Ch 01 & 02I nt r od ucti o n The production (or manufacturing) management since long has been associated with a factory situation where goods are produced in physical sense.Definition of a FactoryFactory is defined as “as any premises in which persons are employed for the purpose of making, altering, repairing, finishing, cleaning, washing, breaking, demolishing or adopting for sale, any article”. The above definition restricts the scope of production function.“Production is the process by which goods and services are produced”The essential feature of a production function is to bring together people, machines and materials to provide goods and services thereby satisfying the wants of people. Since both manufacturing and service organizations involve above mentioned features, the term production management is gradually being replaced by Operations Management.

O p e r a ti o ns C o nce p t o f P r od ucti o n The concept of “operations” instead of “production” includes both manufacturing as well as service organizations. All operations add value to the objectives and thereby enhance their usefulness. An operation may be defined “as the process of changing inputs into outputs thereby adding value to some entity.” This can be done in following ways:Alteration: It refers to the change in form or state of inputsTransportation: It refers to the movement of the entity from one place to another.Storage: It refers to the process of keeping an entity in a protected environment for some period of time. Inspection: It is the verification of entity for its properties.

P r od ucti o n a s the C o nve rs i o n p r o ce s s Since production is the process of changing inputs into outputs, every organization has the conversion system which can be shown as follows

Fig: A Conceptual model of a production (operations) SystemThe inputs in above system are raw materials, parts, consumable, energy, engineering details, production schedules, information technology, capital or management and outputs are the produced goods, transported goods, delivered messages, and serviced customers.

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P r od uctivity o f C o nve rs i o n P r o ce s s Effectiveness of production (or operations) management may be viewed as the efficiency with which inputs are converted into outputs. This conversion efficiency can be gauged by the ratio of the output to the input and is known as productivity of the system. Productivity = Output

Inputs

Productivity = Goods a n d S er v i ce s Capital, Manpower, Material, Machines, Land and Building

The higher the productivity of production system, more efficient the production function. Another way of looking at the concept of productivity is to look at the amount of waste generated in the system.Productivity of the system can be improved by minimizing/ eliminating the waste occurring in the system.

O b jectives o f P r od ucti o n ( o r op e r a ti o n s ) m a n ag e m e nt Effectiveness: Producing the right kind of goods and services that satisfy customer’s needs. Efficiency: Maximizing output of goods and services with minimum resource inputs.Quality: Ensuring that good & services produced conform to pre-set quality specifications. Lead Time: Minimize delays, waiting time and idle time in the conversion process. Capacity Utilization: Maximum utilization of manpower, machines etc.Cost: Minimizing cost of producing goods or rendering a service.The above mentioned six important objectives are to be achieved to increase the productivity &ultimately the profit for the organization.

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C o m po nents o f p r od ucti o n ( o r op e r a ti o n s ) fun c ti o n Production (or operations) management is essentially planning, organizing and controlling of production function. Management of production (or operations) can be described in terms of fourteen components as under:

P r od ucti o n/ O p e r a ti o ns a s a C o - o r d in a ti o n functi o n Production plays a vital role in coordinating efforts with three other major functions of an organization, namely Marketing, Finance and Personnel. Sales department prepares a forecast which includes products and quantities to be sold, price of each product, profit margin etc. Production departments’ analyses the forecast in terms of manufacturing capacities, inventory, sub controlling and subcontracting etc. and then they modify/accept the forecast. Finance department next analyses the modified or accepted forecast in terms of corporate objectives, profitability, investment etc. Production department then finalizes the manpower plan with personnel department. Personnel department will arrange recruitment and Training if required. Proper co-ordination between production and personnel department thus ensures that adequate skills to meet finalized forecast (sales) are made available. Production department also discuss investment plans regarding material, machines etc with finance dept. to meet the required target production. Finance dept. if required will arrange funds from most economical sources. Production also coordinates with purchase dept. who takes procurement action for materials required for production.

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M a nuf a ctu r ing s y s te m s A typical production system comprises of three main components i.e. inputs, transformation process and outputs.1) Inputs are men, materials, machines, instructions, drawings, paper work etc.2) The transformation process involves operations, mechanical or chemical to change/ convert inputs into outputs. It also includes activities that assist conversions. They are as follows: 1. Planning and control of factors of production 2. Procurement of materials 3. Receipt, storage and issue of materials 4. Material handling 5. Inspection of in-process and parts 6. Assembly and testing of products 7. Storage of finished goods 8. Authorization, retrieval etc3) Outputs are goods and services (e.g. Products, parts, paper work, served customer etc.)

The combination of operations and activities stated above, employed to create goods and services is known as manufacturing system, (or method). A manufacturing system is an independent group of sub-systems, each sub-system performing a distinct function. These systems are inter- related and require to be unified to achieve overall objectives of the organization. Manufacturing system needs to interact with both internal and external environment. The internal environment is the combination of engineering, marketing, personnel and accounts activities whereas external environment comprises of customers, competitors, suppliers, labour unions etc. The selection of the manufacturing system is a strategic decision because changes in later stage are very expensive to make. The system selected should be such that it can give the desired output, required quality and is to be cost effective.

F a c t o r s in f lu e n c in g c h o i c e of m a nu f a ct u r in g sys t e m There is no best manufacturing system for any product. The manufacturing system which is selected must meet two basic objectives namely:1. It must able to meet the specifications of the final product and2. It must be cost effective

Various factors which determine the choice of the manufacturing system are as follows:a) Effect of Volume/ varietyWhen there are many products in one or few numbers to be produced (i.e. high product variety) it requires highly skilled labour, general purpose machines, detailed and sophisticated production planning and control systems. On the other hand when one or few products to be produced in large volumes (i.e. low product variety) it enables the use of low skilled labour, highly automated mass production processes using special purpose machines and simple production planning and control system.

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b) Capacity of the plantWhether the firm should use intermittent or continuous process will depend upon the projected sales volume. Fixed costs are high for continuous process and variable costs are high for intermittent process. Intermittent process will be cheaper to install and operate at low volumes (small capacity) and continuous process will be economical to use at high volumes. (Large capacity)

c) FlexibilityFlexibility implies the ability of the company to satisfy varied customer’s requirements. Flexibility and product variety are inter-related. It requires high inventory, large manufacturing lead times and sophisticated planning and control.

d) Lead TimeLead time means delivery lead time expected by the customers. It is major influencing factor in a competitive market. As a general rule, faster deliveries are expected in a competitive market.

e) EfficiencyEfficiency measures the speed and the cost of the manufacturing system. Depending upon the sales volume, product variety will have to be considered and the process has to be selected which will give the best efficiency in terms of machines and manpower utilization.

f) EnvironmentEnvironment brings in new technologies and forces for the adoption of new process of manufacturing. Similarly as market preferences change due to fashions or other reasons, the manufacturing system has to be changes accordingly.

C l a ss ific a ti o n (M e th od s ) o f M a n u f a ctu r ing Sy s tem

Manufacturing systems can basically be classifies into five groups:1] Project Production: Here a single assignment of complex nature is undertaken for completion within the given period and within the estimated expenditure.2] Jobbing Production: In this one or few units of a product are produced as per the customer’s requirement within the given date and price as per the contract.3] Batch Production: Where limited quantity of each types of product is manufactured at a time.4] Mass and flow production: In this system a single or number of machines are arranged according to the sequence of operations and several number of products are manufactured at a time and stock in warehouse awaiting sales.5] Process Production: In this production run is conducted for an infinite period

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C h a r a cte r i s tics o f M a nuf a ctu r ing S y s tem m eth od s

A] Characteristics of Project Productiona) Definite beginning and definite end

b) Non-uniform requirement of sources c) Involvement of different agencies d) Fixed position assembly types of layoute) Over running of project will affect and increase the cost f) Personal problemsg) Great importance to scheduling and control

B] Characteristics of Jobbing Productiona) Small production runsb) Discontinuous flows of materialsc) Disproportionate manufacturing cycle timed) General purpose machines and process layout e) Highly skilled labour requirementf) Highly competent knowledgeable supervision requiredg) Large work in progressh) Limited functions of production planning and control

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C] Characteristics of Batch Productiona) Short production runsb) Skilled labour in specific tradesc) Supervisor to possess knowledge of a specific process d) Limited span of controle) General purpose machines and process type of layout f) Manual materials handlingg) Large work in progressh) Flexibility of production schedulesi) Need to have production planning and control

D] Characteristics of Mass and Flow Production a) Continuous flow of materials b) Special purpose machines and product type layout c) Mechanized materials handling

d) Low skilled laboure) Short manufacturing cycle time f) Easy supervisiong) Limited work in-progressh) Less flexibility in production schedules

E] Characteristics of Process Productiona) Special purpose machines with built-in-controls b) Highly mechanized materials handlingc) Virtually zero manufacturing cycle timed) Low skilled laboure) Supervisor to be process specialist f) Negligible work-in-progressg) Limited production planning and control functions

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I nt r od ucti o n o f F a cilities L o c a ti o n a nd L a y o ut Plant location decisions concern both manufacturing and assembly units as well as service organizations. Ideal plant location is important for business activities both in manufacturing and service category. Plant location decisions are strategic, long term & non-repetitive. This is because:a) Poor location of the plant can be constant source of higher cost, difficult marketing and transportation, dissatisfaction of employees and customers, frequent disturbance in production, substandard quality, competitive disadvantage etc.b) The investment in land and buildings is quite large in case of bigger firms and hence economics of the locations needs to be evaluated carefully for fair returns on such investment. Location decisions of large projects like fertilizers, cements, sugar, steel, thermal projects etc. involve economists, geographers, town planners, marketing experts, accountants, politicians, ecologists etc. Location decisions generally arise when:A new manufacturing (or servicing) unit is to be set up Existing plant operations are difficult to expand establishment of additional facilities in new territories because of growth of the business Emergence of new social (chronic labour problem) political (political instability) problems or economic conditions which suggest a change in the location of the existing plant.E.g. Tata Nano plant; new plant requirement for new product developed according to new technological environment. Changes by Government in Industrial policy which will not permit expansion of existing plant

Factors affecting locationPlant location factors in general may be grouped under three heads which are as follows:

i. Regional factors (General territory selection)ii. Community factors (Community selection)

iii. Site factors (Site selection)

i] Regional factorsIt will decide the overall area (or region) within the country. It includes proximity to markets, proximity to sources of raw materials, availability of utilities, transport facilities, climatic conditions, industrial and taxation laws etc.

ii] Community factorsIt influences selection of the plant location within the region. Such factors are availability of labour, industrial and labour attitudes, social structure, service facilities etc.

iii] Site factorsIt is favourable specific site within the community. Such factors are, availability and cost of the land, suitability of the land, waste disposal etc.

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F i g : F a ct o r s infl u encing th r ee p h a s es o f p l a nt l o c a ti o n

Location factor

Phase of the study

TerritorySelection

CommunitySelection

SiteSelection

1 Proximity to Markets *2 Proximity to Raw Materials *3 Infrastructural Facilities * *4 Transportation Facilities * *5 Labour and Wages * *6 Legislation and taxation * *7 Climatic condition * *8 Ind & Labour attitude * *9 Safety Requirements * *

10 Community attitudes *11 Supporting industries and services *12 Community attitudes *13 Waste Disposal * *14 Availability & Cost of the land * *15 Suitability of the land * *

Let us discuss these location factors one by one:

1. Proximity to MarketsEvery company is in business to market and it can survive only if their product reaches the consumers on time and at the competitive price. Location the plant nearer to the market is preferred. If the product is to be exported, location near ports is desirable. It will reduce the transportation cost; shipment cost etc.

2. Proximity to source of Raw MaterialsSince raw materials usually constitute 50 to 60 percent of the total product cost, it is important that the firm gets its requirements of raw materials at the right time and at the reasonable price for which the plant must be located nearby to the sources of required raw materials units. If the raw materials come from a variety of locations, the plant may be situated so as to minimize total transportation costs.

3. Infrastructural facilities It considers availability of utilities like power, water, disposal of waste etc.

4. Transportation Facilities Transportation cost to value added is a key determinant of the plant location. It includes average distance and medium of transport i.e. Rail, Road or sea and air.

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5. Labour and Wages:Plant location should be such that required labour is easily available in the neighbourhood. Importing labour from outside is usually costly and it causes a lot of administrative problems. Prevailing wage pattern, living costs and industrial relations are other factors to be taken into account.

6. Legislation and TaxationThe policies of the State Govt. and Local bodies relating to issue of licenses, building codes, labour laws etc. are the factors in selecting or rejecting a particular community/ site. In order to balance economic growth, both central and state Govt. offer a package of incentives for setting up industries in particular locations.Exemptions from excise duty, sales tax and octroi, soft loans, subsidy in electricity charges etc. are some of the incentives offered by Govt. It will affect in minimizing the product cost.

7. Climate conditionsIt is an important factor for textile mills which requires high humidity.

8. Industrial and Labour attitudesCommunity attitudes towards supporting hostile trade union activities are an important factor. Frequent labor problems and interruptions are harmful to the plant in the long run. Political situation in the state and attitude of Govt. towards labour activities also influences selection of the site for the plant.

9. Safety requirementsIt is important for certain industries like1. Nuclear power plants2. Explosive factories3. Location near to border areas is undesirable for such industries.

10. Community facilities (Social infrastructure)It includes accommodation, education, medical, entertainment and transport facilities. It also includes communication facilities.

11. Community AttitudesCommunity attitudes towards work (people are hardworking or not) as well as their attitudes towards the incoming entrepreneurs (helpful, cooperative or not) can make or break the industry in that particular location.

12. Supporting Industries and ServicesService needed by the firm as well as supporting industries to that firm should be as nearer as possible for saving the time and cost.

13. Suitability of the landSite selection should also take into account topography and soil structure of the land.

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14. Availability and cost of the land:Site/ Plot size must be large enough to accommodate present required facilities, parking and access facilities and space for further expansion.

15. Waste DisposalProper infrastructure is to be created for the disposal of waste otherwise it will create the problems like pollution of air, water etc.

F a cilities (Pl a n t ) L a y o ut IntroductionPlant layout is the disposition of the various facilities and services of the plant within the areas of the site selected. Plant layout this involves determination of space requirement for the facilities and arranging them in a manner that ensures steady flow of production with minimum overall cost.“Plant layout is the placing of right equipment, coupled with right method, in the right place to permit the processing of the product in the most effective manner through the shortest possible distance and through the shortest possible time.”Plant layout decisions are strategic decisions. A good layout results in comforts, convenience, appearance, safety, efficiency and profits. A poor layout causes dispersion of material flow, unnecessary material handling, more scrap and rework, high output time, wasted movements, frustration and inefficiency.

P r inci p les o f a G oo d l a y o ut There are certain criteria which can be used to judge whether layout is good or not. These are as follows:a) Overall integration of factorsA good layout is one that integrates men, materials, machines, supporting activities and other in a way that the best compromise is obtained.b) Minimum MovementA good layout is one that permits the minimum movement between the operations.c) Uni-directional flowA good layout is one that makes the materials to move only in the forward direction, towards stage of completion, without any backtracking.d) Effective use of available spaceIn good layout available space is effectively used either in horizontal or vertical position.e) Maximum VisibilityMen, machines and materials are readily observable at all time in good layout.f) Maximum accessibilityA good layout is one that makes all servicing and maintenance points readily accessible.g) Minimum HandlingA good layout is one that reduces the materials handling activity to its minimum.h) Inherent SafetyA good layout is always safe for workmen to work in all respect.

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i) Safe and improved environmentsWork centre and areas around them always satisfying the workmen.j) Maximum FlexibilityA good layout is one that can be altered later if required, without much cost.k) Maximum SecurityA good layout safeguards the plant and machinery against fire, theft etc.

T y p e s of l ay o u t Layouts are basically of three types:a) Process or functional layout b) Product or line layoutc) Project or fixed position layout

P r o ce s s o r F unct i o n a l L a y o ut Process layout also called “layout by function” is generally associated with batch production. In this factory is divided into process units (or departmental) and within these process units (or departments) and within these process units (or departments) all similar facilities are grouped together.E.g. Presses are kept at one place, milling machines are placed at another place, and drilling machines are kept at third place, and so on. It is shown in following figure.

This type of layout is suitable when,1) The products are non-standard and their quantities are small.

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2) There is a wide variation in the processing times of individual operations.

A d va n t ag e s of P r o c e ss L ayo u t 1. Lower capital investment since general purpose and less number of machines required2. Higher utilization of available equipment3. Greater flexibility of equipments and workers4. Workers attain greater skills since they have to attend to one type of machine and operations5. Imbalance of work in one section does not affect the working of the other section6. Variety of the jobs makes the work interesting to the workmenD i sa d va n t ag e s

1. For the given volume of production, space requirements are higher in this type of layout2. Materials handling cannot be mechanized which adds to extra cost3. Work in process inventory is higher since jobs have to queue up for each operation4. Routing and scheduling is difficult5. Inspection required after each operation. This causes delays in production time6. Setup costs are high because of frequent changes of jobs

P r od uct o r Line La y o ut Product layout is also called “layout by sequence”. The layout of plant, shape and size of its buildings, location of services, stores, material handling equipments etc. are in such a way that materials flows unidirectional and at the steady rate. Special purpose machinery and equipment with built in-controls to measure output and input are employed. The equipment, if necessary, is duplicated to avoid backtracking. In these type materials always flows in the forward direction towards stage of completion.

This type of layout is suitable when:

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1. Products are standard and to be produced in large quantity2. Products have always reasonably stable demand3. Processing times of each operation is more or less equal; E.g. Automobiles, T.V sets, food processers, radios, transformers, cement, steel etc. (i.e. for single products)Advantages of product Layout1. Manufacturing cycle is small which reduces work in – progress2. Material handling is minimum (or automatic)3. Space required is small4. Work is simplified by breaking into elemental tasks which are mechanized wherever possible.

Hence labour costs are minimized5. Quality control is easy to exercise and more effective6. Delivery commitments are reliable7. Materials requirements can be scheduled easily and more accurately

Disadvantages1. The changes in the products necessitate the change in the layout of machinery2. All machines may not be used to their full capacity3. Manufacturing cost depends upon volume of production4. Breakdown of any machine will stop the further process till it gets required5. Expansion of capacity is not possible

P r o ject o r F i x ed Po s iti o n L a y o ut Project type of industries such as manufacturers of airplanes, ships, large turbines, heavy machinery, pressure vessels etc. has this type of layout. Heavy materials, components, sub-assemblies; under this layout remain fixed at one place. Men, machines and other tools are brought to the project location to complete the job.This type of layout is suitable when,1] One or few pieces of an identical product are to be manufactured2] The cost of transportation of heavy machinery and parts is very high

C o m b in a ti o n L a y o ut (Mi x ed L a y o ut) A mixed layout is the combination of process and product layout. It is generally used when,1. Product contains lot many components and parts2. Product requires to be produced in different types and sizesIn this type of layout, the parts are produced on facilities arranged in a process type of layout and then they are assembled using the product type of layout. Another concept of mixed layout is called cellular layout in which the facilities are clubbed together into cells to utilize the concepts, principles and approaches of group technology. In cellular layout, the facilitates are grouped into cells which are able to perform similar type ofoperations for a group of components.P r od ucti o n Pl a nn i ng a nd c o nt r o l Production is defined as transforming inputs into outputs in the form of goods and services required by society. Planning contains a series of activities that are interrelated and co-ordinate such as materials planning; process planning, scheduling etc. and which are designed to carry out manufacturing efforts systematically. Control is nothing but the overall control on the manufacturing process right from inputs to outputs.

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Definition:According to Gordon “Production planning & control involves generally the organization & planning of the manufacturing process. Specifically it consists of planning of routing, scheduling, dispatching & inspection coordination & control of materials, methods, machines, tooling & operating times.” Thus planning is forward thinking while control is a mechanism for execution. Planning & control are the two important wheels of the management process.

Objectives of Production Planning & ControlThe main objectives of PPC are as follows:1. To attain maximum utilization of resources2. To produce quality products3. To minimize manufacturing cycle time4. To maintain optimum inventory levels5. To achieve co-ordination between labour, machine & other supporting departments6. To maintain flexibility in operations7. To achieve cost reduction & cost control8. To prepare & maintain the production schedules9. To achieve organizational goals at minimum cost

Functions/ Scope of production planning & ControlProduction planning & control covers the following activities1. Procurement of raw materials, components & spare parts in right quantities at right time from right source

at right prices2. Selecting best methods of processing & finding out the best sequence of operations3. To determine the nature & magnitude of the output in consultation with marketing department4. To plan the layout of operations where different operations are to be performed5. To prepare & maintain time schedule6. To ensure continuous inspection over products produced7. To impose controls over costs & to get work done according to the plan

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Importance of Production Planning & Control

Production planning & control is heart of the production/ operations management function because of several reasons.a) It coordinates all phases of the production & operating systemb) An efficient system o production planning & control results into better quality, optimum utilization of resources, lower level of inventories, reduction in production cycle time, faster delivery, more efficient customer service, lower cost of production, lower capital investment etc. c) It also results into higher production, economy in production, quality of goods & services, timely delivery etc.d) It also results into higher sales, more profits, increase in market share, increase in competitive advantage etc.e) Because of systematic planning & control, machinery breakdown are minimized, maintenance is improved, excess capacity & idle time is minimized.f) It contributes significantly increasing the Goodwill & image of the organization.Thus production planning & control are not only complementary to each other but they are so interrelated that they can be treated as one function. A number of scientific tools are available for planning but in case of huge projects, the planning of projects is best performed through well- known techniques like program Evaluation & Review Techniques (PERT) & Critical Path Method (CPM).

I nt r od ucti o n to Six Si g m a Six Sigma as a management standard in product variation (presently even for service variation) can be treated back to the work during 1920’s when Walter Shewhart showed that three sigma from the mean is the point where a process requires correction.

DefinitionSix Sigma is a disciplined data driven approach & methodology for eliminating defects which amounts to driving towards six standard deviations between the mean & the nearer specifications limit in any process of products/ services. Six Sigma level indicates that we are 99.99966% confident that the product/ service delivered by us is defect free. This means that only 0.00034% of the times the product/ service delivered are defect prone.

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When 0.0000034 is multiplied by one million, it comes to 3.4 defect s per million opportunities. Actual number of defectsActual sigma level = x 100

Total no. of opportunities for the organization to make mistakes from the customer angle

A process is said to be at six sigma level provided that the process is not producing more than 3.4 defects per million opportunities. The fundamental objective of six sigma methodology is the process improvement & reduction of variation through its application.

At its Core, Six Sigma revolves around the following few concepts1. It is critical to attributes which are most important to the customers2. It focuses on the process more specifically what it can deliver3. It aims for stability of the process i.e. improve product quality which is the utmost expectation

of the customer4. It focuses on the design for six sigma to meet customer needs & process capability

A pp r oa ches f o r Six Si g m a There are two approaches for achieving six sigma which are as follows: DMAIC & DMADVDMAICDMAIC means Define, Measure, Analyze, Improve and Control. The six sigma DMAIC process is an improvement system for existing processes falling below specification & looking for incremental improvement. It is systematic, scientific & fact based.

DMADVDMADV means Define, Measure, Analyze, Design and Verify. The six sigma DMADV process is an improvement system used to develop new processes or products at six sigma quality levels. This can be used even for existing processes if they require more than just incremental improvement.

Ste p s o f Six Si g m a DM AI C Step – 1: DefineThis step establishes a leadership team which will decide on the project on which it will work. It also identifies key considerations like cost benefits, customer expectations, product quality enhancement & ability of the team to have a positive impact on the process.1. Define all your products by making a list of them along with corresponding end results2. Identify your customers of each end product

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Step – 2: MeasureIn this step, the team examines all aspects of the project, develops a thorough understanding of it and identifies the critical requirements & processes. The team defines performance measures for key characteristics & establishes an effective means of measuring them. Then, the measurements of the process to determine current performances are done.Following are the sub-steps:1. Define your needs in terms of essential inputs for projects/ products selected2. Setup quality measures3. Define the method of computing errors/ unit, errors/million & actual sigma level4. Measure the current performance of the processStep –3: AnalyzeIn this step, the team analyzes the results of this collected data & work for improvement of the process if required. It includes identification & quantification of the sources & locations of defect causing variables within the process.

Step-4: ImproveThe following steps are performed1. Identification of process improvements based on the collected data & analysis2. Designing a plan of action3. Performing risk assessments on the potential changes4. Implementing the plan5. Monitoring the results for the recommended changes

Step-5: ControlIn this step, the team reviews the entire process to ensure that the appropriate changes have been made & to identify the actions that will permanently maintain those changes. Further, steps are taken to control future process performance.

Ste p s o f Six Si g m a DM A D V The first three steps of DMAIC & DMADV are same except last two steps. The steps ofDMADV are as givenStep-1:Define the project goals & customer (internal & external) deliverablesStep-2:Measure & determine customer needs & specificationsStep-3:Analyze the process options to meet the customer needsStep-4:Design detailed process to meet the customer needsStep-5:Verify the design performance & ability to meet customer needs

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Benefits of Six Sigma1. It ensures enhanced product quality2. It enables predictable delivery of the products3. It helps to achieve productivity improvement4. It helps to have rapid response to changing needs of customers5. It also facilities the development & introduction of new production in to the marketplace

Logistics Management

The term Logistics is derived from military organization and it was in use in the days of Louis XIV of France.

It was observed that effectiveness of the military organization did not depend on only weapons, fighting skills

and spirit of the soldiers but also affected by the efficiency of transportation and supply of ammunition and food.

Logistics means this support to military. The same term when applied to industrial activity it reflects the similar

kind of approach to improve flow of product from source of origin through different stages and finally to the end

user.

Definition

Logistics Management encompasses all material flow management from the inflow of purchased materials into works, materials flow through manufacturing processes and material flow to customers.

Logistics Management includes the design and administration of systems to control the flow of materials work in progress and finished inventory to support business unit strategy.

Objectives of Logistics Management

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Basic objectives of a good logistic system are to get the right goods or services to the right place, at the right time, in the right condition and at the right cost. Other objectives are as follows:

a) To ensure the highest level of customer service and satisfaction

b) To minimize the operating costs of physical materials system

c) To reduce time spent from procurement to delivery of materials

d) Add value at every stage of logistic pipeline

e) Overall control on inventory, work in progress and finish goods

f) To help the organization for its competitive position in the market

g) Help in improving communication system both external and internal

h) Try to implement the principles of JIT

i) Promote cooperation and coordination in each sub-system to achieve the goods of the organization.

Activities of Logistics function

1) Order Processing 2) Transportation Management 3) Inventory Management 4) Warehousing 5) Materials handling 6) Packaging 7) Acquisition 8) Product Scheduling 9) Information system

Improving Effectiveness of Logistics Management

Effectiveness of Logistics management can be achieved with the help of following:

1. Logistics Network 2. Transport 3. Information 4. Inventory and Warehousing, materials handling and packaging

1. Logistics Network

It includes facilities like manufacturing, dealers, retail stores and warehouses. Larger the geographical area more

complex is the logistical network. Superior logistic network is a very big competitive tool. It is based on

systematic analysis and determination of number of factors like type of facilities, geographical location, specific

work allocation etc.

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2. Information

Timely information is the key to the logistic performance. Modern information technology, in the form of both hardware and software has removed the deficiencies in information.

3. Transport

Cost, speed and reliability are the key determinants of the effectiveness of any business essential for optimum cost.

4. Inventory

Good inventory management system must be operated to achieve desired customer service with minimum inventory investment. Inventory management is the profit centre area of each organization.

5. Warehousing, Materials handling and packaging

The choice and location of the warehouse should be with a view to get closer to the core customers. Materials handling should be planned to ensure safe and speedy receipt, movement, storage and packaging of customers requirements.

Lean Manufacturing:

Lean Manufacturing is systematic approach to identifying and eliminating waste (non-value added activities) through continuous improvement by flow of the product only when the customer needs it (called “pull”) in pursuit of perfection.

Why do we need LMS?

• To meet the challenge of competing in globalised markets.

• Continued Market place focus on quality, cost and delivery (QCD)

• Pressure of out sourcing by OEM?

• Ever increasing customer expectations.

• The need to compete effectively in the global economy

• Pressure from customers for price reductions

• Continued marketplace focus on quality cost and on-time delivery.

The Lean Drivers:

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Objectives of Lean Manufacturing system :

Basic Objective of LMS is to do more and more with less and less human effort, less equipment, less time and less space. At the same time coming closer and closer to providing customers what exactly they want. LMS aims to reduce the time line by reversing the sequence of activities and eliminating non value added operations.

Flow in Lean Manufacturing System

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Process

People

Flow Elimination of Waste

Lean ThinkingEmployee Involvement

Technology

Customer Success Tools to support people

and process

Key Principles in LMS:

1. Minimize material handling. Preference should be given to low or no-cost solutions such as gravity-feed slides. Handle product once only.

2. Minimize distances. Avoid walking, carrying, etc. by creating cells, combining operations within a work centre, better planning, and so on.

3. Minimize strain. Work centres should be ergonomically designed to avoid back and other muscle strains.

4. Minimize clutter. Everything should have a home, from parts and tools at a workstation, to equipment and product within designated floor spaces.

5. Minimize storage. If you have the space, it will surely get filled. Thus, continuously minimize your storage space for raw material, WIP, finished goods and spare parts throughout the supply chain.

6. Maximize utilization. Make optimal use of people, space, and equipment to improve the return on investment.

7. Maximize flexibility. The key to lean is creating a layout that can adapt quickly to changes in product, equipment, personnel, or material.

8. Maximize smooth flow. Continuously determine and eliminate the bottlenecks, then re- balance the line.

9. Maximize visibility. To quickly spot problems, maintain a clear line of vision to anywhere, from anywhere.

10. Maximize communication. Lean requires constant training on tools available to meet goals and objectives, and feedback on how well things are going.

Tools of LMS:

a) JIT

b) Total productive maintenance

c) 5 S

d) Process optimization

e) Visual Controls

f) Streamlined layout

g) Standardized work.

h) Batch size reduction

i) Quality at the source

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j) Point of use storage

k) Quick changeover

l) Pull and Kanban

Just In Time:Just in Time is an optimal material requirement planning system for a manufacturing process in which there is little or no manufacturing material inventory on hand at the manufacturing site and little or no incoming inspection.

Leading Japanese companies attribute their success in reducing waste and speeding production to the implementation of so called Just in Time (JIT) methods of working. It is also known as stockless production because the aim is to receive supplies and manufacture components Just in Time for next operation. In JIT, the ideal inventory is one.

First sell it, and then make it: JIT reverses the conventional approach of first making and then selling. Ideally nothing is produced unless a customer is identified. In some Japanese factories the cars are shipped with the customer’s name already attached. This helps in reducing inventories, warehousing and other holding costs.

From finish to start: JIT reverses the conventional approach of planning production from start to finish. Employees responsible for final operation receive the production plan first. The organization is forced to get the production process right before commencing production. Implementing Just-In-Time Production Systems

Just-in-Time (JIT) is a philosophy of continuous improvement in which non-value-adding activities (or wastes) are identified and removed for the purposes of reducing cost, improving quality, performance, delivery and flexibility and increasing innovativeness. JIT is not about automation. Typically, JIT eliminates waste by providing the environment to perfect and simplify the processes. After this is done to the furthest extent possible, the opportunities for applying technology effectively are more obvious

JIT can mean either of two things: A collection of techniques that is used to improve operations (TQM, set-up time reduction, multi-skilled

employees, team approaches, simultaneous engineering, etc.) or, A new production system that is used to produce goods or services (evolving from the Toyota Production

System developed in the early 1950's, and is know by other terms, such as: stockless production, zero inventories, lean production, etc.).

The American Production and Inventory Control Society's definition of JIT reflects these two views. Definition of JIT: A philosophy of manufacturing based on planned elimination of all waste and continuous improvement of

productivity. It encompasses the successful execution of all manufacturing activities required to produce a final product, from design engineering to delivery and including all stages of conversion from raw material onward. The primary elements include having only the required inventory when needed; to improve quality to zero defects; to reduce lead time by reducing setup time, queue lengths and lot sizes; to incrementally revise the operations themselves; and to accomplish these things at minimum cost.

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Almost all companies in repetitive manufacturing industries are implementing JIT principles. Many companies in non-repetitive manufacturing industries and service industries are also implementing JIT principles. When the implementation is successful, significant competitive advantages are realized.

JIT principles can be applied to all parts of an organization - from order taking, purchasing, operations, distribution to sales, accounting design, etc. This guideline focuses on the operations part of the organization, where JIT is traditionally implemented first.

KANBAN:

The Japanese refer to Kanban as a simple parts-movement system that depends on cards boxes/containers to take parts from one work station to another on a production line. Kanban stands for Kan- card, Ban- signal. The essence of the Kanban concept is that a supplier or the warehouse should only deliver components to the production line as and when they are needed, so that there is no storage in the production area. Within this system, workstations located along production lines only produce/deliver desired components when they receive a card and an empty container, indicating that more parts will be needed in production. In case of line interruptions, each work-station will only produce enough components to fill the container and then stop. In addition, Kanban limits the amount of inventory in the process by acting as an authorization to produce more inventories. Since Kanban is a chain process in which orders flow from one process to another, the production or delivery of components is pulled to the production line. In contrast to the traditional forecast oriented method where parts are pushed to the line.

Advantages of the Kanab Processa) A simple and understandable processb) Provides quick and precise informationc) Low costs associated with the transfer of informationd) Provides quick response to changese) Limit of over-capacity in processesf) Avoids overproductiong) Minimizes wasteh) Control can be maintainedi) Delegates responsibility to line workers

The practical expression of Toyota's people and customer-oriented philosophy is known as the Toyota Production System (TPS). This is not a rigid company-imposed procedure but a set of principles that have been proven in day-to-day practice over many years. Many of these ideas have been adopted and imitated all over the world.

TPS has three desired outcomes: To provide the customer with the highest quality vehicles, at lowest possible cost, in a timely

manner with the shortest possible lead times. To provide members with work satisfaction, job security and fair treatment. It gives the company flexibility to respond to the market, achieve profit through cost reduction

activities and long-term prosperity.

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TPS strives for the absolute elimination of waste, overburden and unevenness in all areas to allow members to work smoothly and efficiently. The foundations of TPS are built on standardization to ensure a safe method of operation and a consistent approach to quality. Toyota members seek to continually improve their standard processes and procedures in order to ensure maximum quality, improve efficiency and eliminate waste. This is known as kaizen and is applied to every sphere of the company's activities.

Kaizen - Continuous Improvement Kaizen is the heart of the Toyota Production System. Like all mass-production systems, the Toyota process requires that all tasks, both human and mechanical, be very precisely defined and standardized to ensure maximum quality, eliminate waste and improve efficiency. Toyota Members have a responsibility not only to follow closely these standardized work guidelines but also to seek their continual improvement. This is simply common sense - since it is clear that inherent inefficiencies or problems in any procedure will always be most apparent to those closest to the process. The day-to-day improvements that Members and their Team Leaders make to their working practices and equipment are known as kaizen. But the term also has a wider meeting: it means a continual striving for improvement in every sphere of the Company's activities - from the most basic manufacturing process to serving the customer and the wider community beyond.

Just In Time It is perhaps not widely known that the 'just in time' approach to production that has now gained almost universal acceptance in world manufacturing was actually pioneered by Toyota. In fact, a Toyota engineer coined the term itself. This, too, is a simple but inspired application of common sense. Essentially, 'just in time' manufacturing consists of allowing the entire production process to be regulated by the natural laws of supply and demand. Customer demand stimulates production of a vehicle. In turn the production of the vehicle stimulates production and delivery of the necessary parts and so on. The result is that the right parts and materials are manufactured and provided in the exact amount needed - and when and where they are needed. Under 'just in time' the ultimate arbiter is always the customer. This is because activity in the system only occurs in response to customer orders. Production is 'pulled' by the customer rather than being 'pushed' by the needs or capabilities of the production system itself. The linkage between customer demand and production is made by analyzing takt time, a device for measuring the pace of sales in the market in relation to the capacity of a manufacturing plant. For example, if a plant operates for 920 minutes per day and daily demand is for 400 vehicles, then takt time will be 2.3 minutes. If takt times are reduced more resources are allocated. Toyota never tries to accommodate changes in demand by making substantial changes in individuals' workloads. Assigning more Members to a line means that each handles a narrower range of work. Assigning fewer means that each handles a broader range. Hence there is paramount importance of having a well-trained, flexible and multi-skilled workforce. Within the plant itself, the mechanism whereby production is regulated in this way is known as the kanban. A kanban is simply a message. For example, in the assembly shop this message takes the form of a card attached to every component that is removed and returned when the component is used. The return

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of the kanban to its source stimulates the automatic re-ordering of the component in question. Paperwork is minimized. Efficiency is maximized. And the Members themselves are completely in charge.

Jidoka In Japanese 'jidoka' simply means automation. At Toyota it means 'automation with a human touch'. In 1902 Sakichi Toyoda invented the world's first automatic loom that would stop automatically if any of the threads snapped. This principal, jidoka, of designing equipment and processes to stop and call attention to problems immediately when they sense a problem is a central concept of TPS. The most visible manifestation of 'automation with a human touch' at the Altona plant is the land on cord situated above the line. The presence of the andon cord permits any Team Member to intervene and bring production to a halt if abnormalities occur. The Toyota Production System has inherited the principle originated by Henry Ford of breaking down work into simple steps and distributing those steps amongst employees on the line. But employees in the Toyota system are in charge of their own jobs. Through their teams, they run their own worksites. They identify opportunities for making improvements and take the initiative in implementing those improvements in co-operation with management.

Suppliers & TPS

Just-in-time manufacturing and other elements of the Toyota Production System work best when they are a common basis for synchronizing activity throughout the production sequence. This is an egalitarian arrangement in which each process in the production flow becomes the customer for the preceding process and each process becomes a supermarket to the following process. Independent suppliers participate on an equal footing with Toyota operations in the production flow, each fulfilling their own role in that flow. The only participant in the entire sequence who does not answer to anyone is the customer who selects a vehicle in the marketplace. Suppliers who participate in the Toyota Production System enjoy the same benefits that Toyota does from the system. Just-in-time manufacturing can dissolve inventories at parts suppliers just as readily and effectively as it does at Toyota's assembly plants. Product quality improves, too. That's because the Toyota Production System includes measures for illuminating defects whenever and wherever they occur. Suppliers who adopt the Toyota Production System also report improvements in employee-management relations. That is mainly because the system provides for an expanded role for employees in designing and managing their own work. It brings together employees and management in the joint pursuit of improvements in productivity, quality, and working conditions.

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Ch 04

Inventory

Inventory is one of the largest items of investment of manufacturing companies and often constitutes 40-50% of the total investment and around 80-90% of working capital. Hence the study of inventory is very important.

Definition: “Inventories are materials or resources of any kind having some economic values either waiting for conversion or to be used in future.”

Inventories are stock of materials of any kind stored fir future use, mainly in the production process. The other indirect materials like fuels, maintenance, materials etc. are also considered as part of inventories. Inventory includes raw-materials, in process materials, finished packed materials, spares and all other materials required for future after demand. From the financial point of view, inventory is defined as “the sum of the value of raw materials, fuels and lubricants, spares, maintenance materials, semi processed materials and finished goods stock at any given of time.”

Types of InventoriesThere are different types of inventories in manufacturing process. They can be classified as follows:

1. Raw materials and production inventories:

This includes raw materials and other materials which are required for the production of finished product.

2. In process Inventories

These are the semi finished, work in progress and partly finished products produced at various stages of production.

3. MRO Inventories

This includes maintenance, repairs and operating suppliers that are consumed during the process of production e.g. oils, lubricants, spares.4. Finished goods Inventories

These are final products ready for sale. Inventories can be also classified on the basis of their function.

5. Movement or transit Inventories

6. Lot size Inventories

These are inventories of some materials which are used in very small quantity

7. Fluctuation Inventories

Materials which are kept for unpredictable fluctuations in demand for the product. However such stocks are uneconomical.

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8. Anticipation Inventories

These inventories are held to meet the predictable changes in demand e.g. stock of raw materials before seasonable change

9. Tools and Accessories

10. General stores or operating stores

This includes items like cotton waste, electric bulbs, sand papers etc.

Different types of Cost Associated with Inventories

Inventories account for about 40-50% of total investment and around 80-90% if working capital, hence it is necessary to take into consideration the cost factor before taking any inventory decision.

Inventory costs basically includes Ordering costs

Carrying costs

Out of stock/ shortage costs Capacity costs

Each of these major categories covers several elements which are as follows:

Ordering costs

A) Cost of placing an order of materials

Preparing a purchase order

Processing payments

Receiving and inspection materials

B) Ordering from the plant

Machine set up

Scrap resulted at the time of production

Carrying Costs

A) Capital Costs

Interest on money invested in inventory

Interest on money invested in land and machinery

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B) Storage space costs

Rent on buildings

Taxes and Insurance

Depreciation on building

Depreciation on warehouse

Cost of maintenance and repairs

Utility charges like heat, light, water etc

Salaries of personnel

C) Inventory Service costs

Taxes on Inventory

Labour costs in handling and maintaining stocks

Clerical expenses

D) Handling Equipment costs

Taxes and Insurance of equipment

Depreciation on equipment

Fuel Expenses

Cost of maintenance and repairsE) Inventory Risk costs

Insurance on inventory

Physical deterioration of inventory

Losses

Out of stock/ Shortage costs

Back ordering

Lost sales

Capacity Costs

Overtime payments when capacity is too small

Layoffs and idle time cost when capacity is too large

All the above stated costs are to be maintained at minimum level to get the profit maximization.

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Economic Order Quantity (EOQ)

Economic Order Quantity (EOQ) is an important technique of inventory control. Inventory control mainly depends with two basic issues:

When to order? How much to order?

The issue when to order can be solved by obtaining the stock level of each of the item in the inventory. The other issue of “How much to order or what should be the size of each order is decided with the help of EOQ model.

EOQ prescribes the order size at which the ordering cost and inventory carrying cost will be minimum. The ordering cost and the inventory carrying cost are independent and mutually exclusive. When the size of the individual order is large and the number of annual order is less than the ordering cost is low but carrying cost is higher. As against this, large number of small orders results into higher ordering cost but the carrying cost remains low. Under this condition the EOQ model aims at achieving the balance between the ordering cost and the carrying cost. It suggests such a quantity of each order at which the total ordering cost and the carrying cost would be minimum.

As these costs are mutually exclusive the total of both the costs is minimum at a point where the ordering cost is equal to the carrying cost. This can be explained with the help of graph as shown on the next page:

In diagram order quantity is shown on X axis and annual inventory carrying cost (AICC) and annual procurement cost (APC) is shown on Y axis. AICC and APC intersect at point “E” so that the OQ is the economic order quantity (EOQ).At EOQ both AICC and APC are equal and annual total cost (ATC) is minimum as shown.

Assumptions of the EOQ model:

1. The demand for the product is constant and uniform throughout the period

2. Ordering costs are constant

3. The product can be obtained in the quantities as required as there is no restriction on supply

4. There is no deterioration or spoilage of the items

5. There are no back orders

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Formula for EOQ

The first step is to establish a functional relationship between the variables concerned. In the context of costs we may have the following equation:

(Refer Class notes)

Classification of Materials in Material Management

A manufacturing organization has to deal with a large number of items of different types, having different characteristic and uses. Hence for the purpose of convenience some sort of classification of materials becomes necessary.

Classification of materials is the process of grouping of various items into few categories on the basis of certain common characteristic such as nature, use or service.

Objectives of Classification

1. To provide necessary information about principle materials used by the organization

2. To help the storekeeper for providing proper storing, careful handling and safe custody of the materials

3. Helping in planning and controlling of materials of different type

4. To take decision regarding storage and issue of materials in a class

5. To develop accounting and evaluation procedures

6. For effective identification of materials

Generally materials are classified on the basis of 1) Stage of production process, 2)Nature of materials and 3) Condition of materials.

Classification of materials on the basis of stage of production process

1] Direct materials

a) Raw materials

b) Work in progress

c) Works made parts

d) Parts purchased from outside

e) Finished goods

2] Indirect materials (e.g. cotton waste, spray oil etc.)

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Classification of materials on the basis of stage of Nature of materials

a) Raw materials

b) Perishable materials (e.g. eggs, milk, curd etc.)

c) Consumable materials (e.g. coal, stationary)

d) Furniture (e.g. Tables, chairs etc.)

e) Chemicals (Acids, Alcohol etc.)

f) Packaging materials

g) Inflammable items (Petrol, Diesel, Kerosene etc.)

h) Empties (e.g. wooden boxes, barrels, cans etc.)

i) Supplies (e.g. oils, grease, cleaning powder etc.)

j) Spares

k) Machinery Equipment Tools

l) Scrap materials

Classification according to the condition of materials

a) Serviceable, unserviceable and obsolete

b) Finished or semi finished stores

c) Dead stock items

d) Unused stock materials

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Different Techniques of Inventory control

Inventories are essential for keeping the production wheels moving smoothly without any interruption. At the same time, it is necessary to have an effective inventory control to minimize the idle time caused by shortage and non- availability of materials. Generally selective inventory control policy has been recommended because it takes into consideration various factors like value of the inventory items, its criticality, usage frequency etc. It is more effective and is directed towards more significant group of items. Selective inventory control makes use of various types of classification schemes depending upon the criteria used for classification which is as follows:

Types of classification Criterion used

ABC Analysis Usage value (consumption per period* price perunit

VED Analysis (Vital, Essential, Desirable) Criticality of the item in the process ofproduction

FSN Analysis (Fast, slow, Non-moving) Issues from stores

GOLF Analysis (Government, ordinary, Local,Foreign) Sources of Procurement

SOS Analysis (Seasonal, off seasonable) Seasonality

Let us discuss these classifications in details:

ABC Analysis

ABC analysis is based on the principle, “vital few, trivial many”.

Even the Pareto’s Law of “Cause and Effect which states that only 20% of the activity causes 80% of effect. This is also known as 20/80 ratio.

It provides a “Golden rule” that keep an eye on this 20% and you will cover the 80% of the effect. This rule when applied to inventory items, gives rise to ABC analysis.

ABC analysis is a basic analytical materials management tool. It always controls the best firs, than better and lastly the good.

The ABC method takes into consideration:

a) Different Inventory levels, b) Order quantities, c) Monetary value of materials, d) extent and closeness of the control desired.

By way of taking usage value as a basis, inventory items are classified as number of items and value of items.

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Thus,

No of Items Value of items Value of items (%) forClass (%) (%) graph

A 10 70-90 90B 20 20-30 8C 70 10-20 2

Graphical Presentation of ABC method of Inventory Control

Steps in ABC analysis

1. Prepare the list of items and estimate their annual consumption in terms of physical units

2. Determine cost or unit price of each item

3. Multiply each annual consumption by cost

4. Arrange the items in descending order on annual usage from highest to lowest

5. Express cumulative usage in percentage

6. Express cumulative items in percentage

Plot the graph and separate the items into “A”, “B” and “C” Class

Summary of control

Sr no. Control A B C1 Process Control Tight Moderate Loose

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2 Requirement Exact Exact Estimate3 Posting Individual Individual Group

Check of4 Revision Close Some Little5 Quality control Exact Exact Approximate6 Expediting Regular Some No.

VED Analysis (Vital, Essential, Desirable)

According to the VED method, spare parts are classified as Vital, Essential and Desirable according to their requirements.

Those spares classified as “V” are to be stocked adequately to ensure smooth operation of the production process. Vital spares are those because of which the production process may stop on non availability of these items.

In case of “E” items, the organization may take reasonable risk. When required such items have to be made available at a short notice.

The “D” items are such that they do not cause any immediate loss of production and their stock out cost is also normal.

VED analysis is useful to the capital-intensive industries where the machinery, tools and equipments are extensively used e.g. transport industry.

FSN Analysis (Fast, Slow, Non moving)

Under modern dynamic environment characterized by rapid technological progress threats are developed to

inventory management as large number of items are likely to be obsolete during storage. The changes in

product mix and deviations of actual consumptions may result in accumulating huge inventory. Thus the

inventory can be classified as “Fast moving” or “Slow moving”.

In FSN technique inventory of items are to be kept on the basis of the movement i.e. how the items are moving fast, slow, or Non moving. This technique is extensively used for selective inventory control.

Uses of FSN analysis

It identifies the active items

Useful to identify surplus items

Non moving items can be identified and disposed

Investment for only required items can be done

GOLF Analysis (Government, Ordinary, Local, Foreign)

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The GOLF analysis takes into consideration nature of suppliers that affects quality, lead time, terms of payment, steadiness of supply and administrative activities involved.

G category items are those that are procured from government agencies such as State Trading Corporation or

public sector undertakings. They take long lead-time. Ordinary or non- government category includes those items

obtained from ordinary suppliers. They take moderate time for delivery and supply goods even as credit.

Local category includes those items, which are locally available and local suppliers supply them. Foreign

category includes imported items which are required in the production process. For such items search of

foreign supplies, obtaining letter of credit and making arrangement for shipment etc. is to be done in proper

time to avoid production stoppage.

SOS Analysis (Seasonal- Off- Seasonable)

The SOS analysis is based on seasonable availability of the items. So there are only two categories seasonal and off seasonal items.

Seasonal items are available only during the season, which is a very short time, such as agricultural raw materials. Hence they are to be procured in lots during season so as to use for the whole year.

Non seasonal items are those items which are available at any time during the year and hence they can be purchased as and when required.

Above mentioned are all selective inventory control techniques. These can be used separately or in

combination with others. An organization should select suitable techniques depending upon the nature of the

product and other circumstances.

Ch 03

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Materials Requirement Planning (MRP)Definition

MRP is a system of planning and scheduling the time phased materials requirements for production operations.

MRP is an inventory control process carried out with the aid of computer to determine time-phased requirement of components that are used for manufacturing product on assembly line principles.

MRP aims at solving basic problems of inventory control such as the supply of right quantity components at right time, to avoid stock piling of heavy inventory and avoid stock outs. MRP is used for depended demand situations

MRP outputs are:

1. Master Production Schedule (MPS)

2. Bill of Materials (BOM)

3. Inventory status

Objectives of MRP1) Inventory Reduction

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2) Reduction in production and Delivery Lead Times 3) Realistic Commitments 4) Increase in efficiency 5) To reduce inventory costs by reducing inventory levels 6) To improve plant operating efficiency

Advantages of MRP1) Reduced Levels of Inventory 2) Better utilization of human and non human resources 3) Improved consumer service 4) Efficient Financial Planning 5) Better Scheduling 6) Improved vendor Relations 7) Efficient Planning 8) Promoting Engineering Efficiency 9) Dynamic Nature 10) Rational Materials Decisions

Master Production Schedule (MPS)

Initially the MPS is developed from the customer orders received by the firm or from forecasts of demand before the MRP system begins to operate. The MPS is designed to meet market demand and hence it provides valuable information for the MRP system. Now with the help of MRP systems the MPS is scheduled to complete the demand of the markets.

Bill of Materials (BOM)

The BOM identifies how each end product is manufactured, specifying all subcomponent items, their sequence of build up, their quantity in each finished unit, and the work centres performing the build up sequence. This information can be obtained from product design documents, workflow analysis and other standard manufacturing and industrial engineering documents. The MRP receives primary information from the BOM is that of product structure which shows various components of a product. Each item in the product structure is given a unique identification number. Accuracy in MRP can be obtained with the help of BOM at the time of MPS

Few Current Concepts:

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FLEXIBLE MANUFACTURING SYSTEMS

A flexible manufacturing system (FMS) is a group of numerically-controlled machine tools, interconnected by a central control system. The various machining cells are interconnected, via loading and unloading stations, by an automated transport system. Operational flexibility is enhanced by the ability to execute all manufacturing tasks on numerous product designs in small quantities and with faster delivery. It has been described as an automated job shop and as a miniature automated factory. Simply stated, it is an automated production system that produces one or more families of parts in a flexible manner. Today, this prospect of automation and flexibility presents the possibility of producing nonstandard parts to create a competitive advantage.

The concept of flexible manufacturing systems evolved during the 1960s when robots, programmable controllers, and computerized numerical controls brought a controlled environment to the factory floor in the form of numerically-controlled and direct-numerically-controlled machines.

For the most part, FMS is limited to firms involved in batch production or job shop environments. Normally, batch producers have two kinds of equipment from which to choose: dedicated machinery or unautomated, general-purpose tools. Dedicated machinery results in cost savings but lacks flexibility. General purpose machines such as lathes, milling machines, or drill presses are all costly, and may not reach full capacity. Flexible manufacturing systems provide the batch manufacturer with another option—one that can make batch manufacturing just as efficient and productive as mass production.

OBJECTIVES OF FMS

Stated formally, the general objectives of an FMS are to approach the efficiencies and economies of scale normally associated with mass production, and to maintain the flexibility required for small- and medium-lot-size production of a variety of parts. Two kinds of manufacturing systems fall within the FMS spectrum. These are assembly systems, which assemble components into final products and forming systems, which actually form components or final products. A generic FMS is said to consist of the following components:

1. A set of work stations containing machine tools that do not require significant set-up time or change-over between successive jobs. Typically, these machines perform milling, boring, drilling, tapping, reaming, turning, and grooving operations.

2. A material-handling system that is automated and flexible in that it permits jobs to move between any pair of machines so that any job routing can be followed.

3. A network of supervisory computers and microprocessors that perform some or all of the following tasks: (a) directs the routing of jobs through the system; (b) tracks the status of all jobs in progress so it is known where each job is to go next; (c) passes the instructions for the processing of each operation to each station and ensures that the right tools are available for the job; and (d) provides essential monitoring of the correct performance of operations and signals problems requiring attention.

4. Storage, locally at the work stations, and/or centrally at the system level.

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5. The jobs to be processed by the system. In operating an FMS, the worker enters the job to be run at the supervisory computer, which then downloads the part programs to the cell control or NC controller.

BENEFITS OF FMS

The potential benefits from the implementation and utilization of a flexible manufacturing system have been detailed by numerous researchers on the subject. A review of the literature reveals many tangible and intangible benefits that FMS users extol. These benefits include:

less waste

fewer workstations

quicker changes of tools, dies, and stamping machinery

reduced downtime

better control over quality

reduced labour

more efficient use of machinery

work-in-process inventory reduced

increased capacity

increased production flexibility

The savings from these benefits can be sizable. Enough so that Ford has poured $4,400,000 into overhauling its Torrence Avenue plant in Chicago, giving it flexible manufacturing capability. This will allow the factory to add new models in as little as two weeks instead of two months or longer. Richard Truett reports, in Automotive News, that the flexible manufacturing systems used in five of Ford Motor Company's plants will yield a $2.5 billion savings. Truett also reports that, by the year 2010, Ford will have converted 80 percent of its plants to flexible manufacturing.

LIMITATIONS OF FMS

Despite these benefits, FMS does have certain limitations. In particular, this type of system can only handle a relatively-narrow range of part varieties, so it must be used for similar parts (family of parts) that require similar processing. Due to increased complexity and cost, an FMS also requires a longer planning and development period than traditional manufacturing equipment.

Equipment utilization for the FMS sometimes is not as high as one would expect. Japanese firms tend to have a much higher equipment utilization rate than U.S. manufacturers utilizing FMS. This is probably a result of U.S. users' attempt to utilize FMS for high-volume production of a few parts rather than for a high-variety production of many parts at a low cost per unit. U.S. firms average ten types of parts per machine, compared to ninety-three types of parts per machine in Japan.

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Other problems can result from a lack of technical literacy, management incompetence, and poor implementation of the FMS process. If the firm misidentifies its objectives and manufacturing mission, and does not maintain a manufacturing strategy that is consistent with the firm's overall strategy, problems are inevitable. It is crucial that a firm's technology acquisition decisions be consistent with its manufacturing strategy.

If a firm chooses to compete on the basis of flexibility rather than cost or quality, it may be a candidate for flexible manufacturing, especially if it is suited for low- to mid-volume production. This is particularly true if the firm is in an industry where products change rapidly, and the ability to introduce new products may be more important than minimizing cost. In this scenario, scale is no longer the main concern and size is no longer a barrier to entry.

However, an FMS may not be appropriate for some firms. Since new technology is costly and requires several years to install and become productive, it requires a supportive infrastructure and the allocation of scarce resources for implementation. Frankly, many firms do not possess the necessary resources. Economically justifying an FMS is a difficult task—especially since cost accounting tends to be designed for mass production of a mature product, with known characteristics, and a stable technology. Therefore, it is difficult to give an accurate indication of whether flexible manufacturing is justified. The question remains of how to quantify the benefits of flexibility. In addition, rapidly-changing technology and shortened product life cycles can cause capital equipment to quickly become obsolete.

For other firms, their products may not require processes at the technological level of an FMS. IBM found that a redesigned printer was simple enough for high-quality manual assembly and that the manual assembly could be achieved at a lower cost than automated assembly. Potential FMS users should also consider that some of the costs traditionally incurred in manufacturing may actually be higher in a flexible automated system than in conventional manufacturing. Although the system is continually self-monitoring, maintenance costs are expected to be higher. Energy costs are likely to be higher despite more efficient use of energy. Increased machine utilization can result in faster deterioration of equipment, providing a shorter than average economic life. Finally, personnel training costs may prove to be relatively high.

For some firms, worker resistance is a problem. Workers tend to perceive automation as an effort to replace them with a tireless piece of metal that does not eat, take breaks, or go to the bathroom. To combat this perception, many firms stress that workers are upgraded as a result of FMS installation, and that no loss of jobs ensues. Despite any problems, use of flexible manufacturing systems should continue to grow as more firms are forced to compete on a flexibility basis and as technology advances. It has shown many advantages in low- to mid-volume, high-mix production applications. Future systems will probably see lower and lower quantities per batch. FMS can somewhat shift emphasis in manufacturing from large-scale, repetitive production of standard products to highly-automated job shops featuring the manufacture of items in small batches for specific customers. The increased availability of flexible manufacturing technology will also give multi-product firms more choices of how to design production facilities, how to assign products to facilities, and how to share capacity among products.

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Aggregate planning

Aggregate planning is the process of developing, analyzing, and maintaining a preliminary, approximate schedule of the overall operations of an organization. The aggregate plan generally contains targeted sales forecasts, production levels, inventory levels, and customer backlogs. This schedule is intended to satisfy the demand forecast at a minimum cost. Properly done, aggregate planning should minimize the effects of short-sighted, day-to-day scheduling, in which small amounts of material may be ordered one week, with an accompanying layoff of workers, followed by ordering larger amounts and rehiring workers the next week. This longer-term perspective on resource use can help minimize short-term requirements changes with a resulting cost savings.

In simple terms, aggregate planning is an attempt to balance capacity and demand in such a way that costs are minimized. The term "aggregate" is used because planning at this level includes all resources "in the aggregate;" for example, as a product line or family. Aggregate resources could be total number of workers, hours of machine time, or tons of raw materials. Aggregate units of output could include gallons, feet, pounds of output, as well as aggregate units appearing in service industries such as hours of service delivered, number of patients seen, etc.

Aggregate planning does not distinguish among sizes, colours, features, and so forth. For example, with automobile manufacturing, aggregate planning would consider the total number of cars planned for not the individual models, colours, or options. When units of aggregation are difficult to determine (for example, when the variation in output is extreme) equivalent units are usually determined. These equivalent units could be based on value, cost, worker hours, or some similar measure.

Aggregate planning is considered to be intermediate-term (as opposed to long- or short-term) in nature. Hence, most aggregate plans cover a period of three to 18 months. Aggregate plans serve as a foundation for future short-range type planning, such as production scheduling, sequencing, and loading. The master production schedule (MPS) used in material requirements planning (MRP) has been described as the aggregate plan "disaggregated."

Steps taken to produce an aggregate plan begin with the determination of demand and the determination of current capacity. Capacity is expressed as total number of units per time period that can be produced (this requires that an average number of units be computed since the total may include a product mix utilizing distinctly different production times). Demand is expressed as total number of units needed. If the two are not in balance (equal), the firm must decide whether to increase or decrease capacity to meet demand or increase or decrease demand to meet capacity. In order to accomplish this, a number of options are available.

"Aggregate Planning is concerned with matching supply and demand of output over the medium time range, up to approximately 12 months into the future. Term aggregate implies that the planning is done for a single overall measure of output or, at the most, a few aggregated product categories. The aim of aggregate planning is to set overall output levels in the near to medium future in the face of fluctuating or uncertain demands. Aggregate planning might seek to influence demand as well as supply."

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Aggregate Plan Strategies

Level plans

Use a constant workforce & produce similar quantities each time period

Use inventories and backorders to absorb demand peaks & valleys

Chase plans

Minimize finished goods inventories by trying to keep pace with demand fluctuations

Matches demand by varying either work force level or output rate

Hybrid Strategies

Build-up inventory ahead of rising demand and use backorders to level extreme peaks

Subcontract production or hire temporary workers to cover short-term peaks

Reassign workers to preventive maintenance during lulls

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