degree of automation.

Level of product/service quality Level of product/service quality

(32)

32 32

OPERATIONS MANAGEMENT-PRODUCT

AND PROCESS DESIGN

Interrelationship of Product and Process Design Interrelationship of Product and Process Design

Product Ideas Product Ideas

Feasibility Studies Feasibility Studies

Product Design

Product Design Process DesignProcess Design Advance Product PlanningAdvance Product Planning

Advance DesignAdvance Design

Product Process Design andProduct Process Design and Development

Development

Product Evaluation and Product Evaluation and ImprovemImprovementent Product Use and SupportProduct Use and Support

Organizing the process flowsOrganizing the process flows Relation of Process Design toRelation of Process Design to

Process Flow Process Flow

Evaluating the Process DesignEvaluating the Process Design

Produce and Market New Products Produce and Market New Products

Continuous interaction Continuous interaction

(33)

OPERATIONS MANAGEMENT-PRODUCT

AND PROCESS DESIGN

Machines A

Machines A and B are both capable of and B are both capable of manufacturing a product. Theymanufacturing a product. They compare as follows:

compare as follows:

D

Daattaa MMaacchhiinne e AA MMaacchhiinne e BB IInnvveessttmmeenntt RRss5500000000 RRss8800000000 IInntteerreesst t oon n CCaappiittaall 1155% % ppeer r aannnnuumm 1155% % ppeer r aannnnuumm

H HoouurrllyyWWaaggeess RRss1100 RRss88 No of pieces produced No of pieces produced per hour per hour 5 5 88 A

Annnnuuaal l ooppeerraattiinng g hohouurrss 22000000 22000000

Which machine will have the lowest cost per unit of output ,if run for the wholeWhich machine will have the lowest cost per unit of output ,if run for the whole year?

year?

If only 4000 pieces are to be produced in a year, which machine would have theIf only 4000 pieces are to be produced in a year, which machine would have the lowest cost per piece?

lowest cost per piece?

Will your answer to above vary if you are informed that 12.5% of the output of Will your answer to above vary if you are informed that 12.5% of the output of machine B gets rejected at the inspection stage. If so, w

machine B gets rejected at the inspection stage. If so, w hat would be the newhat would be the new solution.

(34)

34 34

OPERATIONS MANAGEMENT-PRODUCT

AND PROCESS DESIGN

Methods P and Q are both capable of manufacturing a product.They compare as follows Methods P and Q are both capable of manufacturing a product.They compare as follows::

D

Daattaa MMeetthhoodd PP MeMetthhooddQQ F

Fiixxttuurree--ccoosstt RRs s 2244000000 RRs s 1166000000 --lliiffee 66mmoonntthhss 44mmoonntthhss T

Toooolliinngg--ccoosstt RRs s 25256600 RRs s 44880000 -- lliiffee 33000 0 ppiieecceess 55880 0 ppiieecceess P

Prreessssiinng g ttiimme e ppeer r ppiieeccee 66mmiinnuutteess 44mmiinnuutteess

The annual requirem

The annual requirement is ent is 1500 nos. Op1500 nos. Operating cost per hour is Rs 12erating cost per hour is Rs 128 for both the8 for both the processes. Material cost is the same in each case.

processes. Material cost is the same in each case.

Which method would you choose for production during period of one year? Which method would you choose for production during period of one year?

(35)

OPERATIONS MANAGEMENT-PRODUCT

AND PROCESS DESIGN

Production manager of a unit wants to

Production manager of a unit wants to know for what quantity heknow for what quantity he can use automatic machine as against semi-automatic machine. can use automatic machine as against semi-automatic machine.

D

Da

atta

a

A

Au

utto

om

ma

attiic

c

S

Se

em

mii--a

au

utto

om

ma

attiic

c

T

Tiim

me

e ffo

or

r tth

he

e jjo

ob

b

2 2 m

miin

nu

utte

es

s

5 5 m

miin

nu

utte

es

s

S

Se

et

t u

up

p ttiim

me

e

2 2 h

ho

ou

urrs

s

1 1..5

5 h

ho

ou

urrs

s

C

(36)

36 36

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

Aggregate planning involves planning Aggregate planning involves planning ::



 The best quantity to produce during time periods in the The best quantity to produce during time periods in the intermediate- intermediate-range horizon (often 3 months to 1

range horizon (often 3 months to 1 year).year).



 The lowest cost method of providing the adjustable capacity toThe lowest cost method of providing the adjustable capacity to accommodate the production requirements.

accommodate the production requirements.



 Workforce size, production rate (work hours per week) Workforce size, production rate (work hours per week) and inventoryand inventory levels

levels..

Objectives of Aggregate Planning Objectives of Aggregate Planning



 To develop plans that are:To develop plans that are:



 Feasible: The plans should provide for the portion of demand Feasible: The plans should provide for the portion of demand thatthat the firm intends to meet

the firm intends to meet and should be within financial and physicaland should be within financial and physical capacity of the firm.

capacity of the firm.



 Optimal: The firm should aim for plans which will ensure thatOptimal: The firm should aim for plans which will ensure that resources are used as wisely as possible and cost kept as low as resources are used as wisely as possible and cost kept as low as possible.

possible.



 TTo increase the range of alternatives o increase the range of alternatives of capacity use, that can of capacity use, that can bebe considered by the management of the firm.

(37)

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

Operations Planning and Scheduling System

This system is concerned with the volume and timing of outputs,

the utilization of operations capacity and balancing outputs w

the utilization of operations capacity and balancing outputs w ith

ith

capacity at the desired levels of c

capacity at the desired levels of competitive effectiveness.

ompetitive effectiveness.

Aggregate Output Planning

It is the process of determining output levels

It is the process of determining output levels (units) of product

(units) of product

groups over the next 6 to 18

groups over the next 6 to 18 months period on a weekly or

months period on a weekly or

monthly basis. The plan indicates the overall level of

monthly basis. The plan indicates the overall level of output

output

supporting the business plan.

Aggregate Capacity Planning

It is the process of devising

It is the process of devising plan for providing a production

plan for providing a production

capacity scheme to support the intermediate range sales

forecast.

(38)

38 38

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

Output planning

_{Capacity planning}

A

Aggggrreeggaatte e oouuttppuut t ppllaannnniinngg AgAgggrreeggaatte e ccaappaacciitty y ppllaannnniinngg

M

Maasstteer r pprroodduuccttiioon n sscchheedduulliinngg RRoouugghh--ccuut t ccaappaacciitty y ppllaannnniinngg

M

Maatteerriiaal l RReeqquuiirreemmeennt t ppllaannnniinngg DDeettaaiilleed d ccaappaacciitty y ppllaannnniinngg

Loading Loading Sequencing Sequencing Detailed scheduling Detailed scheduling Expediting Expediting

Short term capacity control Short term capacity control

Operations planning and scheduling system

Shop floor control Shop floor control

Business plan Business plan

Operations Operations

(39)

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

In developing an intermediate aggregate capacity plan,

the variables that may be manipulated to vary the

production capacity from month to month are:



 The size of workforce.The size of workforce.



 The use of overtime or idle timeThe use of overtime or idle time



 The use of inventories or The use of inventories or back ordersback orders



 The use of sub-contractorsThe use of sub-contractors



 The approval of The approval of design and drawingsdesign and drawings

Cost associated w

Cost associated with A

ith Aggregate planning

ggregate planning



 Pay roll costPay roll cost



 Cost of overtime, second shift and Cost of overtime, second shift and subcontracting.subcontracting.



 Cost of hiring and laying off Cost of hiring and laying off workers.workers.



 Cost of excess inventory and backlog.Cost of excess inventory and backlog.



(40)

40 40

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

Ty

Types of pes of CapacityCapacity Fixed capacity:

Fixed capacity: The capital assets (buildings and equipments) at a particular The capital assets (buildings and equipments) at a particular time are known as

time are known as the fixed capacitythe fixed capacity.. Adjustable capacity:

Adjustable capacity: It is on and the size of the It is on and the size of the workforce, the numbers of workforce, the numbers of hours per week they work, the number of

hours per week they work, the number of shifts and extent of sub-contracting.shifts and extent of sub-contracting. Design capacity:

Design capacity: it is the planned rate of output of goods and services under it is the planned rate of output of goods and services under normal operating condition

normal operating conditions, It is also known s, It is also known as installed capacityas installed capacity.. System capacity:

System capacity: it is the maximum output of a it is the maximum output of a specific product or product-specific product or product-mix that the system of workers and machi

mix that the system of workers and machines is capable of producing.nes is capable of producing. Potential capacity:

Potential capacity: it is that capacity which can be mit is that capacity which can be made available within theade available within the decision horizon of the top management.

decision horizon of the top management. Effective capacity:

Effective capacity: It is the capacity which is used within the It is the capacity which is used within the current budgetcurrent budget period. It is al

period. It is also known as practical capaso known as practical capacity or operating city or operating capacitycapacity.. Actual capacity:

Actual capacity: This is actual output achieved duriThis is actual output achieved during a particular timeng a particular time period

(41)

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

The figure given below illustrates the

relationship between design capacity,

system capacity and actual output.

Design capacity

System capacity

Actual output

(42)

42 42

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

Measurement of Capacity

Capacity may be measured in terms of i

Capacity may be measured in terms of inputs or outputs of nputs or outputs of the conversion process, Some of the examples of

the conversion process, Some of the examples of commoncommon measures of capacity are given below:

measures of capacity are given below: Organization

Organization Measures Measures of of capacitycapacity

Automobile

Automobile factory factory No No of of vehiclesvehicles Steel

Steel mill mill TTons ons of of steelsteel Power

Power plant plant Megawatts Megawatts of of electricity electricity generatedgenerated Brewery

Brewery Barrels Barrels of of beer beer

Airline

Airline No No of of seatsseats Hospital

Hospital No No of of bedsbeds University

University No No of of studentsstudents

Output rate capacities Output rate capacities

Input rate capacities Input rate capacities

(43)

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

Capacity Decisions

Major considerations in capacity decisions are: Major considerations in capacity decisions are:



 What size of plant? How much capacity What size of plant? How much capacity to install?to install?



 When capacity is needed? When to phase-in capacity oeWhen capacity is needed? When to phase-in capacity oe phase-out capacity?

phase-out capacity?



 At what cost? How much budget for the At what cost? How much budget for the costcost??

Determination of Capacity

Capacity determination is a strategic

Capacity determination is a strategic decision in factorydecision in factory planning. Capacity decisions are important because: planning. Capacity decisions are important because:



 They have a long term impactThey have a long term impact



 Capacity determines selection Capacity determines selection of appropriate technology, typeof appropriate technology, type of labor and equipments, etc.

of labor and equipments, etc.



 Right capacity ensures commercial viabilRight capacity ensures commercial viability ity of the businessof the business venture.

(44)

44 44

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

Factors affecting determination of Plant

Factors affecting determination of Plant Capacity

Capacity



Market demand for a product/service.



The amount of capital that can be invested.



Degree of automation desired.



Level of integration (i.e. vertical integration).



Type of technology selected



Dynamic nature of factors affecting determination of plant

capacity, viz; changes in product design, process technology,

market conditions and product life cycle, etc.



Difficulty in forecasting

Difficulty in forecasting future demand and

future demand and future technology

future technology..



Obsolescence of product and technology over a period of time.



Present and future demand.



(45)

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

Capacity planning

Capacity planning is the process of determining the productionis the process of determining the production capacity needed by an organization to meet challenging

capacity needed by an organization to meet challenging

demands for its products. In the context of capacity planning, demands for its products. In the context of capacity planning, ³capacity´ is the maximum amount of work that an

³capacity´ is the maximum amount of work that an organizationorganization is capable of completing in a given period of time.

is capable of completing in a given period of time. A

A discrepancy between the capacity of an discrepancy between the capacity of an organization andorganization and demands of its customers resul

demands of its customers results in an its in an inefficiencynefficiency, either in, either in under-utilized resources or unfulfilled customers. The goal of under-utilized resources or unfulfilled customers. The goal of capacity planning is to

capacity planning is to minimize this discrepancyminimize this discrepancy. Dem. Demand for anand for an organization¶s capacity varies based on changes in production organization¶s capacity varies based on changes in production output, such as decreasing the production quantity of

output, such as decreasing the production quantity of an existingan existing product, or producing new products. Capacity can be i

product, or producing new products. Capacity can be i ncreasedncreased through introducing new techniques, equipment and materials, through introducing new techniques, equipment and materials, increasing the number of shits, or acquiring additional production increasing the number of shits, or acquiring additional production facilities.

facilities.

Capacity is calculated

Capacity is calculated: (no of machines or workers) *(no of : (no of machines or workers) *(no of shifts) *(utilization)* (efficiency).

(46)

46 46

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

The broad classes of capacity planning are lea

The broad classes of capacity planning are lead strategy

d strategy, lag

, lag

strategy, and match strategy.



Lead Strategy is adding capacity in anticipation of an

Lead Strategy

is adding capacity in anticipation of an

increase in demand. Lead strategy is an

increase in demand. Lead strategy is an aggressive strategy

aggressive strategy

with the goal of luring c

with the goal of luring customers away from the company¶s

ustomers away from the company¶s

competitors. The possible disadvantage to this strategy is that it

often results in excess inventory

often results in excess inventory, which is costl

, which is costly and often

y and often

wasteful.



Lag strategy refers to adding capacity only after organization

Lag strategy

refers to adding capacity only after organization

is running at full capacity or beyond due to increase in demand.

This is more

This is more conservative strategy

conservative strategy. It de

. It decreases the risk of

creases the risk of

waste, but it may result in loss of possible customers.



Match strategy (also known as the tracking strategy) is

Match strategy

(also known as the tracking strategy) is

adding capacity in small amounts in response to changing

demand in the market. This

(47)

OPERATIONS

MANAGEMENT-AGGREGATE/CAPACITY PLANNING

AGGREGATE/CAPACITY PLANNING

Capacity planning inv

Capacity planning involves activities olves activities such as:such as:



 Assessing existing capacity Assessing existing capacity..



 Forecasting future capacity needs.Forecasting future capacity needs.



 Identifying alternate ways Identifying alternate ways to modito modify capacityfy capacity..



 Evaluating financial, economical and technological capacityEvaluating financial, economical and technological capacity alternatives.

alternatives.



 Selecting capacity alternative most suited to achieve the strategicSelecting capacity alternative most suited to achieve the strategic mission of the firm.

mission of the firm.

Figure given below illustrates the inputs to capacity dec

Figure given below illustrates the inputs to capacity dec isions.isions. Market consideration

Market consideration _{Resources available}_{Resources available}

Capacity decisions Capacity decisions