Professional Documents
Culture Documents
Notes on
Production & Operations Management
SEMESTER II
Compiled By:
Santosh Pathak
Santosh Pathak
Amity Global Business School MUMBAI Sem II
MODULE 1
Santosh Pathak
Amity Global Business School MUMBAI Sem II
The two distinctions not withstanding, the terms production management and
operations management are used interchargeably .
Added to the above are other related topics such as quality management
,maintenance management ,production planning and control, methods
improvement and work simplification and other related areas.
PRODUCTION SYSTEM
The production system of an organization is that part, which produces products of
an organization.
It is that activity whereby resources, flowing within a defined system, are
combined and transformed in a controlled manner to add value in accordance
with the policies communicated by management.
A simplified production system is shown above.
The production system has the following characteristics:
1. Production is an organized activity, so every production system has an
objective.
2. The system transforms the various inputs to useful outputs.
3. It does not operate in isolation from the other organization system.
4. There exists a feedback about the activities, which is essential to control and
improve system performance.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Production systems can be classified as Job Shop, Batch, Mass and Continuous
Production systems.
Project Vs Operations
Projects are always used to bring about something new, some change!
Operations are used for
- routine, ongoing and repetitive undertakings in an organization.
- sustain the existing business of the organization
- Make the existing operations more and more efficient.
In practice, both operations and projects have many characteristics that are
common to each other although they are undertaken to fulfill different aims and
objectives.
· Performed by people
· Both have limited resources at their disposal
· To be successful both operations and projects must be properly planned,
executed and controlled
Though projects and operations have many features in common there are many
differences between them. A key difference between projects and operations is in
their objectives, the aims for which they are performed.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Projects Operations
Unique Ongoing
Temporary Repetitive
Productivity
Santosh Pathak
Amity Global Business School MUMBAI Sem II
What is the multifactor productivity “MFP”? if 7500 Units Produced and Sold for Rs.10/unit with
Cost of labor of Rs.10,000, Cost of materials: Rs.5,000 and Cost of overhead: Rs.20,000.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Module 2
Facilities Location and Planning
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Plant 2 Rs 2 Rs 1 Rs 3 Rs 5
10 L
Rs 3 Rs 8 Rs 4 Rs 6
Plant 3 15 L
Demand 12 L 8L 4L 6L
Plant 2 2 1 3 5
X
2 8
3 8 4 6
Plant 3 15
Demand 10 X 4 6
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Plant 3 3 8 4 6
10
5
Demand X X 4 6
Plant 3 3 8 4 6
6
5 4
Demand
X X X 6
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Plant 2 2 1 3 5
X
2 8
3 8 4 6
Plant 3 X
5 4 6
Demand X X X X
PLANT LAYOUT
WHY PLAN FACILITIEWHY PLAN FACILITIES
The primary causes that trigger new or
altered facilities are:
1. Expanding production, based on increased demand.
2. Entering a new field of endeavor.
3. Replacing an obsolete or inadequate facility.
4. Reallocating or consolidating production facilities.
5. Improving service to market(s).
Santosh Pathak
Amity Global Business School MUMBAI Sem II
THE NEED FOR GOOD FACILITIES PLANTHE NEED FOR GOOD FACILITIES
PLANNING
1. Plant facilities influence the costs of operating and therefore
profits.
2. Planning allows facilities to comply with laws ad/or
regulations.
3. Facilities involve high capital-cost expenditures.
4. Facilities are fixed investments, not readily convertible to
money or resale.
5. Facilities are inflexible (i.e. physically fixed and have limited
opportunities to be changed).
6. Facilities are long term commitments with protracted periods
of financial return.
7. Facilities planning, design and construction require long lead
times.
8. Sound plans for implementation can avoid disruptions in
production, and discontinuities for shipping or delivery.
9. Operations often produce detrimental wastes that affect entire
communities.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Thus layout is disposition of various facilities and services of the plant within the
specified area. It is arrangement of location of different machines and plants within the
factory in such a way that there is minimum possible cost, the maximum output and the
best quality product. In it all the requirements connected with production like the raw
materials, machines, tools, fixtures etc. to be properly cared from the very beginning
with the design of the factory. It is the agreement with the main focus that each
operation is performed without the least inconvenience.
Types of layouts
Process layout also called “ layout by function” is generally associated with batch
production. The factory is divided into process units (or departments), and within these
process units all similar facilities are grouped together. Process, for example, is kept at one
place; milling machines are placed at another place; drilling machines are kept at third place;
gear-cutting machines are located at fourth place; and so on and so forth.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Advantages:
Disadvantages:
Product layout is also called “layout by sequence.” The layout of plant, shape and size of its
buildings, locations of services and storage yards, position of materials handling equipments is
such that material flows unidirectionally and at the steady rate. Special purpose machinery and
equipments with build in-controls to measure output and input are employed. The equipment,
if necessary, is duplicated to avoid backtracking and to ensure that materials always flow in the
forward direction towards stage of completion.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Suitability
Product type of Layout is suitable when:
1. The products are standard and require to be produced in large
quantities.
2. The products have reasonably stable demand.
3. The processing times of individual operations is more or less equal.
4. Uninterrupted supply of materials can be maintained.
assembly line for automobiles, refrigerators, radios, televisions sets, transformers, motors,
domestic appliances like food mixing machines, pressure cookers, etc. continuous or process
production units, characterized by the manufacture of single product, such as sugar, steel,
cement, paper, coke, refineries etc. also have product type of layout.
Advantages:
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Disadvantages:
1. The changes in products and work contents necessitate the change in the layout
of the machinery.
2. All machines may not be used to their full capacity.
3. Manufacturing cost is heavily dependent upon volume of production.
4. Breakdown of any one of the machines in the line renders other machines idle till
it is repaired.
5. Expansion of the capacity by addition of machines is not possible.
6. Specialization creates monotony and reduces labour turnover as workers can not
find jobs in their industries.
(1) Plant investment : product layout requires higher initial investment than process
layout as a special purpose machines are costly and a times requires to be
duplicated to balance the production line.
(2) Requirement of space : process layout requires comparatively more space than
product layout since additional space is required to-
keep the jobs which queue up before each time.
accumulate jobs until they are moved next work station.
This is because unlike in product layout material flow is discontinuous.
(3) Manufacturing time : Under process layout, it takes comparatively more time in
manufacturing goods. Higher manufacturing time results on on account of
formation of queues at different machines due to different cycle times, batch
sizes and sequence of operations.
Manufacturing cycle time under product layout is small since machines capacities are
intermediate activities like travel, storage and inspection are reduced. Product
layout for continuous or process production may be looked upon as one large
machine wherein raw material enter at one end and emerge as finished product at
other end.
(4) Material handling: process type of layout results in more handling than product
layout because:
Flow of materials between different stages of manufacturing is highly
discontinuous due to imbalance in operation wise work content while
Santosh Pathak
Amity Global Business School MUMBAI Sem II
(5) Flexibility: process layout offers a very high flexibility as alteration in operation
Sequence can be made when they are required. Also , new job, each having
different routing than other and varying content can be taken up without any
difficulty .
However, such flexibility does not exist in a product layout. Only jobs having the
same routing and equal work content can be accommodated. It also rather
difficult to adjust proportionately in accordance with change in demand.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Process planning function is almost absenr since the plant decides the
route
Tools control function is either absent or is drastically simplified. Tools
control function in an engineering firm is limited to replenishments of
consumable tools, which can be simplified adopting the scientific
inventory control and replacement of worn out jigs & fixtures. And
tools control function in a continuous or process industries is almost
absent due to nature of the plant.
Scheduling activity is very simple and is merely restricted either to
sequencing of production or limited to final targets.
Progressing and expanding functions are extremely simplified and are
merely limited to recording of the final production at end of the shift.
Production control is bit complicated in case of process layout. Materials require
to be intended and purchased on receipt of customer order except in case of batch
production where material requirement can be planed in advance. Tools control
functions needs to be more detailed and more elaborate. Loading and scheduling chart
need to be prepared, one for each machine. Progress of different components need to
be recorded each day. Separate progress cards need to be maintained for different
items of manufacture.
(8) Inspection: inspection under process layout is necessary at each stage. The work
from the previous operation is routed to the inspection bay before being
forwarded to the next operation. This involves material handling, production hold
ups and interruptions at the succeeding operations. The rejection at certain
stages requires re-routing of rework on the faulty part back to same machine or
department, which causes unnecessary material handling and confusion.
Under product layout, inspection is performed at some critical point in
production line.
(9) Skill of labourers: the skill of labour forces in a process type of layout is usually
higher than in the product type of layout since the workmen are expected to
operate number of general purpose machines capable of performing wide variety
of jobs. In fact labour force in project or jobbing production is expected to be
highly skilled. Highly qualified trade apprentices are employed who are expected
to work for minimum instructions. Instruction regarding “what to make” are
issued in form of specifications while instruction as to “hoe to manufacture” are
usually oral. The workman be highly skilled are expected to work independently
and display a great deal of initiative and judgment. They are required to set their
own special tools or production aids to further of a part or an assembly.
The skill production in batch production units (another group of firms which
employ process layout) is expected to be skilled in one specific manufacturing
Santosh Pathak
Amity Global Business School MUMBAI Sem II
process; turning. Milling, welding, grinding, hobbing, fitting etc. the simple
machine setups are performed by the operator but those involving complex
operations are done by the separate machine setter.
Suitability
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Advantages :
Disadvantages:
1. Only high skilled workers are needed. They are not only in short supply but are
to be paid well. Their salaries and other benefits add to cost of production.
2. In fixing jobs and tools complicated fixtures are needed which again add to the
production cost.
3. Bulky and heavy machines are required to be taken to the work place. This take
a very long time to reach their destination.
a) Factory building: The nature and size of the building determines the floor
space available for layout. While designing the special requirements, e.g. air
conditioning, dust control, humidity control etc. must be kept in mind.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
g) Plant environment: Heat, light, noise, ventilation and other aspects should be
duly considered, e.g. paint shops and plating section should be located in
another hall so that dangerous fumes can be removed through proper
ventilation etc. Adequate safety arrangement should also be made.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Module IV
BENEFITS TO SMALL ENTREPRENEUR
Production planning and control can facilitate the small entrepreneur in the
following ways
(1) Optimum Utilisation of Capacity:
With the help of Production Planning and Control [PPC] the entrepreneur can
schedule his tasks and production runs and thereby ensure that his productive
capacity does not remain idle and there is no undue queuing up of tasks via
proper allocation of tasks to the production facilities. No order goes unattended
and no machine remains idle.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Production planning:
Production planning may be defined as the technique of
foreseeing every step in a long series of separate operations, each step to be
taken at the right time and in the right place and each operation to be performed
in maximum efficiency. It helps entrepreneur to work out the quantity of material
manpower, machine and money requires for producing predetermined level of
output in given period of time.
Routing: Under this, the operations, their path and sequence are established. To
perform these operations the proper class of machines and personnel required
are also worked out. The main aim of routing is to determine the best and
cheapest sequence of operations and to ensure that this sequence is strictly
Santosh Pathak
Amity Global Business School MUMBAI Sem II
(1) An analysis of the article to determine what to make and what to buy.
(2) To determine the quality and type of material
(3) Determining the manufacturing operations and their sequence.
(4) A determination of lot sizes
(5) Determination of scrap factors
(6) An analysis of cost of the article
(7) Organization of production control forms.
Scheduling: It means working out of time that should be required to perform each
operation and also the time necessary to perform the entire series as routed,
making allowances for all factors concerned. It mainly concerns with time
element and priorities of a job. The pattern of scheduling differs from one job to
another which is explained as below:
Production schedule: The main aim is to schedule that amount of work which
can easily be handled by plant and equipment without interference. Its not
independent decision as it takes into account following factors.
(1) Physical plant facilities of the type required to process the material being
scheduled.
(2) Personnel who possess the desired skills and experience to operate the
equipment and perform the type of work involved.
(3) Necessary materials and purchased parts.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Loading: The next step is the execution of the schedule plan as per the route
chalked out it includes the assignment of the work to the operators at their
machines or work places. So loading determines who will do the work as routing
determines where and scheduling determines when it shall be done. Gantt Charts
are most commonly used in small industries in order to determine the existing
load and also to foresee how fast a job can be done. The usefulness of their
technique lies in the fact that they compare what has been done and what ought
to have been done.
Most of a small scale enterprise fail due to non-adherence to delivery schedules
therefore they can be successful if they have ability to meet delivery order in time
which no doubt depends upon production of quality goods in right time. It makes
all the more important for entrepreneur to judge ahead of time what should be
done, where and when thus to leave nothing to chance once the work has begun.
Production control:
Production control is the process of planning production in
advance of operations, establishing the extract route of each individual item part
Santosh Pathak
Amity Global Business School MUMBAI Sem II
or assembly, setting, starting and finishing for each important item, assembly or
the finishing production and releasing the necessary orders as well as initiating
the necessary follow-up to have the smooth function of the enterprise. The
production control is of complicated nature in small industries. The production
planning and control department can function at its best in small scale unit only
when the work manager, the purchase manager, the personnel manager and the
financial controller assist in planning production activities. The production
controller directly reports to the works manager but in small scale unit, all the
three functions namely material control, planning and control are often
performed by the entrepreneur himself production control starts with dispatching
and ends up with corrective actions.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Hierarchical Planning
1. Overall Manufacturing Planning
2. Detailed Materials and Capacity Planning
3. Execution of Plans
Resource Planning
Long-Range Capacity Requirements
Number of Machines
Number of Employees
Overtime
Shifts
Plants
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Purchasing
Purchasing Plan
Vendor Search
Quotation
Order Release
Order Follow-up
Vendor Capacity
Santosh Pathak
Amity Global Business School MUMBAI Sem II
3. Just-in-Time
High production volume
Low Product Variety
Reduced Inventory and Leadtime
Ex: Cars, Computers, Jewelry, Copy Machines
5. CPM/PERT
Long leadtimes
Low production quantity
Ex: Airplanes, ships
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Number of
Subparts
MRP CPM/PERT
Just-in-Time
Repetitive
Flow
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Module V
•Mass Production
–A special type of intermittent production process using standardized
methods and single-use machines to produce long runs of
standardized items.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Mass Customization
–Designing, producing, and delivering customized products to
customers for at or near the cost and convenience of mass-produced
items.
–Mass customization combines high production volume with high
product variety.
–Elements of mass customization:
•Modular product design
•Modular process design
•Agile supply networks
Continuous Production
•Anticipation of demand
•May not have uniform production
•Standardized Raw material
•Big volume of limited product line
•Standard facility- high standardization.
•Fixed sequence of operation
•Material handling is easier
•High skilled operator not required
•More Human problem is foreseen
•Huge investment.
•High raw material inventory.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
stages.
•Less highly skilled workers required
•More human problems foreseen
•Highly standardized system
BATCH PRODUCTION
Batch production is defined by American Production and Inventory Control
Society (APICS) “as a form of manufacturing in which the job passes through the
functional departments in lots or batches and each lot may have a different
routing.” It is characterised by the manufacture of limited number of products
produced at regular intervals and stocked awaiting sales.
Characteristics
Batch production system is used under the following circumstances:
1. When there is shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch
and change of set up is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order
production.
Advantages
Following are the advantages of batch production:
1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of batch production:
1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of
uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product,
capacities for each work centre and order priorities.
Advantages
Following are the advantages of job shop production:
1. Because of general purpose machines and facilities variety of products can be
produced.
2. Operators will become more skilled and competent, as each job gives them
learning opportunities.
3. Full potential of operators can be utilised.
4. Opportunity exists for creative methods and innovative ideas.
Limitations
Following are the limitations of job shop production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Module VI
Forecasting Definition: Forecasting is a statement about the future. It
is estimating future event (variable), by casting forward past data. Past
data are systematically combined in predetermined way to obtain the
estimate. Forecasting is not guessing or prediction.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Forecast accuracy:
Total absolute deviation (TAD)= 14
Mean absolute deviation (MAD)= Σ (Actual-forecast)/n = 14/5 = 2.8
Total Squared Error (TSE) = 44
Mean Square Error (MSE)= 44/5 = 8.8
Methods of forecast:
1. Quantitative (based on time series data): Time series data: a time ordered
sequence of observation taken at regular intervals over time. Patterns
resulting from plotting of these data are:
a. Trend: A long-term upward or downward movement in data.
b. Seasonality: Short-term regular variations related to calendar or time of
day.
c. Cycle: Wavelike variation lasting more than one year.
d. Random variations: residual variations after all other behaviors are
accounted for.
e. Irregular variations: caused by irregular circumstances, not reflective of
typical behavior.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Naïve forecast: The forecast for any period equals the previous period’s actual
value.
Simple to use.
Virtually no cost.
Quick and easy to prepare (no data analysis required).
Easily understandable.
Cannot provide high accuracy.
Can be a standard for accuracy and cost. Q: is the increased accuracy of
another method worth the additional cost?
Can be applied in stable demand (moving around average), seasonal, and
trend
Examples:
1 Sales of air conditioning units next July, will be the same as the sales in last
July. (Seasonal)
2 Highway traffic next Tuesday will be the same as last Tuesday (stable,
moving around average).
3 If the last 2 actual values were 50 and 53, the next will be 56 (trend).
Santosh Pathak
Amity Global Business School MUMBAI Sem II
3 Consumer market survey: Asking the customers may give best forecasts
but it is higher in cost, difficult to apply.
4. Delphi method:
(a) Panel of experts queried.
(b) Chosen experts to participate should be of a variety of knowledgeable
people in different areas (finance, marketing, production etc). They are unknown
to any one, except for the coordinator.
(c) Through questionnaire the coordinator obtains estimates from all
participants.
(d) Coordinator summarizes results and redistributes them to participants
along with appropriate new questions.
(e) Summarize again and refine forecasts and develop new question.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
oOnce the a and b values are computed, a future value of X (time, or sales
of other elated product) can be entered into the regression equation
and a corresponding value of Y (the forecast) can be calculated.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Module VII
Capacity Decision
Major considerations in capacity decisions are:
a)What size of plant? How much capacity to install?
b)When capacity is needed ? When to phase-in capacity or
phase-out capacity?
c)At what cost? How to budget for the cost?
Determination of capacity
Capacity decisions are important because:
a)They have a long-term impact
b)Capacity determines the selection of appropriate
technology, type of labour and equipments, etc.
c)Right capacity ensures commercial viability of the
business venture.
d)Capacity influences the competitiveness of a firm.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Long-Range
Long-Range Capacity Planning
(years)
Medium-Range
Aggregate Planning
(6-18 months)
Short-Range
Master Production Scheduling
(weeks)
Capacity Planning
1. Facility Size Long-term
2. Equipment Procurement
Aggregate Planning
1. Facility Utilization Intermediate-term
2. Personnel needs
3. Subcontracting
Master Schedule
1. MRP Intermediate-term
2. Disaggregation of master plan
Short-term Scheduling
1. Work center loading Short-term
2. Job sequencing
6
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Aggregate Planning:
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Bottom – Up Approach:
Also called as Resource Requirement Planning(RRP) or
Rough cut capacity planning.
1.They are done with Master Production Schedule
2.Ensures no over load occurs for any department.
3.Quick and in-expensive way to find and correct the raw
materials available and required for MPS.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Inputs
l A forecast of aggregate demand covering the selected planning horizon (6-
18 months)
l The alternative means available to adjust short- to medium-term capacity,
to what extent each alternative could impact capacity and the related costs
l The current status of the system in terms of workforce level, inventory level
and production rate
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Outputs
l A production plan: aggregate decisions for each period in the planning
horizon about
l workforce level
l inventory level
l production rate
l Projected costs if the production plan was implemented
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
When to Use
MRP I systems are usually employed when 1 or more of following
conditions exist:
Santosh Pathak
Amity Global Business School MUMBAI Sem II
MRP Processing
Santosh Pathak
Amity Global Business School MUMBAI Sem II
MRP Planning
MRP Outputs
Planned orders - schedule indicating the amount and timing of future
orders.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Manufacturing
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Software Extensions
Rough Cut Capacity Planning (RCCP), an initial attempt to match the order
load to the capacity available,
Sales Order Processing
Cost accounting
Data Accuracy
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Module VIII
Reffer PPT of Prof. AMOL MULEY
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Module IX
WORK MEASUREMENT
• Application of a set of techniques intended to establish amount of work to
be done by an operator in a given time under specified conditions at the
defined level of performance.
• This helps in identifying correct manpower and machine requirement.
• This helps in fixing number of machines to be operated by each worker.
• Helps in proper planning of delivery schedules.
• Helps in estimating production cost.
• Helps in cost control and reduction in labour cost and idle costs.
• Helps in improvement of method by identifying deviations from standard.
• Helps to fix incentives.
• Identifying sub-standard workers, their progress and training needs.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
TIME STUDY
• Establish time for a worker to carry out a specific job under specified
conditions at the defined level of performance.
Time study steps
• Select the task to be timed - bottleneck jobs, repetitive jobs, Labourious
jobs, jobs with longer cycle time, sections having higher over-time.
• Standardise the method using method study.
• Select the operator having necessary physical attributes, possesses
required intelligence and education, has acquired necessary skill and
knowledge to carry out the work to satisfactory standard of safety, quantity
and quality.
• Record details including Item name , part number, machine , speed,
material , operator and supervisor.
• Record type of material, shape of job, tolerances.
• Environment & Working Conditions surrounding the job
• Break the task into parts / or elements.
• Measure the duration of each element and assess the pace of performance
to obtain rating which is a ratio of observed time and the normal time.
• Time taken for the job may vary due to variation in material, tool
conditions, tool locations and workmen performance hence enough cycles
should be timed and average is determined.
• Convert the observed time into normal time using performance rating.
• Assess relaxation and other allowances for:
– Personal needs ( Relaxation Allowance )
– Stoppage of alternate machine ( multiple machines attended by
same operator ) ( Interference allowance )
– Unavoidable delays and interruptions.( contingency allowance )
– opportunity to workers to increase the earnings (Policy allowance )
• Calculate Standard Time
Santosh Pathak
Amity Global Business School MUMBAI Sem II
WORK SAMPLING
• Statistically competent number of instantaneous observations are taken,
over a period of time, of a group of machines, processes or workers. Each
observation records what is seen to happen and percentage of
observations recorded for a particular activity or delay is a measure of
percentage of time absorbed by the occurrence.
• Large number of observations are made as to state of each member of the
group working or idle. The data is amplified for the reasons for being idle.
• Used for cost reduction and cost control, Assessment of allowances for
output standards, fixation of output standards, Testing the accuracy of the
output standards.
• Compared to time study, the observer need not be extensively trained.
• More than one task can be studied simultaneously
• The workers would have less objection as the study is not specifically
measuring the skill timing of each job.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
MODULE X
MEANING AND NATURE OF INVENTORY
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Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Santosh Pathak
Amity Global Business School MUMBAI Sem II
These costs are also known as buying costs and will arise only when some
purchases are made. When materials are manufactured in the concern then
these costs will be known as set-up costs. These costs will include costs of
setting up machinery for manufacturing materials, time taken up in setting,
cost of tools, etc.
The ordering costs are totalled up for the year and then divided by the
number of orders placed each year.
B. Carrying Costs: These are the costs of holding the inventories. These costs
will not be incurred if inventories are not carried. These costs include:
1. The cost of capital invested in inventories. An interest will be paid on the
amount of capital locked-up in inventories.
2. Cost of storage which could have been used for other purpose.
3. The lost of materials due to deterioration and obsolescence. The materials
may deteriorate with passage of time. The loss of absolescence arises when
the materials in stock are not usable because of change in process or
product.
4. Insurance cost.
5. Cost of spoilage in handling of materials.
6. The longer the materials kept in stocks, the costlier it becomes by 20
percent every year. The ordering and carrying costs have a reverse
relationship. The ordering cost goes up with the increase in number of
orders placed. On with the increase in number of units, purchased and
stored. It can be shown in the diagram shown.
7. The ordering and carrying costs of materials being high, an effort should be
made to minimise these costs. The quantity to be ordered should be large
so that economy may be made in transport costs and discounts may also be
earned. On the other hand, storing facilities, capital to be locked up,
insurance costs should also be taken into account.
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Amity Global Business School MUMBAI Sem II
EOQ and Quality Discount: Customer is offered some discount for bulk
purchase or if the size of a single order is large. Thus, the price per unit of
an item may decrease for buying larger quantities. The quantity discount
affect inventory cost in three ways:
i. As the price per unit is reduced, the total price for the lot is reduced.
ii. The lot size is increased, the number of offers is reduced and as a result the
total ordering cost is reduced.
iii. The average inventory holding increase and as a result the storage cost will
increase.
Thus, to decide whether to avail the quantity discount or not, first of all
EOQ is determined and then its total cost without quantity discount and
with quantity discount is determined. In case, the total cost is less due to
quantity discount the offer is accepted, other wise it is rejected. The
following example illustrates the point.
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Amity Global Business School MUMBAI Sem II
4500-5999 2%
2AS
Solution. (i) EOQ
I
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Amity Global Business School MUMBAI Sem II
Order Size Average Annual No. of orders Price per unit Cost of Carrying cost Total ordering Total Cost (6
Inventory requirements (3 divided 1) purchase at Rs. 6 per cost at Rs. 300 + 7 + 8) (Rs.)
(units) (3) X (5) Rs. unit (Rs.) per order (Rs.)
5. A-B.C Analysis
The materials are divided into a number of categories for adopting a
selective approach for material control. Under A-B-C analysis, the materials
are divided into three categories viz, A, B and C. Past experience has shown
that almost 10 percent of the items contribute to 70 percent of value of
consumption and this category is called ‘A’ Category. About 20 percent of
the items contribute about 20 percent of value of consumption and this is
known as category ‘B’ materials. Category ‘C’ covers about 70 percent of
items of materials which contribute only 10 percent of value of
consumption. There may be some variation in different organisations and
an adjustment can be made in these percentages.
6. VED Analysis
The VED analysis is used generally for spare parts. Spare parts are classified
as Vital (V), Essential (E) and Desirable (D). The vital spares are a must for
running the concern smoothly and these must be stored adequately. The
non-availability of vital spare will cause havoc in the concern. The E type of
spares are also necessary but their stocks may be kept at low figures. The
stocking of D type of spares may be avoided at times. If the lead time of
these spares is less, then stocking of these spares can be avoided. The
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Amity Global Business School MUMBAI Sem II
Net Sales
(Average ) Inventory
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Amity Global Business School MUMBAI Sem II
10.Inventory Reports
From effective control, the management should be kept informed with the
latest stock position of different items. This is usually done by preparing
periodical inventory reports. These reports should contain all information
necessary for managerial action. On the basis of these reports management
takes corrective action wherever necessary. The more frequently these
reports are prepared the less will be the chances of lapse in the
administration of inventories.
Santosh Pathak
Amity Global Business School MUMBAI Sem II
Objective of JIt
The ultimate goal of JIT is to reduce wastage and enhance productivity. The
important objectives of JIT include:
1. Minimum / zero inventory and its associated costs.
2. Elimination of non-value added activities and all wastes.
3. Minimum batch / lot size.
4. Zero breakdowns and continuous flow of production.
5. Ensure timely delivery schedules both inside and outside the firm.
6. Manufacturing the right product at right time.
Features of JIT
a. It emphasises that firms following traditions inventory control system
overestimate ordering cost and underestimate carrying costs associated
with holding of inventories.
b. It advocates maintaining good relations with suppliers so as to enable
purchase of right quantity of material at right time.
c. It involves frequent production / order runs because of smaller batch/lot
sizes.
d. It requires reduction in set up time as well as processing time.
e. Purchase of produce in response to need rather than as per the plans and
forecasts.
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