Production and Materials Management

LESSON - 1

INTRODUCTION

1.1 Preamble

1.2 Historical perspective of production and materials management

1.3 Significance of production management

1.4 Significance of materials management

1.5 Corporate strategy

1.6 The mission

1.7 The environment

1.8 Distinctive competencies

1.9 Summary

1.10 Key concepts

1.11 Model questions

1.12 Reference books

1.1 PREAMBLE

The historical development of production and materials management is discussed inthis lesson. The important role of production and materials management in theoperation of goods and services is highlighted. The corporate strategy and theenvironment in which it has to be achieved are narrated.

1.2 HISTORICAL PERSPECTIVE OF PRODUCTION AND MATERIALSMANAGEMENT

Humans have been producing goods and services since the beginning of time.However the formal study of how people can more efficiently and effectively producegoods and services has been investigated only in the last century. When the dramaticprogress of the last several years in computers with that made in the previoushundred years, it can be relied about how fast today's society is changing. Changes intechnology and life-style have profound effect on the types and number of productsand services available. Investigation of historical development that relate to theproduction of goods and services will lead to insights into the future.

The first recognised attention to production economics was given by the Scottisheconomist Adam Smith. In 1776 he wrote the book 'The wealth of the Nations' inwhich he observed three basic economic advantages resulting from the division oflabour.

These were:

(i) Development of skill when single task was performed repetitively.

(ii) A saving of time normally lost in changing from one activity to the next.

(iii) Invention of machines or tools normally follows when people specialized theirefforts on tasks of restricted scope.

Smith did not deduce these ideas in theoretical way. Instead, under the factorysystem, division of labor was developing as a common sense method of productionwhen relatively large group of workers were brought together to produce a largequantity. Smith observed this practice, noted the three advantages and wrote aboutthem in his book.

After Adam Smith, an English man, Charles Babbage, enlarged Smith'sobservations and raised a number of provocative questions about productionorganisations and Economics. His thoughts were summarized in the book 'On theeconomy of Machinery and Manufacturers' in the year 1832.

After the observations of the Adam Smith and Charles Babbage, the division of laborcontinued and then accelerated during the first half of the 20th century. Productionlines carried out the division of labor to its greatest extreme.

Frederick W. Taylor was undoubtedly the outstanding historical figure in thedevelopment of production management field. Smith and Babbage were observersand writers, but Taylor was both a thinker and a doer. Taylor was an innovator in amanagerial environment where strong traditions existed. Taylor's new philosophystated that the scientific method could be applied to all managerial problems andthat the methods by which the work was accomplished should be determined bymanagement through scientific investigation. He listed four new duties of ScientificManagement for managing which may be summarized as follows.

(1) Development of science for each element of a man's work to replace old rule-of-thumb methods.

(2) Scientific selection, training and development of workers, instead of the oldpractice of following workman to choose his tasks and to train himself as best as hecould.

(3) Development of spirit of co-operation between the workman and management toensure that the work would be carried out in accordance with the scientificallydevised procedures.

(4) Division of work between the workers and the management in almost equalshares, each group taking over the work for which it was best fitted.

These four ideas led to new thinking about the managerial organization. Taylor'swork under the heading of number-1, developed into the field of methods organisingand work measurement. This field is also termed as human engineering which has ageneral application in producing management. From the ideas of number 2 and 3 thefield of personnel has developed with its techniques of personnel selection andplacement. From the idea of number 4, the first line foreman and the workman wereleft free from the functions of planning and they concentrated on the execution ofcarefully laid plans. The basic managerial functions of planning were carried out bythe managerial level.

There were many followers to Taylor. Carl Bosh, Henry L. Gantt, HarringtonEmerson, Frank and Lillian Gilbreth worked within Taylor's general framework andphilosophy.

The development of the Science of production management was slow when it waslooked in the spirit Taylor envisioned it. There were many reasons for this slowdevelopment. Appropriate knowledge and tools were not available. Another greatdifficulty that was faced by the serious investigators in the period after Taylor was thecomplexity of the large scale problem that appeared. Mathematical techniques wereneeded to solve such large scale problem but none was available to give the kinds ofsolutions required. Even if they had been available, the time required to developsolutions manually would be very large. High speed computers were needed, butthese were not available until 1950's.

An attempt of mathematical analysis was made in 1915 by F.W. Haris and hedeveloped the first economic lot size model for a simple situation. This was furtherdeveloped by Wilson and F.E. Raymond. The present activities in the generalfield of production management were preceded by two developments in the year1930. This helped to lay the ground work and pointed the way for the future. Thesewere the development and introduction to industry of statistical quality control byWalter Shewart in 1931 and the development of work sampling in 1934 by L.H.C.Tippett. The acceptance of the basic concepts of sampling and control charts byworkman, foreman and management was an important preliminary development.Tippett's work-sampling procedure was put to work in the 1950's. Now it is usedextensively and likely to continue to grow in practical usefulness.

The current rate of developments of production management concept, theory andtechnique began after World War II. Research in war operations by the armed forcesproduced new mathematical and computational techniques. War operations problemseemed to parallel with the problems of production operations and so the approachesto war problems began to be applied into industrial use. One significant developmentwas the introduction of linear programming. It was a solution methodology capableof handling many of the large scale complex problems of scheduling and allocatingthe limited resources of a production system.

Other quantitative and qualitative approaches were evolved in the analysis ofproduction system. Waiting line theory had been used for some time in telephoneindustry to analyze telephone systems. This technique found applications in

production lines, tool booths, machine maintenance, etc. Then more realisticmaterials management models developed which included variability and uncertaintyof demand and other conditions. Models of replacement, maintenance andcompetitive bidding have been developed for tackling the production problems. Withthe development of high speed computers, production systems could be simulated,modeled after fairly realistic conditions. If a complex systems were simulated theeffect of alternative proposals could be determined quickly without the cost and timeof actually trying the proposals in practice.

1.3 SIGNIFICANCE OF PRODUCTION MANAGEMENT

Production management deals with the products, the goods and services that arepurchased and used every day. Its aim is to acquire and distribute resourcesefficiently to achieve an organization's goal. Production management is one of themost challenging areas of business involving most of the human and financial assetsof an organization.

Production management is the systematic direction and control of processes thattransform inputs into finished goods or services. Production management comprisesa system as shown in Figure 1.1. Inputs can be human resources (workers andmanagers), capital (equipment and facilities), materials, land, energy andinformation. The circles in figure 1.1 represent operations where resources areutilized and transformations take place. Often a product passes through severaloperations before being finished. An operation can be a machining centre in amanufacturing plant, a teller counter in a bank, a hospital ward or a department inan office. These types of transformations vary widely and include physical orchemical as in a factory, locational as in an airline, educational in a school,informational as in a computer center and storage as in a distribution center.

Two other inputs are shown as dotted lines in Figure 1.1. The first is the customer,who may come in first contact with the product's system and sometimes is an activeparticipant in the transformation. Examples are the shopper in a store or the studentat an university. The second is the information feedback. It can come from externalsources such as reports on economic trends, a telephone call from a vendor on past-due shipments or new customer orders. It can also come from internal sources, suchas reports on cost variances, customer service or inventors levels. Information fromboth of these sources will be helpful in managing the production system.

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Outputs in a production management system include finished product or service.Outputs from manufacturing operations are goods produced either for consumers orfor other industrial firms. Outputs from service operation range from delivered mailfor a post office to a recovered patient for a hospital. Even though the inputs andoutputs vary between industries, the undergoing process of transforming inputs intooutputs holds true for all product in systems.

1.4 SIGNIFICANCE OF MATERIAL MANAGEMENT

Production management decisions deals with longer-term decisions which includesthe design of production facilities. Production design, process design, capacity,location and layout are all part of the production management decisions. Materialsmanagement deals with the shorter-range decisions. Material management isconcerned with the operation of facilities after they have been designed and built.Managing supply of materials, staffing patterns, inventory and schedules come undermaterial management function. Decision in these areas affects the management ofmaterials either directly or indirectly.

Since materials management decisions have shorter time decisions, they are bydefinition more tactical than strategic. However, they have a major cumulative effectand at least considerable managerial attention.

There are two reasons why tactical decisions about materials are considered to be soimportant.

i. The central role of materials in production, andii. The impact of inventories on company success.

Managing materials is common to organisations in every segment of the economy.Materials are necessary inputs to government, manufacturers, wholesalers andretailers. Manufacturers make products from materials purchased from outsidesupplier. Service industries also need materials in the form of physical itemspurchased from suppliers. Materials also are important because of the investmenttied up in them. The approximate ratio of final business sales reserve to inventorycost was 3:1.

Having a better appreciation for the pivotal role of materials management, the typesof decisions actually involved are now considered. A typical hierarchy for makingmaterials management decisions is shown in figure 1.2 in the form a block diagram.

The functions associated with materials management are located .in the enclosed boxat the bottom of the figure 1.2. The figure 1.2 also shows materials managementfunctions are related to production management functions. Beginning at the top ofthe hierarchy, corporate strategy sets the general directions of the organizations for

the years ahead. Decisions are made about the goal and the acquisition anddistributions of resources to meet it. Goals are established for growth, market shareand profit margins. Product plans are selected which decide.

(i) plans made by manager of other functions, such as marketing, finance andengineering,

(ii) the way that production manager select production design strategy, and

(iii) design decisions made by production manager about the work force, processes,capacity, location and layout.

At this point, top management needs a financial assessment of the organization'snear future for one or two years ahead. This assessment is called a business plan orfinancial plan or budget. A business plan is a projected statement of income, costs,and profits. It is usually accomplished by budgets, a projected balance sheet, and aprojected cash flow statement showings the source and application of funds.

Figure 1.2 shows that level in the hierarchy below the business plan is the domain ofmaterials management. Preparation of production plan launches the operationalplanning process. Production plan sets the monthly output rate for major groups ofitems for the next year ahead. Staffing levels, inventory projections and demandforecasts are all part of the plan. Production plan is not specific as to the weeklyoutput for each item. To achieve this level of detail, master production schedule,which is given one step lower in the hierarchy of Figure 1.2, has to be developed.Master production schedule makes the production plan specific and states the weeklyoutput quantity for each item, projected weeks or months into the future.

Figure 1.2 shows that the final level of operations planning consists of three areas.

(i) inventory control

(ii) operations and project scheduling

(iii) purchasing and distributing

The best system for inventory control depends on the type of demand involved.Inventory control is closely related to scheduling issues. After a shop order isreleased (an inventory control decision), someone must decide when the item is to beprocessed at each of the work centers in its routing (a scheduling decision).Operations scheduling and project scheduling both deal with establishing startingand completion times for activities, jobs or customers. This leads to the functions ofpurchasing and distribution, which deal with the flow of materials into and out of theproduction system.

1.5 CORPORATE STRATEGY

An organization can be a major corporation, federal agency or bank. It can even be abusiness segment organized around a particular set of customers who share commonresources. Whatever the type of organization may be, its top management should

deliberately relate the efforts of the whole organization to its future. Corporatestrategy is sometimes called as long-range planning or organizational strategy. It isthe process of determining the organization's, central purpose, deciding how best toacquire and allocate resources to carry out the mission and establishing objectivesagainst which to evaluate how well the mission is being achieved. This processinvolves designing organisation's mission, monitoring and adjusting to changes inthe organization's environment and identifying the organization's distinctivecompetencies.

1.6 THE MISSION

Determining an organization's mission require answers to fundamental questionssuch as:

(i) What business are we in? What should it be ten years from now?

(ii) Who are our customers or clients?

(iii) What are our basic beliefs and philosophy?

(iv) What are our greatest strengths? How can we use these to maximum advantage?

(v) What are our key performance objectives, such as growth or profits, by which tomonitor success?

1.7 THE ENVIRONMENT

An organization needs to continually adapt to its changing external environment.Adaption begins with environmental scanning, whereby managers monitor theenvironment for opportunities or threat that need a response. One keyenvironmental element is competition. Competitors may gain advantage bybroadening product lines, improving quality or lowering costs. New entrants in themarket or product substitutes may pose a threat to continued profitability. Thebargaining power of suppliers or customers can become a threat or opportunity. Inaddition to competition, environmental elements include economic trends,technological changes, political conditions, social changes and the availability of keyresources.

The impact of these changes on current strategies can reveal shortcoming inplanning and product development that need attention. Markets mature and decline,technology changes and competitors find ways to achieve lower costs. These allrequires adjustments in corporate strategy.

1.8 DISTINCTIVE COMPETENCIES

Environmental impacts cannot be controlled away. Corporate strategies must changeto meet them and the organization's unique resources and strength must be takeninto account. It is usually better to go after, a settlement in the market because itgives an advantage of what the firm can do particularly well. The distinctivecompetencies might include the following:

(i) The size and ability of the work force. An available and competent work force is astrength.

(ii) Well located facilities such as offices, stores or plants. The availability, of suchfacilities is a major advantage because of long lead time required to build newfacilities.

(iii) The ability to easily change output levels, attract capital from stock sales, marketand distribute the product or differentiate the product from those by competitors.


1.9 SUMMARY

The recognised attention to production management was first given by Adam Smith.Charles Babbage extended the views of Adam Smith. Then F.W.Taylor, Gilbreth,Gantt, Harrington Emerson and all paved the way for the development of productionmanagement field. Production management decision deals with longer termdecisions, whereas materials management deals with shorter-range decisions.Corporate strategy is a process which involves designing organizations mission,monitoring and adjusting to changes in the organizations environment andidentifying the organizations distinctive competencies.

1.10 KEY CONCEPTS

· Division of labor· Scientific management· Statistical quality control· Work sampling· Linear programming· Waiting line theory· Inventory control· Replacement analysis· Competitive bidding· Corporate strategy· Mission· Environment

1.11 MODEL QUESTIONS

1. Discuss the historical development of production and materials management.

2. Explain the different contributions made by scientists in the field of productionand materials management.

3. State the significant importance of production and materials management.

4. What do you mean by corporate strategy? How it is achieved?

5. What is mission? Explain the environment under which the mission has to beachieved.

1.12 REFERENCE BOOKS

1. Buffa, "Modern production management", John Whiely.

2. Krajewski and Ritzman, "Operations management" Addison-Wesley.

- End of Chapter -

LESSON - 2

PRODUCT PLANNING

2.1 Preamble

2.2 Product planning

2.3 Product life cycles

2.4 Entrance-Exit strategies

2.5 Product planning stage

2.6 Summary

2.7 Key concepts

2.8 Model questions

2.9 Reference books

2.1 PREAMBLE

The coverage of product planning in this lesson begins with a discussion of productlife cycles. Then the entrance-exit strategies are discussed. The four steps involved inproduct planning stage are explained.

2.2 PRODUCT PLANNING

Corporate strategy defines the firm's mission, company's business .and its customers.It also defines the products to be offered. The products may be goods or services.Product planning is the whole spectrum of activities involving up to the introduction,revision or dropping of products. After knowing the product characteristics, theproduction system can be effectively designed and operated.

Greater interest in product planning has been given recently by intense competitionand the rapid pace of technological innovation. Product planning is an ongoingprocess a job that is never finished. Many small companies start with a limitednumber of products, often based on a process or product innovation of the foundingentrepreneur. As time passes, the firm must add new products either to replace thosebeing phased out or to expand its market penetration. Larger firms, which have manymore products, face the same challenge. A considerable amount of budget is spenteach year to create new products or improve old ones.

2.3 PRODUCT LIFE CYCLES

The concept of a product life cycle best illustrates the need for introducing newproducts. If a firm does not introduce new products periodically, it will eventuallydecline. Since sales and profits from any given product eventually decrease, newproducts should be introduced before existing products hit their peak. A typicalproduct life cycle is given in Fig.2.1. The five stages of the product life cycle areproduct planning, introduction, growth, maturity and decline.

During the product planning stage, ideas for new goods or services are generated,screened and translated into final designs. Profits to a product are negative at thispoint, because sales have not begun and no revenues are generated. Onlydevelopment costs are being incurred at this stage. During the introductory stage,sale begins and profits are generated. Production efforts are still being refined andthey are fluid and evolving. Since sales volumes have not reached their high point,annual profits are relatively small. Successful products next enter a rapid growthstage. Sales and profits rise as in the introductory stage, but the jump in sales isparticularly dramatic. The order for production during this stage is to keep up withdemand and the efficiency is of less concern. Sales level-off and profits begin 'todecline during the maturity stage. New competitors enter the market and createpressures to cut costs. Because of this profit margin is squeezed. Although theintensified marketing efforts to differentiate the product can give pressure, theproduction operations must now be stressed for efficiency. Ultimately, the productenters the decline stage and the product becomes obsolete. Sales and profits decreaseto the point where the product is dropped by the firm. Either the demand for the

product disappears or a better and/or less expensive product is now available tosatisfy the demand.

The length of product life cycle varies widely from product to product The demandfor a product may last for 30 years whereas the demand for another product may lastonly for three years.

Product life cycles have been particularly short in the high-tech computer andmicrochip industry. The effect of short product life cycles requires specialmanagement skills. Quick, independent action is more highly required in this type ofsituation than it is at companies enjoying longer product life cycles.

2.4 ENTRY-EXIT STRATEGIES

The life cycle of a product can be quite different for a company than for a wholeindustry. A company may move out of the market of a particular product, eventhough these products may be produced by other firms for years to come. Table 2.1shows the three basic strategies for entering and exiting the market. The choice of theentrance-exit strategy has important implication for the production operationsfunction.

Table 2.1 - Entry - Exit Strategies

Strategy Stage toEnter

Stage toExit

Implications for ProductionOperations

A - EnterEarly ExitLate

Introduction DeclineTransition from low volumeflexible producer to high volumelow cost producer

B - EnterEarly ExitEarly

Introduction Maturity Low volume flexible producer

C - Enter LateExit Late Growth Decline High volume low cost producer

STRATEGY A: The most natural strategy is for a firm to enter the market when theproduct is first introduced and stay with it until the end of its life cycle. This strategyrequires operations to evolve from a low-volume, flexible production system into ahigh volume, low-cost system. Such a shift is always a challenge because it requireschanging over to a whole new way of doing things. But this strategy can have a bigadvantage. By entering the market early, the firm gets a first start. This early learningand added experience may allow the early entrant to produce a better product at alower cost than late entrants can produce initially.


STRATEGY B: Small, product-Innovative firms often choose to stay in low-volume,customized business. This strategy requires no painful transition. When the productreaches the maturity stage and profit margin begins to be squeezed, the firm dropsthe product and introduces new ones. Throughout the product life cycle, productionmanagement maintains a smaller, flexible production system that is adaptable tochanging products.

STRATEGY C: A firm waits until other innovative firms introduce a new product.After it is clear that the product has significant market appeal and will achieve highsales volumes, the firm- enters the market with an automated, efficient productionfacility. Some companies even accompany their entry by setting prices considerablylower than those of their competitors. This ensures the high volumes necessary forlow unit costs. This strategy also avoids transition and is likely to be selected by largefirms. Large firms can exploit their mass marketing capabilities, establisheddistribution channels and easier access to capital markets to finance the massiveinvestment needed for top efficiency in capital-intensive productive operations.

2.5 PRODUCT PLANNING STAGE

Product planning is a four-step process. The process is most active during the firststage of the product life cycle. Steps In product planning is shown in Fig. 2.2.

STEP 1. IDEA GENERATION:

New product ideas can come from within the firm-from managers, employees orresearch and development (R&D) laboratories. They can also come from the outside-from company distributors and inventors.

New ideas may be either market- oriented or technology-oriented. The most obvioussource of new ideas is marketing, which must be in tune with the needs of customers.Market studies may reveal better ways of serving established markets. Technologicalinnovations can affect either the product or the processes. Inventories can alsoimprove processes within the production system, which in turn may create newproducts.

STEP 2: SCREENING:

There may be a number of new product ideas but it has to be decided about whichone will be the worthwhile. Some ideas do not fit the company's mission. Others aredismissed for failing to meet

(i) market criteria

(ii) production operations criteria or

(iii) financial criteria

Marketing criteria include competitors, effects on current products, marketability topresent customers, promotional requirements and changes in distribution channels.Operations criteria Include technical feasibility and compatibility with currentprocesses, work force, equipment and facility locations. Financial criteria includeinvestment requirements, risk, expected annual sales, profit margin per unit andanticipated length of product's life cycle.

STEP 3: DEVELOPMENT AND TESTING:

Next, the ideas technical feasibility is thoroughly pre-tested, which often involvesconsiderable engineering work. Prototypes may be built for testing and analysis ofthe products features. Beyond engineering, production operation gets involved inassessing process, facility and material needs. Finally, marketing tests are needed toobtain customer response. Trial tests in limited markets may help to gauge customerreactions to the specific features of the product and packaging choices. Result ofthese tests may lead to changes in the product and the way it is presented before it isactually marketed. The end result may give an assurance that the product istechnically feasible, can be economically produced in quantity and has customerappeal.

STEP 4: FINAL PRODUCT DESIGN:

During final product design, product characteristics are designed in detail. Thisdetail may include the specifications, process formulae and drawings. Substantialinvestments in financial and human resources are committed at this stage.Production begins and marketing starts its promotional program with sales meetingand preview presentations at trade exhibits.


2.6 SUMMARY

Product planning is an ongoing activity that defines the products to be produced.Product life cycles consist of five stages that is product planning, introduction,growth, maturity and decline. There are three strategies for when to enter and exit aproduct's life cycle. Each one places a different demand on the production system.Entering early and exiting late forces a transition from flexibility to low cost. Aproduct planning stage involves idea generation, screening, development and testingand final product design.

2.7 KEY CONCEPTS

· Product planning· Product flexibility· Process-focused strategy· Product-focused strategy· Entrance-Exit strategy· Product life cycle· Volume flexibility

2.8 MODEL QUESTIONS

1. How does the concept of product life cycles illustrate the ongoing need forproduct planning?

2. How does the decision on when to enter and exit a product's life cycle affect theoperation function?

3. With which entrance-exit strategy would a product focus make most sense?

4. Discuss the four-step procedure in product planning stage.

5. Explain the entrance-exit strategies.

2.9 REFERENCE BOOKS

1. Buffa, "Modern production management", John Whiely.


- End of Chapter -

LESSON - 3

PRODUCTION DESIGN AND PROCESS PLANNING

3.1 Preamble

3.2 Production design

3.3 Processes

3.4 Processes involving transformation

3.4.1 Chemical processes

3.4.2 Processes to change shape or form

3.4.3 Assembly processes

3.4.4 Transport processes

3.4.5 Clerical processes and information systems

3.5 Process planning

3.6 Product analysis

3.7 Assembly charts

3.8 Operation process chart

3.9 Analysis of existing operations

3.10 Product flow process chart

3.11 Route sheets and operation sheets

3.12 Process planning for continuous industries.

3.13 Summary

3.14 Key concepts



3.1 PREAMBLE

Production design and process planning are closely allied to the preliminary stagesproduction planning. When a new product is projected the designer has to bear inmind the available resources of the plant and the possible implications of the planthaving to acquire, modify or substitute existing machines and equipment or sub-contract various components to other suppliers. This is why production design andprocess planning are some of the fundamental elements of management policy.

3.2 PRODUCTION DESIGN

The minimum possible cost of producing a product is established originally by thedesigner. The production engineer cannot change this situation, because he can onlyminimize the production cost within the limitations of the design. Therefore theobvious time to start thinking about basic modes of production for product is whilethey are still in the design stage. This conscious effort to design for lowmanufacturing cost is referred to as production design which is different fromfunctional design. The designer's first responsibility is to create something thatfunctionally meets requirements. There may be a number of alternative designswhich meet this functional requirement. Then a design which minimizes theproduction cost has to be chosen.

Given the design, process planning for manufacturer must be carried out to specifythe processes required and their sequence. Production design first sets the minimumpossible cost that can be achieved through the specification of materials, tolerances,basic configurations, methods of joining parts, etc. Final process planning then

attempts to achieve that minimum through the specification of processes and theirsequence which meet the exacting requirements of the design specification. Here, theprocess planner may work under the limitations of available equipment in small lotmanufacture. If the volume is high or the design is stable, special purpose machinemay be considered and in this case the layout will be of special type. In performingsuch functions, the process planning stage will decide basic design of the productivesystem.

There is a relationship that exists between the product design and the productioncost. In general, design engineers are trained in the technical aspects of theirspecialties such as mechanical design and electronics. They are not trained inmanufacturing methods and costs. On the other hand, production may often ignorethe functional requirement of a part and meet the exact specification.

To overcome this problem, some companies have tried to train their designer in thebasic manufacturing processes and costs. In some other companies, productionengineer consult with design engineer at the time of critical decisions. Functionaldesign is entrusted to an entirely different group in some companies. Theresponsibility of this group is production design.


3.3 PROCESSES

The scope of production processes covers the entire spectrum of the manual task,man-machine systems and automated processes. Manual task is combination withmechanical aids account for a large share of productive activity. Manual operationsor man-machine operations have a strong manual component and they are typical ofassembly work, offices, super markets, and so on. The metal working industries,wood working industries, plastics and chemicals are representative of productionprocesses which have a considerable technological base.

3.4 PROCESSES INVOLVING TRANSFORMATION

The basic nature of processing is one of transformation, that is, something happensthat, in some way, transforms the thing being worked on. In general thesetransformation processes may be of following types:

3.4.1 Chemical Processes: Chemical processes are common in industries such aspetroleum, plastics, steel making and aluminum. Industrially, these processes occurboth as batch processes and continuous processes. Illustration of batch processes isthe operation of a blast furnace in the steel industry. An example of continuouschemical process may be processing of petroleum industry.

3.4.2 Processes to Change Shape or Form: The most common processes of thisgeneral type are found in the metal-forming, metal-machining industries, the wood-working industry and in plastic molding. In metal-forming industries formingoperations may take place such as rolling of basic shapes in steel, aluminum or othermetals. The results of these forming operations are bars, sheets, billets, I-beams andother shapes. Metal-machining is accomplished through basic machine toolprocesses which involve the generation of cylindrical surfaces, flat surfaces, complexcurves and holes. These metal-machining processes are performed in machines likelathe, shaper, planner, mill and grinder. For high volume products, automaticmachines and numerically controlled processes are employed.

3.4.3 Assembly Processes: The processes used to assemble parts and materialsare welding, soldering, riveting, screw fastening and adhesive joining. Assemblyprocesses are common in automotive industry, electronics industry and many others.They are common in all mechanical-electrical industries. In general for assemblyoperations, a considerable amount of manual work will be involved supplemented bymechanical aids. The automation is involved only in high volume electronicsassembly. With the development of printed circuitry, automatic equipment are usedfor assembling the parts. Most of the analysis in the assembly types of operationsdepends on the analysis of hand motions and the relationship between the operatorand his tools.

3.4.4 Transport Processes: The transformation taking place in a transportprocess is the transformation of place. Transform processes are of extremeimportance in most production systems. In distribution management transportoperations is of central interest. In manufacturing, internal material handlingrepresents kind of transport operations performed.

3.4.5 Clerical Processes and Information Systems: The mechanical kind ofprocesses tend to change the shape or form whereas the clerical processes transforminformation. The volume of clerical activity has grown to a large extent. Thetechniques involved are clerical activity that extends from purely manual toautomated data processing system.

3.5 PROCESS PLANNING

The basic process planning must begin during the production stages where selectionof materials and initial forms such as casting, forging takes place. The acceptedpoints for the production design are cleared by the drawing release, whichsummarizes the exact specifications of what is to be made. Process planning takesover from this point and develops the broad plan of manufacture for the product.

Another distinction that must be drawn is the relation of process planning to layoutand facilities planning. Process planning necessarily mixed together, with the layout

of physical facilities. Some process planning takes place during the layout phases ofthe design of a production system. To accommodate the physical and sequentiallimitations to take advantage of available space or to improve methods or sequencemodification of the original process plans may be made. The division betweenprocess planning and layout is cleared by documents such as route sheets andoperation sheets. These sheets summarizes the operations required, the preferredsequence of operations, auxiliary tools required, estimated operation times etc.Process plans may be regarded as input to the development of the layout.

The drawings or other specifications which indicate what is to be made are taken asinput to the process planning. Also the forecast, orders or contracts which indicatehow many are to be made, are also taken as inputs. The drawings are then analysedto determine the overall scope of the project. If it is a complex assembled product,considerable effort may be made in exploding the product into its components andsub-assemblies. This overall planning may take the form of special drawings thatshow the relationship of the parts, cutaway models and assembly diagrams.Preliminary decisions about sub-assembly groupings to determine which part tomake and which to buy may be made at this point. The general level of toolingexpenditure may also be determined. Then for each part a detailed routing would bedeveloped. For this technical knowledge of processes, machining and theircapabilities would be required. Since there are a range of processing alternativeswould be considered, the selection should be influenced by the overall volume andthe projected stability of the design. Fig.3.1 shows the overall conceptual frame workof process planning in diagrammatic form.

3.6 PRODUCT ANALYSIS

Consider the problem of the initial setting up to manufacture the switch assemblyshown in Fig. 3.2.

3.7 ASSEMBLY CHART

When the product is a complex one, assembly charts can help to visualize the flow ofmaterial and the relationship of the parts. The details like where the parts flow intothe assembly process, which parts make up sub-assemblies and where the purchasedparts are used in the assembly sequence, are given in the assembly chart in Fig 3.3.

With the help of the switch assembly shown in Figure 3.2, an assembly chart wouldbe prepared as a first step. This chart is sometimes called as 'Gozinto' chart (meaning'goes into'). Figure 3.3 is an assembly chart for the switch assembly. The chart clearlyshows the relationship of the parts, the sequence of assembly and which groups ofparts make up the sub-assemblies. The assembly chart is a schematic model of theentire manufacturing process at one level of information and detail. The switchassembly would be simple enough so that assembly chart could be eliminated in this

case. However, for a complex product such as an airplane or a missile it would bedifficult to understand the plan of manufacture without an assembly chart. Theassembly chart can be useful in making preliminary plans regarding probable sub-assemblies and appropriate general methods of manufacture. For makingpreliminary decisions with respect to design of product line, type of layout (processor product), assembly chart would be helpful.

3.8 OPERATION PROCESS CHART

Assume that the product is already engineered, complete drawing and specificationsof parts and their dimensions, tolerance, and materials to be used have beenfinalised. From the specifications, a plan of manufacturing can be developed.Decisions with respect to which parts to purchase and which to manufacture in theplant, have to be made. The engineering drawings specify the locations, sizes andtolerances for holes to be drilled, surfaces to be finished etc. for each part. With thisinformation and the knowledge of the quantity to be produced and manufacturingprocess, the most economical equipment, process and sequence of processes could bespecified.

The result of this work is a partial specification of "how to manufacture". This isusually summarized on 'route sheet' or 'operation sheet'. This sheet specifies for eachmanufactured part the operations required in the preferred sequence, equipment tobe used, special tools, fixtures and gauges. Estimates of the required setup time andprocessing time are often added. All the information can be summarised in the formof operation process chart. Such a chart for the switch assembly is shown in Figure3.4.

Operation process chart is a summary of all the required operations and inspectionfor switch assembly. A circle (O) for an operation and a square (□) for an inspectionhas been adopted in the construction of the chart. The operation process chart hasbeen constructed with the basic framework of the assembly chart. This chart is ofgreat value in the development of a layout plan. It shows clearly the operations to beperformed, their sequence and the equipment required.

3.9 ANALYSIS OF EXISTING OPERATIONS

The operation process chart have been discussed in terms of the development of theplan for manufacturing a new product and developing new facilities, but it is equallyapplicable to the analysis of existing operations. As time passes, changes may occurin the manufacturing plans because of re-design, the addition or elimination ofproducts and advances in manufacturing technology.

Sometimes operations would be added to meet a temporary emergency. Then theywould become permanent because no one would take action to delete them when theneed has gone. Reviews of existing operations would be often giving good results forelimination, duplication and illogical flow. The breakdown of overall manufacturingprocess into its operations and eliminating of logical structure of the operation

process chart, form the basis for questioning the existence of every activity as well asthe relationship of the activities.

3.10 PRODUCT FLOW PROCESS CHART

The flow process chart is similar in concept to the operations process chart, exceptthat it adds more detail and has a slightly different field of application. The flowprocess chart adds transportation and storage activity to the information alreadyrecorded on an operation process chart. Thus, operation process chart focuses onlyon the productive activity, the flow process chart focuses on both productive activityas well as non-productive activity.

The non-productive activities of the material from place to place and storing it, whileit waits for men and equipment, represent major amount of the total time spent inthe manufacturing cycle in industry. These non-productive activities require labourand equipment transportation, loading and unloading, capital investment for plantstorage space and carrying charges on inventory. Naturally, production managerwould be strongly motivated to focus attention on these activities so that theseexpenditures could be minimised. In general, the operation process that would beused at a broadest level dealing with complex products and the flow process chartwould be used with a smaller segment of the product.

The flow process chart requires additional symbols in order to include non-productive activities. An arrow mark (→) denotes transportation and invertedtriangle (▼) denotes storage and letter 'D' denotes delay.

As an example, machining of a casting would be taken. The completed flow processchart would be constructed by actually following the progress of the parts throughthe machine and gathering the required information. Constructing flow process chartwithout going through the actual process in shops would not give accurate results, asshown in Figure 3.5.

Fig.3.5 Flow Process Chart For Machining A Casting

It is often helpful to supplement the flow process chart with a flow diagram. The flowdiagram would be obtained by drawing the flow lines on a floor plan of the work area.The process chart symbols would be inserted in-between the flow lines. The spatialrelationship would be better visualised by this type of flow diagram. The flowdiagram to the above example is shown in Figure 3.6.

3.11 ROUTE SHEETS AND OPERATION SHEETS

At each stage of its processing, every part is analysed in order to determine theoperations required and to select and specify the process that perform the functionsrequired. This information would be summarised on route sheets. The route sheet,

(i) shows the operation required and the preferred sequence of these operations,

(ii) specifies the machine or equipment to be used,

(iii) gives the estimated setting time and run time per piece.

When a part is standard part, which is run and re-run periodically to fill the need, thestandard routing sheets would be maintained as the accepted manufacturingmethods. More precise specification of manufacturing methods would be oftendeveloped in the form of operation sheets. These operation sheets give greater detailabout the operations to be accomplished and In other words they give a standardmethod.

The route sheet together with operation sheet specifies the methods ofmanufacturing the products. These documents are basic to the manufacturingorganisations. Route sheet and operation sheet take the same relative positions to thedesign of a production system as the blueprint or drawing does to the design of a partor product. The drawing specifies what is to be made, where as the route sheet andoperation sheet specify how to make it.

3.12 PROCESS PLANNING FOR CONTINUOUS INDUSTRIES

The situation that has been discussed is generally applicable to industrial processplanning. However in high volume, continuous types of industries, these would havebeen a comment on the lack of route sheets. This lack would be a common one. But,originally the task of process planning and routing would have been performed bysomeone. Once the process planning is done and the system is installed, route sheetswould serve no purpose because routes are either standardised or follow mechanicalpaths and so operation sequence is not a problem.

Similarly although operation sheets exist, they would be maintained as records of jobconditions and methods. They would be refused to only when it would be necessaryto train new personnel in the standard procedures of the job. Alterations to thestandard routing would be required only periodically to incorporate product designchanges or to take advantage of some advance in production technology.

3.13 SUMMARY

The product designer establishes the constraints within which the production systemdesigner must function. A broad knowledge of processes and their capabilitiesprovide the basis for the rational consideration of alternatives available. Theseprocesses involve all types of transformations including physical, chemical, plays,information content etc. The production design and process planning stages arediscussed. Transformation processes are also discussed. Various charts for analysingthe processes are explained.

3.14 KEY CONCEPTS

· Production design· Process planning

· Assembly chart· Operations process chart· Route sheet· Operation sheet


1. Discuss the relationship of functional design and production design indetermining a product design that meets functional requirements, costconsiderations and the limitations of available resources.

2. Discuss about the various transformation processes.

3. What is process planning? Relate it to product design, and production design.

4. What are route sheets and operation sheets? What information do they contain?

5. Does process planning in continuous industries follow the same general patternas in intermittent industries?


1. Buffa, "Modern Production Management", John Whiely.

2. Krajewski and Ritzman, "Operations Management" Addison-Wesley.

3. Menipaz, Ehed, "Essentials of Production and Operations Management", PrenticeHall.

- End of Chapter -

LESSON-4

BREAKEVEN ANALYSIS - AN INTRODUCTION

4.1 Preamble

4.2 Breakeven analysis

4.3 Methods for lowering breakeven point

4.4 Profit-Volume chart

4.5 Contribution ratios

4.6 Summary

4.7 Key concepts

4.8 Model Questions

4.9 Reference books

4.1 PREAMBLE

The breakeven point is the minimum volume of sales in units of output or in rupeesthat must be produced and sold in order for the firm to breakeven after paying allexpenses. This volume is called "breakeven point". Obviously the firm is interested inproducing and selling more than the breakeven point in order to make profits. Profit-Volume chart is a similar chart as that of breakeven chart. Contribution ratios aresometimes helpful for deciding the product which gives the maximum profit.

4.2 BREAKEVEN ANALYSIS

Breakeven analysis is a helpful tool used in analyzing managerial economicproblems. It shows how much sales volume, in units or rupees, a company needs tohave in order to breakeven financially. Breakeven analysis also shows how muchprofit the company would earn or suffer loss at various volumes above and below thebreakeven point. The breakeven point is the minimum volume of sales, in units ofoutput or in rupees, which must be produced and sold in order for the firm tobreakeven after paying all expenses. This volume is called the "breakeven volume".

In order to calculate breakeven point, it is necessary to determine fixed and variablecosts for various sales volumes. Fixed costs are the expenses that remain constantregardless of the volume of products or services. Examples of fixed costs are rent,property taxes, depreciation, insurance, and salaries to the staff. Variable costs arethe expenses that fluctuate directly with changes in the output volume of products orservices. Examples of variable costs are labour and material.

Let Q = breakeven quantity, F = fixed cost, P = price per unit, V = variable costs perunit

As per the definition given above, the total sales revenue equals the total cost atbreakeven point (BEP).

At BEP, total revenue = total cost (= fixed cost + variable cost)

P x Q = F + (V x Q)

Therefore BEP, Q = F/(P - V)


The Fig. 4.1 shows how the BEP is determined graphically.

In Fig 4.1 the total cost is given by the summation of fixed cost and variable cost. Thepoint of intersection of 'total cost' line with the 'total sales income' is the breakevenpoint, and corresponds to a sales volume Q. Activity below Q results in a loss, andactivity above Q gives profit.

Example 1:

A company is considering the products of the new energy saving light bulb. Theselling price is Rs.10 and the variable cost is about Rs.2 per light bulb. If the fixedcosts total to Rs.2 crores, what is the BEP in terms of units of light bulbs?

BEP quantity Q = F/(P - V), where F is the fixed cost, P is selling price per unit, V isvariable cost per unit

Fixed cost F = Rs.2,00,00,000, Variable Cost per unit V = Rs.2, Selling price per unitP = Rs.10

Therefore, BEP in units = 2,00,00,000 / (10 - 2) = 20000000 / 8 = 2500000 units

Thus, in this example when the company produces 25 lakh light bulbs, total costequals revenue. This result can be checked as this...

Total revenue = P x Q = Rs.10 x 25,00,000 units = Rs. 2,50,00,000

Total cost = F + V x Q = Rs.2,00,00,000 + Rs.2 x 25,00,000 = Rs.2,50,00,000

In this example, if the company set the price of the light bulbs as Rs.12, thenobviously the breakeven point will be lower:

BEP = 2,00,00,000 / (12 - 2) = 2,00,00,000 / 10 = 20,00,000 units instead of25,00,000 units earlier.

Margin of Safety:

If a plant is operating at point Q1 (where Q1 > Q), it can be said that the plant isworking with a margin of safety m. which can be determined as follows:

m = (Q1 - Q) / Q = (Q1/Q) - 1

It can be shown that

m = Z / F, where Z is the profit of the plant

The desirable level of the plant activity can be expressed in terms of the safety marginor the profit as:

Q1 = Q (1 + m) = Q (1 + Z/F)

The margin of safety is a measure of healthiness at the point of operation. When themargin is too small (i.e.) when the product is manufactured near the breakevenpoint, the plant is subject to market fluctuations.

Example 2:

The selling price for a new solar heating panel is Rs.100 per unit and the directmaterials and labour costs are Rs.80 per unit.

a. If the fixed costs are Rs.20000, how many units have to be sold in order tobreakeven?

b. What is the volume of sales to get a profit of Rs.5000?

c. Determine the margin of safety of the plant at this point.

a. Fixed cost F = Rs.20000, Selling price per unit P = Rs.100, Variable cost per unit V= Rs.80

Therefore, Breakeven point Q = F/(P - V) = 20000 / (100 - 80) = 20000/20 =1000 units

b. Profit of Rs.5000 will happen when total sales income - total cost = Rs.5000

Let Q1 is the quantity to be sold for making this much profit, then

Q1 x Rs.100 - (Q1 x Rs.80 + Rs.20000) = 5000

20 x Q1 = 25000

Q1 = 1250 units

There's a quicker way to calculate the same...

In the BEP formula, the term (P - V) is called the contribution. It is the amount bywhich the selling price per unit exceeds the variable cost per unit. In the aboveexample, the sale of one solar heating panel contributed Rs.20 to offset the fixed costuntil the breakeven point of 1000 units was reached. Above 1000 unit, this Rs.20would be the profit per unit. These relationships can be used by productionmanagers in their planning. For example, they can determine the effects on profits orlosses of changes in sales quantities.

Extending the above discussion for the above problem, to find out the volume of salesfor selling a profit of Rs.5000, it has to be done is to divide Rs.5000 by Rs.20. Indoing so it can be found that 250 more units or 1250 in total would have to be sold toget a profit of Rs.5000.

Putting this in formula to get the total number of sales needed for getting a profit ofRs.5000 is.

Q1 = (F + desired profit) / (P - V) = (20000 + 5000) / (100 - 80) = 25000 / 20 =1250 units

c. Margin of safety at this point can be calculated as:

m = (Q1 - Q) / Q = (1250 - 1000) / 1000 = 250/1000 = 0.25 = 25%

It can be said that at a sales volume of 1250, the plant is operating at a margin ofsafety of 25 percent.

To be realistic, the company's manager should allow for income taxes, because allprofits generated by sales above the breakeven point are taxed. The formula for totalnumber of sales needed when tax rate is given is,

F + desired profit x 1/(1 - tax rate)

Qt = -------------------------------------------------

P - V

In the above example, if the tax rate is taken as 40 percent (0.4), then each Rs.20 ofprofit will shrink to Rs.12. Therefore, in order to earn Rs.5000 after taxes, Rs. 5000 /Rs.12 = 417 units above the breakeven point or 1417 in total will have to be soldinstead of 1250 units.

20000 + 5000 x 1 / (1-0.4) 20000 + 5000 / 0.6

Qt = ------------------------------ = -----------------------------------

100 - 80 20

= 28333 / 20 = 14166.67 ~ 14167 units

By manipulating the variable in the equation many questions can be answered. Forexample, if the direct material cost were to increase by 12 percent what will happento the breakeven point? Or if the competition is forced to cut the selling price fromRs.100 to Rs.90 what will be change in the BEP? Answers to such questions can becalculated.

4.3 METHODS FOR LOWERING BREAK EVEN POINT

A low BEP is highly desirable because it increases the safety margin of the product.

From the equation for BEP, Q = F/(P - V), it is obvious that the breakeven pointcan be lowered by three methods:

(i) By reducing Fixed Costs from F to F'

This situation is shown in Fig 4.2. In this case, the BEP is reduced from Q to Q' byreducing the fixed cost from F to F'.

The reduced BEP, Q' = Q x (F' / F)

(ii) By reducing the unit Variable Cost from V to V'

This situation is shown in Fig 4.3. In this case, the BEP is lowered by reducing thevariable cost from V to V'. Therefore, the reduced BEP,

(iii) By increasing the unit Selling Price from P to P'

This situation is shown in Fig 4.4. Here, the BEP is lowered by increasing the unitselling price from P to P'. Therefore,

4.4 PROFIT VOLUME CHART

A similar diagram to the breakeven chart is called the profit volume chart which isshown in Fig. 4.5.

In this chart, the fixed costs are marked as a negative quantity on the Y-axis. TheBEP is given by the intercept of the income line on the X-axis. Operating below theX-axis incurs a loss and operating above it is a profit.

The probability of the profit is indicated by the slope of the income lines called theProfit-Volume Ratio or P/V Ratio, and is given by θ

The profit Z = Sales revenue - Total cost

= P x Q - (F + V x Q)

= Q (P - V) - F

Z = Q θ - F

The Profit-Volume rate at a point above BEP is,

Therefore, the profit Z = Q1 - F

4.5 CONTRIBUTION RATIOS

It is sometimes useful to know the contribution ratio or as it is sometimes called the'profit variation' for individual products. This ratio measures the products'contribution as a percentage of its price per unit. The formula for its calculation is,

For example 2, Contribution ratio, CR = [(100 - 80) / 100] x 100 = 20%

Low contribution ratios come from labour and material costs making up most of thecost and thus using the most of the income. Changes in total volume do not affectprofit very much because the variable costs are so high relative to the selling price.Conversely, if fixed cost is a bigger part of the total cost, then the contribution ratiosof individual products are higher and volume changes cause greater swings in profits.

This can be explained with the same example 2. In that example,

F = Rs.20000, V = Rs.80, P = Rs.100

For the sales volume of 1250 units, Profit = Total sales income - Total cost

= 1250 x 100 - (20000 + 1250 x 80)

= Rs. 5000

If the sales volume is increased from 1250 to 1500 units,

Profit = 1500 x 100 - (20000 + 1500 x 80) = Rs. 10000

In this above calculation, variable cost forms a major part in the total cost whencompared to fixed cost. The contribution ratio for this situation is,

[(P - V) / P] x 100 = [(100 - 80) / 100] x 100 = 20%

Now consider another situation where fixed cost forms a major part in the totalcost...

Let F = Rs. 95000, V = Rs.20, P = Rs.100

For the sales volume of 1250,

Profit = (1250 x 100) - [95000 + (1250 x 20)]

= 125000 - [95000 + 25000] = Rs.5000

If the sales volume is increased from 1250 to 1500,

Profit = (1500 x 100) - [95000 + (1500 x 20)]

= 150000 - [95000 + 30000] = Rs.25000

The contribution ratio for this situation is, [(P - V) / P] x 100 = [(100 - 20) / 100] x100 = 80%

From the above illustration it can be seen that there is a greater swing in profit forvolume changes when fixed costs forms a greater part of total costs, because thecontribution ratio will be higher in such situations.

These relationships are important since, once a manager knows the contributionratio of his products, the products which contribute the profit can be pushed throughand the products which have low contribution ratio can be removed from the productline. These contribution ratios can also help the production manager to makedecision whether to take on jobs at prices which cover variable costs but only part offixed costs.


An example will illustrate how the different contribution ratios are important indetermining the overall results. Suppose a company makes three models oftypewriters, each of which has different contribution ratios as given below:

If a sales increase of 10,00,000 units comes from selling more portable manualtypewriters, this would increase the profits by Rs.250,000. But if the same 10,00,000units of sales comes from selling more regular electric models, it would addRs.450,000 to profits. Obviously in this case, greater sales efforts should go intoselling more of regular electric typewriters.

Often it is more meaningful to express contribution values on per labour-hour basis.This can be explained from the following illustrations:

In the above example, the following additional data is considered:

With the addition of this data, the sales for each type of typewriter are:

Portable manual = 1000000 / 100 = 10000 units

Portable electric = 1000000 / 200 = 5000 units

Regular electric = 1000000 / 300 = 3333 units

The contribution (P-V) per unit for the models can be calculated as this -

We know that,

Hence, Contribution (P-V) = Contribution Ratio x P / 100

Portable manual = 25 x 100 / 100 = 25

Portable electric = 35 x 200 / 100 = 70

Regular electric = 45 x 300 / 100 = 135

Contribution per labour-hour is:

Portable manual = 25 / 10 = 2.50

Portable electric = 70 / 15 = 4.61

Regular electric = 135 / 25 = 5.40

The above calculation also shows that the regular electric typewriters should bepushed because the contribution per labour-hour is higher for regular electric modelsas compared to the other models.

But it may not come out like this always. For example, in the above illustration, if thelabour required per unit of electric typewriters is 35 hours instead of 25 hours, thenthe contribution per labour-hour for the regular electric model is 135 / 35 = 3.86. Insuch case, it will be more profitable to push the electric portable model, since it giveshigher contribution per labour-hour as compared to the other models.

Hence it would be more useful to express contribution on per labour-hour basis.

4.6 SUMMARY

Breakeven point is determined by taking into consideration the fixed cost, variablecost per unit, and sales revenue per unit. To get higher profit, BEP should belowered. There are three ways to lower the BEP. Contribution Ratio measures theproduct's contribution as a percentage of its price per unit.

4.7 KEY CONCEPTS

· Breakeven Point

· Breakeven Quantity· Margin of Safety· Profit-volume chart· Contribution Ratio

4.8 MODEL QUESTIONS

1. Describe the breakeven analysis.

2. What are the ways for lowering the breakeven point?

3. A new word processing machine is contemplated by company to accommodateinsurance policy typing and printing. The fixed cost of energy, depreciation, labor,printing paper and disc supply amount to Rs.19,700 and the variable costs are Rs.3per policy. The average revenue from an insurance policy drafted is Rs.200.

(a) How many policies should be drafted in order to breakeven?

(b) What is each policy's contribution to fixed cost and profit?

4. A product involves Rs.6000 per annum as fixed cost and yields Rs.3500 profit.The sales income is Rs.16,000. Draw a profit-volume chart and find the P/V ratio.

5. The following table presents a major decision that has to be made. The companycould develop either as an integrated resource company that includes exploration,drilling, production, refining and distribution functions (Alternative A), or couldspecialize in exploration and drilling only (Alternative B). The impact on fixed andvariable costs as well as selling price per barrel is provided.

Alternative A Alternative B

Fixed cost

Variable cost

Selling price

Rs.5,00,00,000

Rs.25/barrel

Rs.35/barrel

Rs.2,00,00,000

Rs.18/barrel

Rs.25/barrel

If the company is interested in realising a profit with a smaller breakeven volume,which alternative should be chosen?

6. The breakeven point of a product occurs at a sales income of Rs.1,20,000 butnormally the sales income is Rs.1,80,000, the fixed cost being Rs.1,00,000. A newproduct involved additional cost of Rs.20,000 but the P/V ratio was improved by20% and sales income increased to Rs.2,40,000. What net profit did the new designyield?

4.9 REFERENCE BOOKS

1 Buffa, "Modern production management", John Whiely.


3. Menipaz, Ehed, "Essentials of production and operations management", PrenticeHall

4. Eilon, Samuel, "Elements of production planning and control". MacmillanCompany.

- End of Chapter -

LESSON-5

BREAKEVEN ANALYSIS AND DECISION MAKING

5.1 Preamble

5.2 Mechanisation decisions

5.3 Choices among process alternatives

5.4 Make-buy decisions

5.5 Economic analysis

5.6 Non-economic and intangible factors

5.7 Make-buy policies

5.8 Cautions in the use of breakeven analysis

5.9 Summary

5.10 Key concepts



5.1 PREAMBLE

Breakeven concepts can be applied as an aid to managerial decision making innumber of areas. Mechanisation decisions, choosing among process alternatives, andmake-buy decisions are some of the areas where breakeven analysis can be appliedeffectively.

5.2 MECHANISATION DECISIONS

Suppose a new glass cutting machine would decrease the amount of glass breakageand the labour required in the manufacture of a solar heating panel which wasdiscussed in Example 2 of Lesson-4. A decision has to be taken whether to go for thenew machine or not. The decision will be based on the new cost estimates. For thenew machine there will be an additional fixed cost of Rs.3000 would have to beinvested in addition to the fixed cost of Rs.20000, but the variable cost would reduceto Rs. 75 per unit from Rs.80 per unit. With this new information on cost data, thebreakeven point,

Q = F

P – V

= 23000 _

100 - 75

= 920 units.

The installation of this new machine would reduce the breakeven volume (BEP) to920 units from the previous 1000 units. This would be an important outcome, andthe decision would be taken to buy the new machine.

5.3 CHOICES AMONG PROCESS ALTERNATIVES

Breakeven analysis can also be used to aid in making choices from among thealternative processes by comparing relative advantages of each. In a manufacturingsituation, processing requires simple machines which are easy to setup, are usuallyslow, and costly to operate. On the other hand, larger volumes of output may allowthe use of faster machines which are costly to setup but once setup they are lesscostly to operate. Often there are several alternative methods, each of which may bethe most economical for certain ranges of output. The method which must be useddepends upon the expected volume of output.

Deciding the choices among processing alternatives can be best explained with anillustration. A decision has to be taken about the processing methods among thealternatives for making a small bush. This bush can be made on an ordinary generalpurpose lathe which is easy to setup but not very efficient in production. The bushcan also be made on a turret lathe which is more costly to setup but it can produce atlower unit cost once it is setup. However, when the requirement of bush increases,the automatic screw machine is preferable. Setup costs are much higher for suchautomatic machines but the operating costs are much lower.

The following cost data may be taken for the three processing alternatives:

Setup cost (F) Operating cost per unit(V)

Lathe Rs.250 Rs.5

Turret lathe Rs.500 Rs.2.50

Automatic screw machine Rs.1450 Re.1

If 'x' is the quantity to be made each time the machine is setup, the cost formula forthe three alternatives becomes,

Lathe : 250 + 5x

Turret lathe : 500 + 2.5x

Automatic screw machine : 1450 + 1.0x

Fig. 5.1 shows graphically the comparison of costs for making the bush on these threemachines. Lathes are the least costly for very small quantities, then turret lathes andthen automatic screw machines for larger quantities. The chart shown in Fig. 5.1would be needed for deciding the method to be used for a given volume ofproduction. The exact crossover points A, B, and C can be calculated from the costformula of different alternatives. The equations for the two methods being comparedare set equal to each other and solved for 'x'.

The comparison of lathes to turret lathes is:

250 + 5x = 500 + 2.5x

2.5x = 250

x = 100 units

Thus point A on the chart of Fig 5.1, which is the point of indifference between latheand turret lathe, is at a volume of 100 units.

The comparison of lathes to automatic screw machines is:

250 + 5x = 1450 + 1x

4x = 1200

x = 300 units

Thus point B on the chart of Fig 5.1, which is the point of indifference between latheand automatic screw machines, is at a volume of 300 units.

The comparison of turret lathes to automatic screw machines is:

500 + 2.5x = 1450 + 1x

1.5x = 950

x = 633 units

Thus point C on the chart of Fig 5.1, which is the point of indifference between turretlathe and automatic screw machines, is at a volume of 633 units.

From the above calculation, we can say that a lathe should be used for orders fewerthan 100 units, a turret lathe should be used if 100 to 633 units are to be produced,and an automatic screw machine should be used for above 633 units of production.Assuming, all the turret lathes are tied up on some other work and are not available,then a lathe should be used for up to 300 units, and automatic screw machines fororders of more than 300 units.

Crossover charts can also be used in new equipment purchase choices. The lines onthe charts would compare the costs of doing the work in the present way againstwhat they would be if a machine were bought.

5.4 MAKE-BUY DECISIONS

The breakeven concepts can also be used in make-buy decisions. Make-buy decisionsare those where a company's manager chooses between 'making' a part inside or'buying' it ready made from outside.

Make-buy questions can come up at any time. When such a question comes up and ifthe company has idle capacity, then the decision to 'make' is almost automatic sincethe cost of machine does not need to be considered. The real make-buy questionscome up when making would involve the purchase of more equipment. Breakevenanalysis can help in such situations.

Factors affecting Make or Buy decision

Every manufacturing concern must decide whether to use its product skill and effortto make each of multiple items or whether to buy them. The possibilities aretremendous when all of the materials, supplies and finished products with which amanufacturing concern deals are considered. Fortunately manufacturing a largeshare of these items need not be considered. For supply items as paper clips, pencils,and erasers, specialisation makes their manufacture uneconomical to all concernsexcept to those in that particular field. As a matter of fact real opportunities aresometimes overlooked because of this pattern of buying items.

The product has been designed and its specifications are summarised on blueprintsor drawings. Analysis of the product may reveal that, the product may have 1, 10,100, 1000, or 10000 parts for making it. A large transport aircraft is made up of over50000 parts. Out of these parts, it has to be decided which are to be made and whichare to be bought. Also it has to be decided about the valid criteria for making thesedecisions.


5.5 ECONOMIC ANALYSIS

Most businessmen would agree that major criterion for decision making in the make-buy area is cost. If a part could be bought cheaper than it could be made, buy it.When it comes to the kind of needed cost comparison, there is often much confusionbecause no standard cost comparison fits each case. Every situation must be analysedin terms of the incremental cost involved and the nature of these costs variestremendously.

If the parts are purchased instead of making them, what costs would actually bereduced, and are these reductions in costs greater than the costs assumed for buyingthe item? If yes, then a decision would be taken to 'buy'. This could be illustratedwith an example.

Example: Suppose a part is made in the plant at a cost of Rs.100 per piece, whichincludes Rs.50 for overhead expenses and the remaining Rs.50 for direct costs. If thispart is purchased, then there would be a reduction of Rs.50 per piece. When the costof purchasing is Rs.40 per piece, then the reduction in cost of making if the part is

bought (i.e, Rs.50), is greater than the cost of buying (Rs.40) the component. In thatcase, decision would be taken to 'buy'.

Now let's assume that the buying cost is Rs.60 per piece instead of Rs.40, then thereduction in making cost (Rs.50) if the part is bought, is less than the cost of buying(Rs.60) the component. In this case, decision would be taken not to buy, but tocontinue 'making' the components inside.

Conversely, if the part is being purchased presently instead of making it, then actualcost added for making the component has to be calculated and compared with thecost reduced by not purchasing the component. This could be illustrated with anexample.

Example: Suppose the part is purchased presently at a cost of Rs.50 per piece. If thepart is made, then there would be an additional cost of Rs.40 per piece. Since thisadditional cost is less than the reduction of cost (Rs.50) by not purchasing the item,decision would be taken to 'make' the part.

In another case, if the part is made, then the additional cost incurred in making thepart is Rs.60 per piece. Since this additional cost is greater than the reduction of cost(Rs.50) expressed in stopping the purchase of the part, decision would be taken notto make the part and to continue with 'purchasing' the part.

The above discussion would look simple but the difficulties come in theinterpretation of them. For example, if there is idle capacity in the necessaryequipment, the cost of making would be more attractive because the allocation ofoverhead cost for equipment for space, supervision etc. to new product could not bejustified. On the, other hand, if it is necessary to acquire equipment, floor space andsupervision would have to be reflected on these facts. Conversely if the item isconsidered for buying, then overhead items in the manufacturing cost would have tobe looked closely. It is likely that these overhead cost items would actually be reducedby purchasing the part. The supervision floor space and general factory overheadwould remain as continuing cost items. If the equipment involved is general purpose,then it would have to be retained. The sunk costs of equipment and building and therealistic facts of idle capacity would be strong economic pressures for making thepart instead of buying.

The types of cost factors that could enter into a make-buy decision are oftensurprising. For example, once company found that they had not included extramaterial-handling costs for the buy situation. Since this part was a heavy and bulky,the material-handling cost turned out to be important. The simple price per unit ofpurchased parts does not necessarily reflect the incremental cost for comparison ofalternative plans of make or buy. Another company failed to consider that there wereincremental paperwork costs for its make program. Previously the part was bought asa single assembled item and placed it in storage to await assembly into their finalproduct. Now for making, several component parts would have to be purchased plusthe raw material for the parts. Shop orders have to be written, inventories have to becontrolled for several parts and assembly orders have to be written. Some of these

costs would be measurable and greater than the cost of buying the part. Theimportant thing is that the cost analysis must fit the particular case and each casewould be different.

5.6 NON-ECONOMIC AND INTANGIBLE FACTORS

There would be some other factors other than economic that influence a company tofollow a given make-buy policy. These other factors could be: quality, reliability,availability of supply, control of trade secrets, patents, research and developmentfacilities, flexibility. These are some of the factors entering into a make or buydecision.

5.7 MAKE-BUY POLICIES

Most concerns wish to follow a basic policy that gives the economic criterion. Theywould vary from this policy only when a limiting condition such as qualityconsideration, supply, patent etc. seem to dictate a course of action. The decisionrules for make-buy situations used by process planners would be based on a varietyof reasons and logic. Any one of the following combinations of several may be thebasis for these decision rules: economic advantage, quality consideration, reliabilityof supply, control of trade secrets, research and development facilities of a supply,retention of goodwill, desire to specialize activities, and imposed sub-contracting.The decision rules may also depend on the company, its policies, and the nature ofthe specific items under consideration. The breakeven analysis may be helpful intaking quantitative decisions for make-buy policies.


To illustrate this, an example is considered.

Example: A panel manufacturer is making a decision about whether to make or buya part. If Rs.3500 is invested in a new die, the company will be able to make this partin the plant itself for an added cost of Rs.1 per unit in variable cost. However, if thepart is bought, the vendor has quoted two prices, Rs.1.55 each for quantities up to10,000 units and Rs.1.30 each for all orders over 10,000. Because of two quotedprices, two breakeven points, one comparing each purchase price with insidemanufacturing cost have to be calculated. These two breakeven points are calculatedas follows:

Let's say, the manufacturer requires x units of the part.

The see comparison of costs of 'buying' and 'making' quantities up to 10,000 units:

1.55x = 3500 + 1x

0.55x = 3500

x = 6364 units

This quantity of 6364 units is shown at point A in Fig.5.2.

Let's see comparison of costs of 'buying' and 'making' quantities over 10,000 units:

1.30x = 3500 + 1x

0.30x = 3500

x = 11,667 units

This quantity of 11,667 units is shown at point B in Fig.5.2.

Because there is no start-up cost involved and no machine to buy, buying the partwould always be less costly for all small quantities. But the breakeven formula andthe graphical plot of Fig. 5.2 show that although 'buying' would be less costly up to6364 units, 'making' is less costly thereafter.

The quoted purchase price reduction for over 10,000 units forces to change thedecision. For quantities just over 10,000 units, again, 'buying' is cheaper but only upto 11,667 units. After this quantity of 11,667 units, again, it is profitable to 'make'. Allthese relationships are shown in Fig. 5.2.

5.8 CAUTIONS IN THE USE OF BREAKEVEN ANALYSIS

Breakeven analysis should be used with proper judgment because of the manyassumptions made in carrying out the analysis.

First, it is difficult to separate fixed cost from variable cost in many operations. Oftenthe estimates of fixed and variable costs are made roughly.

Second, variable costs per unit are not always constant for any volume of sale orproduction. But the variable cost line is assumed as straight line on breakeven chart.Sometimes economies of scale cause variable costs to be less per unit as the volume

increases. At other times, diseconomies of scale work the other way and causevariable costs per unit to increase as volume increases.

Third, fixed costs also may not be always constant over the full range of volumeunder consideration.

And finally, greater volume may be profitable only at reduced prices.

These interacting relationships are shown in Fig. 5.3.

Fixed costs may rise as volumes increase because of the need to add to capacity in alumpy sort of way. This may be due to the purchase of more machines to produce theadded volume.

The variable cost may not be a straight line. Because of the economies of scale theincrease in the total cost would not be linear to that of the volume, and hence thetotal cost curve takes the non-linear shape.

And also the sales income line would not be a nice straight line as it was depicted inthe previous breakeven chart. As the firm tries to increase the sales volume, it mayhave to cut the prices on some items in order to sell more. This has the effect offlattening out the income line on the right side of the chart.

When the Fig.5.3 is analysed, it would be seen that the volume which would producethe greatest profit would be just below point A, that is, the point where there is agreat spread between sales income and total cost. However, a manager looking at thischart shown in Fig. 5.3 and knowing the inexact nature of the figures that were usedin the construction of the chart, would probably conclude that it would be mostprofitable to produce at a volume somewhat above point B but somewhat less thanpoint C's volume but not necessarily just below the point A.

5.9 SUMMARY

In this lesson, applications of breakeven concept in mechanisation decisions,choosing process alternatives and in make-buy decisions have been discussed.Breakeven analysis should be used with discretion because of the many assumptionswhich are made.

5.10 KEY CONCEPTS

Mechanisation decision

Process selection

Make-buy policy


1. Is a breakeven chart reliable enough as a managerial tool for a manager in makinga major business decision? Discuss.

2. What is the nature of the economic analysis for a make versus buy decision?

3. Discuss the nature of non-economic and intangible factors that may bear on themake-buy decision.

4. How does the breakeven concept apply in process selection?

5. Discuss the limitations and cautions which should be taken in using breakevenanalysis.



2. Krajewski and Ritzman, "Operations Management", Addison-Wesley.

3. Menipaz, Ehed, "Essentials of Production and Operations Management", PrenticeHall.

4. Eilon, Samuel, "Elements of Production Planning and Control", MacmillanCompany.

5. Moore, F.G. and Hendrick.T.E., "Production/Operations Management", D.B.Taraporval Sons & Co., Bombay.

- End of Chapter -

LESSON-6

PLANT LOCATION FACTORS

6.1 Preamble

6.2 Aspects of plant location

6.2.1 Process inputs

6.2.2 Process outputs

6.2.3 Process characteristics

6.2.4 Personal preferences

6.2.5 Tax incentives and legal aspects

6.3 Steps in the plant location study

6.4 Area selection

6.5 Community selection

6.6 Site selection

6.7 Influence of location on plant layout

6.8 Common errors in plant location analysis

6.9 Summary

6.10 Key concepts



6.1 PREAMBLE

Very early in the planning phase, the operations manager is faced with a plantlocation decision. The small entrepreneur, when considering a location for hiswelding shop, is concerned with easy access to the shop by potential clients and withbuilding costs and rental rates. The major national producer of chain saws considershis markets, the availability of skilled personnel, the supply of raw materials, energyand so on.

The location of a plant is a major decision and is affected by many factors bothinternal and external to the organizations operations. Internal factors include thetechnology used, the capacity, the financial position and the work force required.External factors include the economic, political and social conditions in the variouslocalities.

Most of the fixed and some of the variable costs of the operations are determined bythe location decision. Thus the efficiency, effectiveness, productivity and profitabilityof the plant are affected by the plant location decision. While some aspects oflocation analysis can be dealt with quantitatively, the final decision is based largelyon informed qualitative judgment

6.2 ASPECTS OF PLANT LOCATION OR VARIOUS FACTORS AFFECTINGPLANT LOCATION

The location of a facility, be if a manufacturing or services, is largely affected by thefollowing aspects:

6.2.1 Process inputs

Process inputs involve raw material, personnel, and other inputs. So far as rawmaterials are concerned, transportation costs are important. These costs aresignificant when bulky and heavy raw materials are involved in the process.

When there is only one raw material source and many dispersed markets, oneconsiders locating the facility near the raw material source. However, whenthere are various raw materials that are to be used for the production of onesingle marketable product, one considers locating the facility near the market.

Inputs other than raw materials are also involved in the operation process. Forexample work force availability and wages are of far more important to anoperation than are raw materials. Service organisations and labour intensiveindustries are very sensitive to the availability, the skill level, and the pay rateof the workforce. However, to a certain extent increased mechanisation hascontributed to the reduced importance of the labor aspects of location analysis.

Another consideration in the context of human resources is the availability ofmanpower. Generally the workforce consists of skilled, semi-skilled, and un-skilled personnel. All of these skill-levels are represented in organisations. Forexample, if a plant is to be located in a low skill, low wage area, the degree ofmechanisation must be increased. The work assistants and habits of locallyrecruited personnel are also important.

6.2.2 Process outputs

Process outputs involve distribution costs. The more bulky and heavy thefinished product, the costlier becomes the distribution. Also, if the operation ismore service-oriented, it is important that the plant is located near its market.For industries where services are not directly consumed, such as automobilerepair shops and headquarters of mortgage & trust companies, location is notso crucial. However, services that are directly connected, such as those of bankbranches , theaters, restaurants, apartment buildings, and public parks,locations near the consuming public is crucial. As matter of fact proximity tothe market is possibly the most important consideration in location servicesthat are directly consumed.

When the process requires a great deal of energy, as does the steel industry, itshould be located next to a major source of power. When the process requires agreat deal of water, as does the sugar industries, it should be located wherewater is available in ample supply.

6.2.3 Process characteristics

These are concerned with the equipment or conditions. Noise or odour orchemical producing plants should be located far away from urban or sub-urbancommunities. Certain weather conditions are advantageous for variesprocesses. For example, a certain humidity level is favourable for sanitaryoperations. A certain humidity level is required for the printing industry

because of the paper sheet feeding technology which is based on vacuum cups.The facility location is thus affected by the process requirements.

6.2.4 Personal preferences

Personal preferences of the entrepreneur or top executives of the company alsoaffect the location decision.

6.2.5 Tax incentives and legal aspects

These are very important factors; corporate taxes, personal income taxes andsales tax, all affect the location decision. Obviously, the corporate tax structureis built into any location feasibility study made by the corporation. Personaltaxes determine how attractive the move to the new location is and what thewage structure should be. Various communities, states and the governmentoffer incentives for facility location by providing industrial parks, properlyzoned land at favorable tax rates and rebates based on capital allowances, andper worker outright grants. At times loans and loan guarantees are offered.

Certain industries are banned from certain localities. Certain products might belegally banned from certain localities. These aspects of facility locations shouldbe checked and confirmed.


6.3 STEPS IN THE FACILITY LOCATION STUDY

In most cases, a location analysis should begin with a preliminary survey of theaspects indicated above to determine whether or not the use of new plant site isjustified. When it is not justified, the study simply ends. If the survey indicates thatnew sites may be desirable, a detailed analysis that carefully evaluates all possiblealternatives is to be undertaken.

Usually, the analysis is undertaken in several stages. Three levels of problems mustbe attacked when considering plant location. They are:

(i) Selection of general territory or area

(ii) Selection of a specific community

(iii) Selection of specific site

Sometimes, the second and third levels are confined. Although some location factorsmay be applicable at all the three levels, there are certain unique considerationswhen selecting a general area, community and site. The selection of factorsconsidered at each stage is to an extent arbitrary. Some factors may be evaluated atdifferent stages and some are evaluated in all the three stages. What is important isthat all the factors be considered at same point in the analysis.

Numerous sources of information are available to assist the firms with the analysis.

Location informatics of a general nature may be obtained from the following sources:

(i) Central Government

(ii) State Government

(iii) Chamber of Commerce

(iv) Electricity Board

(v) Gas authorities

(vi) Railways

(vii) Transport Corporation

(viii) Engineers and Builders

(ix) Consultants

6.4 AREA SELECTION

Area or territory selection calls for the information of a more general nature. In thisinitial phase, management is involved in selecting region or general area in which theplant should be located. The following are some of the important factors thatinfluence its selection.

1. Market : The market is a location of the buyers. It is a factor to be considered inplant location. Depending on the product, market may be concentrated or widelydispersed.

· When a market is concentrated, the market factor may tend to influence theinvestigator to locate close to this concentration. For a product servicing adispersed market the influence of the market factor becomes less obvious.

· It is possible to determine the center of the market, which is a statisticaldevice helpful in approximating that point which will provide the lowest costfor distribution. The center of the market can be used only as a guide for plantlocation. The method used to locate a market center is analogous to locatingthe center of gravity of a two dimensional object in mechanics.

· Locating plant near the markets for this products and services is of primaryimportance in a plant location decision. Particularly this factor should beconsidered if the manufacturing increases the bulk or weight of the product,renders it more fragile or make it capable of being easily spoiled. Besidesadding transportation costs, distance adds to transmit time and slows downdelivery, thus affecting promptness of service.

· If the product is relatively inexpensive and transportation costs (e.g. bricks,cement) add substantially to the price, a location near the market is desirable.

· Also if the product is custom-made, close customer contact is essential.· In assembly type industries, many raw materials are gathered together from

diverse locations and assembled into single units. Such industries tend tolocate near the market.

2. Raw materials : The location of raw material is influential in the locationproblem. Some industries by the nature of their manufacturing process are forced tolocate the near raw material sources. The steel industry has traditionally locatedclose to the coal fields since it uses coal in large quantities. However since newprocesses have been developed for basic steel refining which eliminate the need forcoal , this change in the raw material demand could lead to a complete relocation ofthe steel industry.

The raw material could be treated in three classes:

(i) Pure material which are included in the manufacturing part without loss ofweight.

(ii) Weight losing materials, only a part of whose weight is represented in the weightof the finished article.

(iii) Materials found virtually everywhere.

By assuming uniform rates per distance traveled, which is an oversimplification, thefollowing generalisation regarding the effect of raw material on plant location may bemade:

· When a single raw material is used without loss of weight, locate the plant atthe raw material source, at the market, or at any point in between them.

· When a weight losing material is demanded for the plant, then locate the plantat the raw material source.

· When a material found everywhere is used, locate close to market area.

Ease of access to suppliers of raw materials, parts, tools, equipment, etc. may beimportant. Promptness and regularity of delivery from suppliers and minimization offreight costs are important. In general, this factor is most likely to be important intransportation of materials and parts that represent the major portion of unit costs,and these inputs are available only in a particular region.

· If the raw material is bulky and if it is greatly reduced in bulk by transferringinto various products and by-products in processing, then location near rawmaterial sources is important.

· If the raw material is perishable and processing makes it less, then alsolocating near raw material source is important.

· If raw material comes from a variety of locations, the plant may be situated soas to minimize total transportation cost. In calculating transportation costs,the fact that should be considered is that these costs are not simply a functionof distance, but they vary depending upon specific routes and specific productclassifications.

3. Transportation : The problem of transportation is an important factor in plantlocation. The movement of material can consume a very high percentage of the finalcost to the customer. One plant location analysis done by an analyst for a specificplant showed that locating the plant as little as 400 kilometers from the best locationcaused lost potential projects of as much as Rs.30 lakhs per year. This penaltyincluded higher cost of labour, power and fuel as well as higher transport costs.

The different transportation medium may be:

(i) Railroads - all classes of traffic.

(ii) Water carriers - all classes of traffic

(iii) Highway vehicles - all classes of traffic.

(iv) Pipelines - bulk liquid and gases.

(v) Aircraft - where speed is essential and where access by the surface agencies isdifficult.

(vi) Pack animals - in different terrain.

(vii) Belt, cable, or rail conveyers of various types - short distances.

(viii) Human carriers - short distances and small quantities.

(ix) Electric cables - electric energy.

(x) Telecommunications - information commercial negotiations.

Each of the above transportation mediums has its advantages and limitations. Inorder to select the proper transportation media, the shipper should consider thefollowing:

· Type and extent of material-handling facilities at origin and destination,· The relation cost of the various media,· The urgency of the shipment,· The demand for special services, e.g. refrigeration.

Transportation costs vary with the type of route, type of media selected, as well as thelength of distance travelled. In general, the cost of moving material per unit distancetravelled tapers off, as the length of distance travelled increases.

FIG. 6.1 Hypothetical Comparison of Costs for Various TransportationMedia

Fig. 6.1 shows an analysis involving breakeven point to select a transportation mediafor a particular situation. In this case, truck transportation appears to be the mosteconomical up to a distance of approximately 80 kms. Transportation by waterwayappears to be most economical for long distance, greater than about 700 kms. Fortraveling distances between 80 to 700 kms, the railroad appears to be most efficientcarrier.

The breakeven chart shown in Fig. 6.1 is a hypothetical one. However, such a chartcan be constructed if real data is available for taking the decision with respect to theselection of transport media.

Adequate transportation facilities are essential for the economic operations of aproduction system. The bulk of all freight shipment is made by rail. Rail transportoffers a great deal of flexibility and speed. Most firms require access to railwayswhich they consider to be essential carriers of their products.

For companies that produce or buy heavy and bulky commodities, watertransportation is an important factor in locating plants.

Truck transport is also important particularly for inter-city transport.

Availability of pipelines may also influence location.

Use of aircraft is also expanding and so the proximity to airports is becoming vital.

Traveling expenses of management and sales personnel should also be considered.

4. Labour supply and wages : Not only the labour force must be available butalso it must have the skills required for the particular manufacturing process. Thehistory of labour relations in a prospective area for location should be studied. Forobvious reasons, it is difficult to secure objective comments from area leaders andlocal government officials particularly if they are promoting their community. Therate of labour turnover is a good indication of the relationship between managementand labour. A high turnover rate shows up in a high labour cost and it is directlyrelated to productivity.

If the labour force required by a particular industry is predominantly female, thelocation problem takes on some different aspects compared to a plant whose labourforce is predominantly male. Wage levels must also be considered. Wages and skillsavailable may be lower in a particular region and therefore industries requiring manyunskilled workers, which pay low wages, are attractive to such regions.

· Manpower is one of the most important and costly inputs in productionsystems. An ample supply of labour is essential.

· Firms often look at the areas in which the permanent job applicants availableare more than three or four times of the required numbers.

· It is also advantageous to locate in places where there is diversificationbetween industries and business. It is not desirable to have more than 50% ofthe available workforce in manufacturing.

· The type and level of skills possessed by the labour force is important. Ifcompany requires particular skills that are not widespread, it may have tolocate near the particular areas where these skills are available. Otherwise,training costs might be more and inadequate productivity would result. Inthese cases, skilled labour is desirable but not essential since all the workerswill require some training anyway. It should be noted that a firm can relocatefrom a high skill/high cost to a low skill/low cost operation if sufficientprocess mechanization is achieved to permit trading off the higher investmentin machinery for less manpower and lower wages and level of skills.

· The existence of regional wage rate differentials may be important particularlyin those cases in which labour cost represents the bulk of total productioncost, as in the textile industries. This factor must be considered in light of theskills available in the area, the size of the labour force, productivity levels, etc.

· The extent of unionizations, prevailing labour- management attitudes, historyof labour relations, turnover rates, absenteeism, etc., should also beconsidered.

5. Climate and fuel : Climate greatly influences human efficiency and behaviour. Aplant whose production process requires a constant temperature of 20°C will find nosuch situation. It should be located on a site that has a mean temperature of 20°Cand standard deviation of 5. This will call for the least amount of artificial heatingand cooling. Heating engineers can compute heating costs on the basis of thetemperature data.

In addition to fuel costs, climate can influence the selection of a territory because ofthe amount of precipitation or air pollution.

Wind velocity and direction can also influence plant location. These become veryimportant factors when the possibility of radioactive fall out resulting from an attackupon a distant city is considered.

6. Location of other plants and warehouse : Firms always try to place newplants where they will complement sister plants and warehouses, and minimize totalcost. They look for market needs and supply-demand disparities, and locate wheremajor markets have been served by long distance travels.

The location of competitors' plants and warehouses must also be considered, theobjective being to obtain an advantage in both freight costs and the level of customerservice.

6.5 COMMUNITY SELECTION

Once the general territory for location has been selected, it becomes necessary tochoose a community and a site. A decision must be made regarding the size of thecommunity in which the plant is to be located. The alternative choices can beclassified as:

i. City locationii. Suburban location

iii. Country location

1. City vs. Suburban vs. Country

The advent of the automobile has brought new mobility to the working force. This isone of the reasons for the present day industrial rush in the country. Wide openspaces and freedom to expand are probably two of the biggest inducements.

The type of manufacturing process may dictate the site relation. For example, acountry location is desirable for a plant producing explosives. Some of the generalconditions leading to the selection of an appropriate type of community might belisted as follows:

(a) Conditions suggesting a city location -

(i) Large skilled labour required

(ii) Process heavily dependent upon availability of city utilities

(iii) Multi floor building desirable

(iv) Close contact with suppliers is demanded

(v) Rapid public transportation is available

(b) Conditions suggesting a suburban location -

(i) Semiskilled labour force required

(ii) Avoidance of heavy city taxes and insurance desired

(iii) Labour force residing close to the plant

(iv) Plant expansion is easier than in city

(v) Community close to but not in large population center

(c) Conditions suggesting a country location -

(i) Large site required for either present demand or expansions

(ii) Lowest property taxes available desired

(iii) Unskilled labour force required

(iv) Low wages required to meet competition

(v) Morale of working force improved by country location

(vi) Manufacturing process is dangerous or objectionable

The choice of the community depends upon the region already chosen. Mostcommunity selection factors cannot be quantified and can only be evaluatedsubjectively.

2. Managerial preferences

This often plays an important role in plant location decision. Many times due tocommunity ties, companies will not relocate. When firms do relocate, the locationselection in some cases is heavily influenced by the preferences of the managers whowill be transferred.

3. Community facilities

This involves such factors as quality of life, which in turn is a function of theavailability of such facilities as schools, churches, medical services, police and fireprotection, cultural, social and recreational opportunities, having good streets andhighways. Also important are the communication facilities and the range frequencyand reliability of transportation facilities.

4. Community attitudes

Community attitude is another factor to be considered in locating a site for the plant.The cultural, social, and educational community atmosphere is being given moreattention by plant location investigation, since management has recognised thatthese aspects are often important to key employees.

The political climate of a community might well be investigated. The tendency ofgovernment bodies to encroach on the privilege of business has caused management

to carefully study the political climate in a prospective location. The back issues ofthe local newspaper over a period of time can reveal such aspects.

These can be difficult to evaluate. Unless the industry is for some reason of anoffensive nature, most communities welcome new industries. However, theformation of anti-industrial pressure groups or lack of co-operation, interest andenthusiasm on the part of community can result in poor relation between therelocating firm and local government, labour and the general public.

5. Community, government laws and taxation

State and local laws should be studied when considering various location. Labourlaws, workmen's compensation laws, etc., vary widely from one location to another.

Some of the aspects of industrial operation regulated by law are hours of work,minimum wages, and working conditions for women employees. The respective lawsshould be investigated which may penalise certain types of industry in certain areas.Waste disposal, smoke reduction, and nuisance regulations should be studied for thevarious alternative locations.

Some industrial concerns pay excessive taxes. Taxes should be considered inselecting a site but a plant location analysis says that tax incentives are relativelyunimportant secondary factor of location. Given the governing factor, the taxincentive may induce a specific location within the area defined by the basic factor. Ifthe location offering tax incentives is not within the area set by the governing factor,it is simply not considered.

Stable, honest, and co-operative government, are important assets, as most of thelocal legislations affecting industry is under its control. Restricting, unreasonablelocal ordinary concerning building codes, zoning, pollution control etc., can seriouslyinhibit operations.

Tax rates are important but must be considered in terms of services provided. Thereshould be some attempt to forecast these charges. If future expansion of communityservices and facilities is likely, taxes will probably increase.

6. Financial inducements

Many central and state governments offer subsidy and financial inducements tocompanies to influence them to build plants in their areas. Government may provideloans for plants for newly established plants within their regions. However, thecompanies should not allow temporary inducements to overshadow the basic meritsof any location.

7. Profile of present industry

The kinds and quality of industrial concerns already in the community area alsopertinent factors to be considered in plant location.

6.6 SITE SELECTION

This is the final stage in the plant location analysis.

One thumb-rule regarding the size of a site is that it should not be less than five timesthe actual size of the plant itself. This is considered as a minimum in order to allowfor loading platform, siding, transport access, parking facilities and storage area.Wherever possible, open land is desirable on two or more sides to allow for futureexpansion.

Unfortunately, tempting offers of a fine site or attractive tax promises frequentlyinfluences plant location decision. Objective data is essential to good plant location.

Researchers in plant location say that in order to properly select a site, a list ofgeneral specification should be followed:

(i) Description of the building to be constructed including the sketch.

(ii) Size of the plot.

(iii) Necessary railroad, highway and waterway facilities.

(iv) Minimum size of water mains, gas line and power line.

(v) Volume of ground water to be utilized.

(vi) Sewage and effluent disposal requirements.

(vii) Safety area for offensive odours, noise, smoke, etc.

(viii) Provisions for sprinkler pressure (ground tank or local water main)

The maps published by the Geographical Survey are useful in selecting a good plantsite. These maps show the land elevations, water feature, dams, buildings, railroadsand power lines.

When choosing a site the following factors should be investigated.

· Size of site - The plot of land must be large enough to hold the proposedplant and parking and access facilities and provide room for future expansion.Industrial parks are often an excellent choice except for heavy industry

· Topography - The topography, soil mixture and drainage must be suited tothe type of building required, and must be capable of providing a properfoundation. If considerable land improvement is required, low-priced landmay turn out to be expensive.

· Utilities - The cost, adequacy and reliability of the supply of power and watermust be evaluated.

· Power: All industries today require electric power of some sort. In addition,there are certain industrial processes that require large amounts of electricpower. For example the refining of aluminum requires cheap electricity inlarge amounts, and for this reason aluminum processing plants are located inareas where large sources of inexpensive power are available. In a situation

where a large amount of steam is utilised for processing or heating, it issometimes advisable to use this steam for power generation purpose.

The following checklist may be helpful when examining the power situation in agiven area:

1. Type of service

· Hydroelectric· Steam· Other

2. Reliability of service - history of stoppages

3. Adequacy of supply - seasonal restrictions

4. Kind of supply

· phase· cycle· voltage

5. Rates

6. Availability of off-peak contracts

7. Fuel adjustment

8. Lighting allowances

9. Discounts and penalties

Hydro-electric power is usually associated with cheap rates, although the originalinstallation of the hydroelectric plant is considerably more costly than that of a steamplant. Technical developments lead to constant improvement in power generationand distribution.

· Water: There are certain industrial processes which requiring largequantities of water. Selecting a site with a good water supply is essential insteel, paper board, paper pulp, food and chemical processes.

Water is generally available from three sources:

(i) surface - water from lakes, streams, etc.,

(ii) ground - springs and wells and

(iii) rain water

Surface water varies greatly in its chemical analysis, and microscopic organisms andvegetation may add taste and colour harmful to specific manufacturing processes.Hard water can damage steam boilers, pumps and circulating systems, engines andother water jacket equipment. The pH factor is the measure of hydrogen ionconcentration of water and it is an expression of its acidity or alkalinity. This factorshould be checked if hardness affects the manufacturing process.

The cost of the supply of power and water are sizeable and constantly recurring costs.Accurate cost determination requires contact with the local utility company. Usagerestrictions may be imposed and there may be wide variations in availability. Thewater supply must be sufficient to meet peak needs and compensate for dry spells. Ifwater is poor quality it may require chemical treatment or purification. The cost ofconnecting these services to the plant must not be overloaded. Sometimes it can bedone only at high costs.

· Waste disposal

This must be considered when selecting the site. The plant should be positioned sothat prevailing winds do not carry any fumes from populated areas, waste may bedisposed-off properly, and at reasonable expense.

Waste disposal is getting to be more and more of a problem as industrialconcentration has built up. As the radioactive materials are finding use in industry inincreasing numbers, the problem of disposal of radioactive waste has become quitecritical. Enterprising businessmen in a heavily industrialized area might establishprofitable business of collecting and disposing-off radioactive wastes from theindustries.

· Transportation facilities

Railroads and highways should be close by in order to minimize the cost of rail linesand access roads. There must be enough highways and railroads to serve thecommunity itself. Special requirements for water or air transport must beconsidered. The plant itself should be easily accessible by car or preferably publictransport.

Intangible factors to consider include the dependability and character of the availablecarriers, frequency of service and freight, and terminal facilities. Costs and timerequired to transport the finished product to market, and time required to contact orservice a customer must also be considered.

· Land costs

These are generally of minor importance as they are non-recurring and make up arelatively small proportion of the total cost of locating a new plant.

It should be emphasized that plant location analysis is a periodic task. The world israpidly changing and the management should not expect a location to remainoptimal forever. Every organization should periodically reassess its environment,

whether any long term changes have occurred that may make it advantageous for theorganization to alter or possibly relocate some portion of its facilities.

6.7 INFLUENCE OF LOCATION ON PLANT LAYOUT

Plant location will determine the proximity of a plant to its source of raw-materialsand its market area. The distance from the plant to these two areas tend to determinethe method of transportation to be used. In turn, the type of transportationdetermines whether the layout should provide for railroad, truck or water loadingand unloading facilities. The arrangement of the shipping and receiving departmentswill vary in the layout according to the type of transportation utilized.

A plant location may be determined, in part, by the fuel requirements of the concern.The plant layout must provide for storage of this fuel, whether it be coal, oil or gas.Also the layout must consider the requirements for power generation.

The demands of future expansion on the plant are influenced by the location of theplant. When plant expansion in a city location must take place by adding stories to apresently constructed building, the plant layout problems are somewhat differentthan they would be in a country location, where plant expansion might take placehorizontally by adding a wing to a single storey building. Materials handling problemin a single storey building are quite different from those in a multi storey building.

6.8 COMMON ERRORS IN PLANT LOCATION ANALYSIS

Sometimes the location selected is poorly suited to the company's needs. Among themore common causes of failure to make a proper location decision are the following:

(i) Labour cost miscalculations

(ii) Inadequate labor resources

(iii) Failure to anticipate growth - firms overlay influenced by short termconsideration finds expansion restricted by natural boundaries, residential orcommercial encroachment, limited utility, etc.

(iv) Carelessness in checking site

(v) Lack of distribution outlets

(vi) Failure to predict local impact of new plant

(vii) Lack of supporting facilities

(viii) Misinformation on utility costs and problems

(ix) Underestimated importance of taxes

(x) Failure to identify critical costs

(xi) Choosing a community in which living conditions are substandard

(xii) Allowing the personal opinions and prejudices of company officers to influencethe decisions

(xiii) Purchase of an existing building due to low price, even though it is unsuited tothe firm's process.


6.9 SUMMARY

The problem of facility location is a very important and falls into the category oflong-range planning. It entails a multiplicity of technological, economic, andbehavioural dimensions. The problem of selecting a proper facility location calls for adetailed study of the cost aspects as well as the behavioural aspects. The data that isrequired for a location study should be collected from a variety of sources, includinggovernment, local municipalities, transportation authorities, potential customers,suppliers, and internal sources (engineers, planners, executives). The effectiveness,efficiency, productivity, and profitability of the operations are affected by the facilitylocation decision.

Facilities location planning entails consideration of the technology of the process, thebehaviour of potential employees, and the economic impact of the location. Suchplanning obviously represents a major effort. However, this effort is justified, as theoperations manager might remember from the slogan: "The three most importantdecisions in the life of a business are: location, location and location."

6.10 KEY CONCEPTS

· Process inputs· Process outputs· Process characteristics· Personal preference· Tax incentives and legal aspects· Territory· Site· Location influence on layout


1. "The location of a plant is a major decision affected by many factors, both internaland external to the organisations' operations"- Explain.

2. List and describe plant location factors.

3. What are the steps of a plant location study?

4. What are the common errors in plant location analysis?

5. How do the location factors influence the plant layout?

6.12 REFERENCES


2. Menipaz, Ehed, "Essentials of Production and Operations Management", PrenticeHall

3. Apple, J.M., "Plant Layout and Materials Handling", Ronald Press.

4. Moore, F.G., "Plant Layout and Design"

- End of Chapter -

LESSON - 7

A PLANT LOCATION MODEL

7.1 Preamble

7.2 Classification of criteria

7.3 Model structure

7.4 Subjective factor weight

7.5 Site weight

7.6 An example

7.7 Summary

7.8 Key concepts

7.9 Model questions


7.1 PREAMBLE

In plant location models, the objective is to minimize the sum of all costs affected bylocation. Some items of cost, such as freight, may be higher for city A and lower forcity B but power costs, for example, may have the reverse pattern. A location isobtained that minimizes costs on balance.

In attempting to minimize cost, not only the today's costs but the long-run costs areconsidered as well. Therefore the influence some of the intangible factors that mayaffect future costs must also be predicted.

Thus factors such as the attitude of city officials and town's people towards a newfactory site in their city may be an indication of future tax assessments. Poor localtransportation facilities may mean future company expenditures to counter balancethis disadvantage. A short labor supply may cost labor rates to be bid up beyond ratesmeasured during a location survey. The type of labor available may indicate futuretraining expenditures. Although a comparative cost analysis of various locations maypoint toward one community, an appraisal of intangible factors may be the basis of adecision to select another.

A model that attempts to deal with the multi-dimensional locational problem wasdeveloped by Brown and Gibson. This model classifies criteria affecting locationaccording to the model structure, quantifies the criteria and achieves the balancingor trade-off among criteria.

7.2 CLASSIFICATION OF CRITERIA

The Brown and Gibson model classifies the list of criteria set by the management asfollows:

(i) Critical factors : Criteria are critical if their nature may exclude the location ofa plant at a particular site regardless of other existing conditions. For example, awater-oriented enterprise such as brewery would not consider a site where there is awater shortage existing. An energy-oriented enterprise such as an aluminumsmelting plant would not consider sites where low cost and plentiful electrical energyis not available. Critical factors have the effect of eliminating sites from considerationaltogether.

(ii) Objective factors : Criteria that can be evaluated in monetary terms such aslabor, raw material, utilities, and taxes are considered as objective factors. A factorcan be both objective and critical. For example, the adequacy of labor would be acritical factor, whereas labor cost would be an objective factor.

(iii) Subject factors : Subjective criteria are characterized by a qualitative type ofmeasurement. For example, the nature of union relationships and activities may beevaluated, but its monetary equivalent cannot be established. Again, criteria can beclassified as both critical and subjective. The subjective factors may include,

a. Availability of transportationb. Industrial sitesc. Climatic conditionsd. Educational facilitiese. Union activitiesf. Recreation facilitiesg. Future growthh. Cost of livingi. Competitionj. Availability of labourk. Type of labourl. Attitude


7.3 Model Structure

For each site, that is, a location measure LMi is defined as that which reflects therelative values for each criterion.

LMi = CFMi [ X . DFMi + ( i - X ) . SFMi ] ...(1)

where CFMi = the critical factor measure for site ‘i’ (0 or 1 )

OFMi = the objective factor measure for site ‘i’ (0 <= DFMi <= 1 and ∑i DFMi =1)

SFMi = the subjective factor measure for site ‘i’ (0 <= SFMi < = 1 and∑i SFMi = 1)

X = the objective factor decision weight.

The critical factor measure CFMi is the product of the individual factor indices forsite ‘i’ with respect to critical factor ‘j’. The critical factor index for each site is either 1or 0 depending on whether the site has an adequacy of the factor or not. If anycritical factor index is 0, then CFMi and the overall location measure LMi are also 0.Site ‘i’ would therefore be eliminated from consideration.

The objective criteria are converted to dimensionless indices in order to establishcomparability between the objective and subjective criteria. The objective factormeasure for site ‘i’ OFMi in terms of the objective factor cost OFCi is defined asfollows:

OFMi = [OFCi × ∑i (1/OFCi)]-1 ...(2)

The effect of equation (2) is that the site with the minimum cost will have the largestOFMi. The relationship of total costs between sites are retained and the sum of theobjective factor measures is 1. This is accomplished through the weighting of theOFCs by the sum of the reciprocals of the OFCs summed over all sites. Raising theresult to the power -1 converts the OFMi to proportions with large valuesrepresenting relatively more desirable results than small values.

The subjective factor measure for each site is influenced by the relative weight ofeach subjective factor and the weight of site ‘i’ relative to all others sites for each ofthe subjective factors. This results in the following statement:

SFMi = ∑k (SFWk × SWik) ...(3)

where SFWk = the weight of subjective factor ‘k’ relative to all subjective factors.

and SWik = the weight of site ‘i’ relative to all potential sites for subjective factor ‘k’

7.4 SUBJECTIVE FACTOR WEIGHT

Reference theory is used to assign weights to subjective factors in a consistent andsystematic manner. The procedure involves comparing subjective factors two at atime. If the first factor is preferred over the second one, then the numerical value 1 is

assigned to the first factor and 0 to the second, and vice-versa for the oppositepreference. If it's difficult to differentiate the two factors, a rating of 1 is given to bothfactors.

Procedures are also included for higher order rating. As with the objective factors,the ratings are normalised so that the sum of objective weightings for a given siteadds to 1.

In the preference theory, it is concluded for each paired comparison about whichfactor is more important by judgment. The more important factor is assigned a valueof 1 and the less important a value of 0. If it is felt that two factors are of equal value,1 is assigned to both.

Then, a table is developed with the factors in the left column and the comparisons tobe made across the top row. When all combinations of comparisons have been made,the 1's in each row are totalled, representing the sum of the preference values for thatfactor. The, each factor weight is calculated by dividing the factor sum by the totalpreference values for all factors. As a check the sum of all factor weights should beequal to 1.

Steps of calculation of SFWk (relative weight to be assigned to each subjectivefactor) are:

1. Develop a table with subjective factors in a column at the left.2. Take two factors at a time across the top of table.3. Compare two factors at a time.4. Conclude for each paired comparison by judgment which factor is more

important.5. Assign the more important factor a value of 1 and the less important a value of

0.6. If it is felt that the two factors are of equal value, assign 1 to both.7. When all comparisons have been made for all combinations, total the 1's in

each row (representing the sum of the preference value for that factor). Letthis be called as Factor Sum.

8. Find the total preference value for all the factors.9. Factor weight = Factor sum / Total preference value10. Check that sum of all factor weights is equal to 1.

7.5 SITE WEIGHTS

Determination of site weights for each factor follows a similar procedure.Comparison of each site for each subjective factor must be made one factor at a time.Data rating of each factor for each site serves as a guide for the weighting process. Aseparate table of comparisons is required for each factor. For example, if there are 5subjective factors to be considered for 6 probable site locations, for each subjectivefactor a comparison table is developed with 6 sites in a column at left and sixcomparisons to be made across the top. Insert 1s and 0s in the table representing theresult of comparison. Total the 1s in each row representing the sum of preferencevalues for that site and compute site weights. The result of this procedure gives the

site weights for each subjective factor. For this example of 5 subjective factors and 6sites there will be 30 site weights.

Steps of calculation of SWik (site weights) are:

1. Develop a separate table of comparison for each factor.2. Take sites in a column at the left of table.3. Take the comparisons to be made across the top of the table.4. Insert 1s and 0s in the table representing the results of comparisons.5. Total 1s in each row representing the sum of preference values for that site.6. Compute site weights.

Site weight = Sum of preference values for that site / Total no. of preferencevalues for all the sites

1. Result of this procedure gives the site weights for each subjective factor.

Subjective factor measure, SFMi is computed for all the sites using the equation 3.For each site, SFM is the sum of successive multiplication of the factor weightsdetermined previously by the site weights for each factor. As a check the sum of theSFMs should be equal to 1.

Location measure, LMi for each site is computed. For calculating LMi, the proportionof the decision weight that should be placed on objective factors is decided.Determining objective factor weight is a judgment process. It should be justified whya particular objective factor decision weight 'X' has been chosen. The factor 'X'establishes the relative importance of the objective and subjective factors in theoverall location problem. Decision is based on the action by a managementcommittee reflecting policies, past data, and integration of a wide variety ofsubjective factors. Determination of 'X' could be subjected to a Delphi process.

Given a value of X, the final location measures are calculated using equation 1. As afinal check, total of location measures for all sites should be equal to 1. Site thatreceives largest LMi is selected.

7.6 AN EXAMPLE

Table 1 gives the general data on objective factor costs. There are six objectivefactors, and probable sites for locating the plant considered are also six. Fivesubjective factors are found to be relevant to location of the plant and preliminaryrating for each factor is given in Table 2. The first four subjective factors are rated ona scale of Excellent - Plentiful - Very good - Good - Adequate - Fair.

The fifth subjective factor is rated on a scale of Active - Significant - Moderate -Negligible.

Table 1

Objective Factor Costs for Six Sites

Site Material Marketing Utilities Labour Building Taxes TotalOFC

1 1079 1316 9460 12773 514 3095 282372 945 1485 11563 11249 563 3470 292753 490 1467 12768 10422 539 3580 292664 979 1600 10548 12159 490 3755 295315 925 1263 10898 12333 612 3701 297326 1507 1950 11628 12244 612 3393 31334

Table 2

Subjective Factors and their Rating for Six Sites

Subjective Factor Site -> 1 2 3 4 5 61. Availablity of labour Adequate Plentiful Plentiful Very Good Plentiful Plentiful2. Availability of transportation Good Very Good Good Very Good Good Very Good3. Climatic conditions Good Very Good Very Good Fair Good Very Good4. Recreation facilities Good Very Good Very Good Very Good Good Very Good5. Union activities Significant Negligible Negligible Active Significant Active

Calculation of Objective Factor Measure, OFMi:

= (1/28237) + (1/29275) + (1/29266) + (1/29531) + (1/29732) + (1/31334)

= 0.0002032

OFM1 = (28237 × 0.0002032)-1 = 0.17428

OFM2 = (29275 × 0.0002032)-1 = 0.16810

OFM3 = (29266 × 0.0002032)-1 = 0.16816

OFM4 = (29531 × 0.0002032)-1 = 0.16665

OFM5 = (29732 × 0.0002032)-1 = 0.16552

OFM6 = (31.334 × 0.0002032)-1 = 0.15706

Calculation of Subjective Factor Weight SFWk :

Preference table for the calculation of SFWk is shown in Table 3. Five subjectivefactors are taken in a column on left of the table and the ten possible pairs are takenacross the table. The preference values are given based on judgment.

For example, when the availability of labour and availability of transportation (L andT) are compared, it is felt that availability of labour is more important for the plant tobe located, and hence a preference value of 1 is given to Labour, and 0 toTransportation. When the availability of labor and recreation facility (L and R) arecompared, it is felt that both the factors are important for the plant to be considered.So a preference value of 1 is given to both these factors. In a similar way, all thecombinations are considered and the preference values are assigned. The totalpreference value for all the factors (sum of all 1s in Table 3) is 16. Sum of thepreference value for the factor 'availability of labour' (sums of 1s in that row of Table3) comes to 4 and it is called as ‘factor sum’. Therefore the factor weight for thisfactor is obtained by dividing factor sum by the total preferred values. This iscalculated as 4/16 = 0.25 for the ‘labour’ factor in Table 3. Similarly SFWk iscalculated for all the subjective factors. It can be checked that the sum of all theSFWk comes to 1.

Calculation of Site Weight, SWik: Separate preference tables have to bedeveloped for each subjective factor. Therefore there will be five preference tables forthe five given subjective factors and these are given in Tables 4, 5, 6, 7 and 8.

For assigning the preference values in Tables 4, 5, 6, 7 and 8, ratings given in Table 2are taken as guidance. Site weight are calculated and summed in Table 9.

Calculation of Subjective Factor Measure, SFMi:

Subjective Factor Measure for each of the six sites can be calculated using theexpression given in equation 3.

Subjective Factor Measure for site 1, SFM1 = for i = 1, 2, ... 6

SFM1 = [(0.25 x 0) + (0.1875 x 0.214) + (0.125 x 0.23) + (0.1875 x 0.1875) + (0.25 x0.25)]

= 0 + 0.0401 + 0.0288 + 0.0352 + 0.0625 = 0.1666

SFM2 = [(0.25 x 0.235) + (0.1875 x 0.214) + (0.125 x 0.23) + (0.1875 x 0.1875) +(0.25 x 0)]

= 0.0588 + 0.0401 + 0.0288 + 0.0352 + 0 = 0.1629

SFM3 = [(0.25 x 0.235) + (0.1875 x 0.071) + (0.125 x 0.23) + (0.1875 x 0.1875) +(0.25 x 0)]

= 0.0588 + 0.0133 + 0.0288 + 0.0352 + 0 = 0.1361

SFM4 = [(0.25 x 0.176) + (0.1875 x 0.214) + (0.125 x 0) + (0.1875 x 0.125) + (0.25 x0.25)]

= 0.044 + 0.0401 + 0 + 0.0234 + 0.0625 = 0.17

SFM5 = [(0.25 x 0.176) + (0.1875 x 0.143) + (0.125 x 0.15) + (0.1875 x 0.125) + (0.25x 0.25)]

= 0.04 + 0.0268 + 0.0188 + 0.0234 + 0.0625 = 0.1755

SFM6 = [(0.25 x 0.176) + (0.1875 x 0.143) + (0.125 x 0.15) + (0.1875 x 0.125) + (0.25x 0.25)]

= 0.044 + 0.0268 + 0.0188 + 0.0234 + 0.0625 = 0.1755

For a check, the sum of all the subjective factor measures should come to 1.

Assume for the given illustration, the objective factor decision weight X as 0.8 andthe critical factor measure for all the sites is taken as 1.

Calculation of Location Measure, LMi:

After calculating objective factor measure and subjective factor measure for all thesix sites, location measure for each of the six sites can be calculated using expressionsgiven in equation 1.

LMi = CFMi [ X . DFMi + ( i - X ) . SFMi ] ...(1)

Location measure for site 1,

LM1 = 1 x [(0.8 x 0.17428) + (0.2 x 0.1666)]

= 0.1394 + 0.0333 = 0.1727


LM2 = 1 x [(0.8 x 0.1681) + (0.2 x 0.1629)]

= 0.1345 + 0.0326 = 0.1671


LM3 = 1 x [(0.8 x 0.16816) + (0.2 x 0.1361)]

= 0.1345 + 0.272 = 0.1617


LM4 = 1 x [(0.8 x 0.16665) + (0.2 x 0.17)]

= 0.1333 + 0.034 = 0.1673


LM5 = 1 × [(0.8 × 0.16552) + (0.2 × 0.1755)]

= 0.1324 + 0.0351 = 0.1675


LM6 = 1 × [(0.8 × 0.15706) + 0.2 × 0.1755)]

= 0.1256 + 0.0351 = 0.1607

It can be checked that the sum of the location measure for all the sites take a value ofapproximately one.

It can be noted from the LM1 values that site 1 produces the largest overall measureand hence site 1 is selected for locating the new plant for this example.

Sensitivity analysis can be conducted to indicate how decisions would change whenthe objective factor decision weight ‘X’ is varied from 0 to 1. From the sensitivitystudy it can be revealed which site will be preferred for what range of ‘X’.

7.7 SUMMARY

The emphasis in industrial plant location is to minimise costs; however whenconsidering long-run cost and many intangible factors, it may influence future costs.Thus, a manager is faced with making a trade-off between tangible cost in the presentand the subjective factors that may influence future cost. The Brown - Gibson modelprovides a framework for the integration of objective and subjective factors usingpreference theory to assign weights to factors in consistent manner.

7.8 KEY CONCEPTS

· Critical Factor Measure· Objective Factor Measure· Subjective Factor Measure· Objective Factor Decision Weight· Location Factor Measure· Preference Theory

7.9 MODEL QUESTIONS

1. In the Brown - Gibson location model how is a critical factor weighted?

2. How is the objective factor weighted in a Brown - Gibson location model?

3. In the Brown - Gibson model what is the rationale for weighing subjective factors?

4. In the Brown-Gibson model how are the relative weights between objective andsubjective factors determined in the overall location problem?

5. Are location choices sensitive to relative weights between objective and subjectivefactors in a Brown - Gibson location model?


1. Buffa, "Modern Production Management", 4th edition John Whiely.

2. Menipaz, Ehed, "Essentials of Production and Operations Management",Prentice Hall.

3. Buffa, "Modern Production/Operations Management", 7th edition, John Whiely.

- End of Chapter -

LESSON - 8

MULTI-PLANT LOCATION

8.1 Preamble

8.2 Location analysis for multi-plant situation

8.3 Linear programming-distribution method

8.4 An example

8.5 Locational dynamics

8.6 Summary

8.7 Key concepts

8.8 Model questions

8.9 Reference books

8.1 PREAMBLE

Location analysis for multi-plant situation is particularly interesting because of itsdynamic character. The addition of new plant is not a matter of determining alocation independent of the existing plants' locations. Rather, each locationconsidered involves a new allocation of capacity to market areas, so a solution fromthe economic view point is one that minimises combined production and distributioncost for the network of plants rather than for the additional plant alone. Also, in themulti-plant situation, locational factors continually influence the extent ofproduction in each plant to meet demand requirements and help determine whichplants to operate and which to shut-down if demand falls.

8.2 LOCATIONAL ANALYSIS FOR MULTI-PLANT SITUATION

Multi-plant location is influenced by existing locations as well as the kinds ofeconomic factors that have been discussed already. Each location considered must beplaced in economic perspective with the existing plants and marked areas. Theobjective factor measures focus on the minimizing of total production - distributioncosts. This aim is somewhat different from the location analysis for a single plant,because each alternate location requires a different allocation of capacity to marketsin order to minimize overall costs. The formal problem can be placed in a linearprogramming framework and solved in a distribution table.

Before taking an example on multi-plant location, the linear programming-distribution methods have been briefly discussed.

8.3 LINEAR PROGRAMMING-DISTRIBUTION METHOD

There are two major steps of the method,

Step 1. Finding Basic Feasible Solution

Before attempting to find the basic feasible solution, it should be checked that thetotal availability in all the plants must be equal to the total requirement of all thewarehouses. If it is not equal, add a dummy row or a dummy columncorrespondingly with zero distribution cost. There are three methods in finding thebasic feasible solution:

(a) North-West Corner Rule,

(b) Minimum Cost Methods,

(c) Vogel's Approximation Method.

Out of three methods, Vogel's Method is more efficient because here the optimalsolution can be obtained in a comparatively lesser number of iterations.

Steps to be followed In Vogel's Approximation method

i. For each row and column of the distribution side, select the lowest and secondlowest cost alternatives from among those not already allocated. The differencebetween the two costs will be the penalty cost for the row or column. If the lowestand second lowest cost elements happen to be the same, then the penalty cost is zero.

ii. Scan these penalty cost figures and identify the row or column with the largestpenalty cost. If there is a tie, choose any one among the tied values.

iii. Allocate as many units as possible to this row or column in the cell having theleast cost.

iv. Now delete the row or/and column in which availability has been exhaustedor/and requirement has been met.

v. For the reduced distribution table repeat the steps i to iv until the total availabilityhas been exhausted and total requirement has been met.

Testing the solution for optimality and improving it, if not optimal

Before testing the basic feasible solution for the optimality, the following conditionmust be satisfied:

Total number of allocations = m + n - 1

where m = total number of rows, n = total number of columns.

If this condition is not satisfied, add an allocation with units such that ε (epsilon) is ainfinitely small quantity. Whatever quantity is added or subtracted to or from this,the result will be the same quantity which is added or subtracted. This is added in thedistribution table in the all such that...

- the cost in the cell is the least possible.

- if this is added in a square, it should not form a close loop with otherallocations. A loop can be formed by drawing horizontal and vertical linesamong the allocated cells. If an allocation exists in all corners of this loop, thenit is called a closed loop.

After satisfying the above condition the basic solution is tested for optimality. Twomethods can be used for this purpose:

(i) MODI (Modified Distribution) Method

(ii) Stepping Stone Method

Among these two methods, MODI method is explained below:

Steps to be followed in the MODI method

(i) For the basic solution, compute ‘ui’ values (corresponding to rows of thedistribution table) and 'vj' values (corresponding to columns of the distribution table)for the distribution table using the formula -

Cij = ui+vj

where Cij = cost for the cell (i,j)

(ii) Take ui = 0 for the row which is having maximum number of allocations. If thereis a tie, take ui = 0 for any row.

(iii) Calculate the cell evaluation for all the unallocated cells using the expression -

∆ij = Cij - (Ui - Vj)

(iv) a. If none of the cell evaluations are -ve, the solution is a unique optimal solution.

b. If none are -ve and there are zero entries, then it means that there are morethan one optimal solution.

c. If there are -ve entries for cell evaluation, then the solution under test is not anoptimal one.

When the outcome (iv) c is obtained, the solution have to be improved for gettingoptimality. The following steps are followed for improving the solution foroptimality.

(v) Choose the cell having the largest negative entry in the cell evaluation.

(vi) Trace a closed path with the cell having largest negative cell evaluation.

(vii) Place plus and minus signs at alternate corners of the path beginning with a plussign at the unused square.

(viii) The smallest cell in a negative position on the closed path indicates the quantitythat can be assigned to the unused cell being entered into the solution. This quantityis added to all squares on the closed path with plus sign and subtracted from thosesquares with minus sign.

(ix) Now repeat from step (i) until an optimal solution has been obtained.

8.4 AN EXAMPLE

A company is having three plants A, B, and C, and distributes its products to fivedistribution centres V, W, X, Y and Z. The company has experienced increasingdemand for its product. As a result of this market expansion, company is nowconsidering the construction of a new plant with a capacity of 20,000 units per week.Survey has narrowed the choice to three general locations D, E and F. The estimatedproduction cost per 1000, distribution cost from plant to distribution points, capacityof plants, and demand at distribution points are given in Table 10. It is to be decidedwhich location (D or E or F) will yield the lowest production plus distribution costsfor the system of plants and distribution centres.

To get the answer for this illustrated problem on multi-plant location, three linearprogramming (LP) distribution problems, one for each combination, have to besolved.

The LP distribution problem for the first combination of including the new plant D isgiven and solved in Tables 11, 12, 13, and 14.

The total availability in all the four plants A, B, C and D is 120 units, which is equal tothe total required at all the distribution centers V, W, X, Y and Z. So, there is no needto add dummy row or column. The Vogel’s Approximation Method is applied and thebasic feasible solution is obtained in Table 11.

Before testing this basic solution for optimality the following conditions have to besatisfied:

Total number of allocations = m + n - 1

where m = total no. of rows, and n = total no. of columns.

From the basic solution obtained in Table 11, total number of allocations are 8, whichis equal to 4 + 5 - 1.

Now MODI method is applied in Table 12 to test the solution for optimality.

From the Table 12, it can be noted that the solution is not an optimal one becausethere are negative entries in the cell evaluation. The most negative entry is -18 andhence a close loop is formed with this cell. Following the steps of MODI method thenumber of units that can be allocated to the new cell is 16. The next iteration is givenin Table 13.

The solution obtained in Table 13 is also not an optimal one since there are negativecell evaluation entries. The next iteration is given in Table 14.

Since all the cell evaluation entries in Table 14 are non-negative, the solutionobtained is an optimal one. Therefore, the optimal total production and distributioncost for the first combination with plant D is,

Total cost = (30 × 288) + (16 × 282) + (20 × 307) + (18 × 287) + (4 × 291) + (12 ×319) + (15 × 264) + (5 × 293)

= Rs.34,875

The LP Distribution problem for the second problem for the combination ofincluding the new plant E can be formulated and solved in a similar way. The finaloptimal solution is shown in Table 15.

Total production and distribution cost for the second combination is Rs.34,411.

The LP distribution problem for the third combination of including the new plant Fcan also be formulated and solved. The final optimal solution is shown in Table 16.

Total production and distribution cost for this third combination is Rs.34,850.

The three solutions of the LP distribution problems show that the new location at 'E'is favourable, since the location at E results in the lowest production and distributioncost.

The combined production-distribution analysis provides input concerning theobjective factor cost in the Brown-Gibson location model. Subjective factors areevaluated as before. Final decision would be based on both objective and subjectivefactors and relative weights are placed on them.

8.5 LOCATIONAL DYNAMICS FOR MULTI PLANTS

Suppose that the company decides to build a new plant at location E. The decision tobuild the new plant at location E was based on current costs and demand. Howeverthe balance of cost factors that produced the solution shown in Table 14 couldchange. Then the allocation of capacity to markets should also change in order toyield a minimum total cost. Thus location analysis is a continuous considerationrather than a one-shot analysis performed only at the time of expansion.

Assume that after the plant at location E was built, the company experienced a netdecline in demand because of the entry of aggressive new competitions in the market.Instead of a total demand of 1,20,000 units as projected in the original locationalanalysis only 1,05,000 units are required.

The result is that any three of the plants can meet the demand by using overtimecapacity. The company is now faced with comparing the objective and subjectivefactors of five production-location alternatives. The five alternatives are - operate allplants at partial capacity plus four additional alternatives that each involve shuttingdown one of the plants and meeting requirements using the other three plantsoperating on overtime schedules.

In order to compare the alternatives, five different linear programming distributiontables would be developed. In order to keep the alternatives involving overtimecapacity wishing the linear programming framework the overtime capacity would beregarded as a separate source of supply. In actual shipment units produced onovertime would be segregated. Overtime capacity would simply result higher costs ofproduction.

Five optimal production-distribution tables would be generated and the variable plusfixed costs of operations are compared for the five alternatives. The alternative withthe lowest cost would be the one favoured on the basis of objective factor costs. Thefinal decision would necessarily be influenced by both objective and subjectivefactors, because the plant shutdown has a number of important effects on employeeand community relationships.


8.6 SUMMARY

Location analysis for multi-plant situation has been discussed. Application of LinearProgramming Distribution method in multi-plant location situation has beenelaborated. An illustration example is given on choosing a location for multi-plantsituation. Some of the plant location trends are narrated.

8.7 KEY CONCEPTS

· Linear Programming-Distribution Method· Vogel's Approximation Method· MODI Method· Locational Dynamics· Plant Location Trends

8.8 MODEL QUESTIONS

1. How is the problem of locating a single plant different from locating an additionalplant which manufactures the same items as existing plants?

2. What do you mean by 'locational dynamics' for multiple plants?

3. A company supplies its product from three factories to five distribution centers.The company is experiencing increasing demand for its product and considering theconstruction of a new plant with a capacity of 40,000 units. Survey has narrowed thechoice to three locations. The relevant data is summarised in the following table.Formulate the problem in a distribution framework and find the optimal solution.

DISTRIBUTION COST PER 1000UNITS TO DISTRIBUTION

CENTERS IN RUPEESPLANT

CAPACITIES*1000

PRODUCTIONCOST PER

1000 UNITSIN RUPEESV W X Y Z

EXISTINGPLANTS

A

B

C

36

48

44

2

80

24

24

72

32

56

60

96

100

84

88

92

40

68

540

532

552

PROPOSEDPLANTS

D

E

F

80

110

100

80

140

100

72

128

92

4

64

28

64

8

40

40

40

40

524

540

520MARKETDEMAND*1000

60 36 40 30 74 - -

4. A company has established plants in locations A and B. The assembled productsare sent to customers in locations X, Y, and Z. The plant at A has a capacity toassemble 50 products. The plant at B has the capacity to assemble 70 products. Costof transportation from A is Rs.1000 to X, Rs.1500 to Y and Rs. 300 to Z.Transportation from B is Rs.600 to X, Rs.500 to Y and Rs.900 to Z. The demand forproduct is 40 in X, 50 in Y, and 50 in Z. The company is going to build another plantwith the capacity of 20 products in either location P or Q. From P, transportationcost is Rs.600 to X, Rs. 500 to Y and Rs. 300 to Z. From Q transportation cost isRs.200 to X, Rs.400 to Y and Rs.500 to Z.

(a) Setup this problem as a distribution model.

(b) What are the steps involved in solving the location problem?

8.9 REFERENCE BOOKS

1. Buffa, "Modern Production Management", 4th edition John Whiely.

2. Menipaz, Ehed, "Essentials of Production and Operations Management",Prentice Hall

3. Buffa, "Modern Production/Operations Management", 7th edition, John Whiely

- End of Chapter -

LESSON - 9

PLANT LOCATION TRENDS

9.1 Preamble

9.2 Significant trends

9.3 Geographical Diversity

9.4 The growing Sunbelt

9.5 Decline of urban areas

9.6 Intel-nationalization of production

9.6.1 Environmental adjustments

9.6.2 Exporting techniques

9.6.3 Organizing multi-nationally

9.7 Summary

9.8 Key concepts

9.9 Model questions


9.1 PREAMBLE

The overall trends in location patterns are recognized to have strategic impact onlocation decisions. Examples in this lesson are with respect United States.

9.2 SIGNIFICANT TRENDS

It is fascinating to watch the changes In location patterns, which reflect changes instrategy. McDonald's had an urban strategy, but now is locating stores in some low-population centers. Holiday Inn followed a rural strategy but now is adding moreunits in urban locations. The steel industry is more dispersed than before. High-techelectronics firms are clustered to achieve a critical mass, but these concentrations arescattered across the country. Four location trends are particularly evident -geographic diversity, movement to the growing Sunbelt, movement from decliningurban areas, and the internationalization of production.

9.3 GEOGRAPHIC DIVERSITY

There are two causes of this trend. The first is improved transportation andcommunication technology. There has been a dramatic reduction in time to shipgoods from Osaka. Japan, to Kansas City. Air transportation also makes It easier forexecutives to visit branch plants. Telephone technology facilities both voicecommunication between people and data communication between computers. Thenumber of out-of-state phone calls doubled in one decade, standing at over 6 billionin 1980. This reduces the "friction of distance", so that a facility can service a largermarket area and need not be close to its suppliers,. In service industries, more back-room operations can be centralized at home offices, which can support a widernetwork of branch offices located near the customer.

The second cause of geographic dispersion, which widens the range of acceptablelocations, is the narrowing of regional wage differentials. The Pacific region hasenjoyed the highest income per capita, while the south has suffered the lowest. In1960, per capita income in the Pacific region was 120 percent of the national average,while in the south it was only 78 percent. However, by 1980, per capita income in thePacific region stood at only 111 percent and the south moved up to 89 percent of thenational average. The 42 percent difference dropped to 22 percent in just 20 years.

9.4 THE GROWING SUNBELT

Industry has tended to move south and west, away from the "Frosbelt" and into the"Sunbelt". Fig. 9.1 shows how manufacturing employment shifted among regionsfrom 1967 to 1977. Frostbelt employment decreased noticeably, particularly in theNew England, mideastern of Great Lakes regions. For example, the Great Lakesshare of 28.3 percent of total manufacturing employment in 1967 dropped to 27.1 %in 1977. The sunbelt regions compensated for these losses with 1-2 percent gains.

Several factors contribute to this movement Reduced transportation andcommunication costs are two important factors, reducing the necessity for staying inthe industrial heartland of the Great Lakes and mideastern regions. Some parts ofthe sunbelt offer lower labor costs, less unionism, and possibly a stronger work ethic.The advent of air conditioning and the increase in paid retirement have also favoredthe Sunbelt. Manufacturing has been concentrated in the Frostbelt, andmanufacturers are reluctant to relocate their support and R & D activities. Sunbeltplants therefore tend to focus more on a specific product or process, allowing highvolume production, with products tending to be in the mature stage of their lifecycles. This strategy takes advantage of labor cost differences, leaving products thatare in their early stages for the Frosbelt plants and closer to R & D support activities.

Figure 9.1 also shows forecasts of population changes between 1980 and the year2000. Once again, we can see that the sunbelt is attracting a larger share at theexpense of the Frostbelt. However, these projections should be viewed with caution.Population increases do not always bring large numbers of new businesses to anarea. Rapid growth in areas with a low population base, for example, has little Impacton location decisions, particularly for large retail chains.

9.5 DECLINE OF URBAN AREAS

Manufacturing plants have also moved from the cities to rural areas. A similar shiftcan be seen in Japan and the Industrialized countries of Europe. Over 50 % of thenew Industrial jobs in the United States during the last 2 decades went to rural areas-in all regions. Rural areas gained manufacturing employment even in the mideasternstates. Gains have been particularly impressive in the southeastern and south centralregions. Reasons for this shift include high crime rates and general decline of thequality of life in many large cities. Office location decisions are following suit. Forexample, IBM moved its corporate office from New York City to nearby Armonk, Ex-cell-O Corporation moved from Detroit to nearby Troy, and Brunswick moved fromChicago to Skokie.

9.6 INTERNATIONALIZATION OF PRODUCTION

Between 1976 and 1983, direct investment abroad of private U.S. assets increasedfrom $136.8 billion to $226.1 billion, a 65 percent increase. At the same time, directInvestment of private foreign assets in the United States jumped from $30.8 billionto $133.5 billion, a 333% increase. Many U.S. manufacturers also rely increasingly onforeign suppliers. Of the 20 most strategic materials, 17 are imported from 4countries in southern Africa. Wage-rate differentials, expanding foreign markets, andimproved transportation break down the barriers of time and space between

countries. Having a local presence, with the product made where it is to be sold, canincrease sales or decrease the threat of quotas. The result is a more linked worldeconomy. This trend with some specific companies is illustrated below.

Illustration: Internationalization of production

Locating Overseas

Accuracy is a manufacturer of process control equipment headquarted in Columbus,Ohio. It is doubling its plant and workforce size at its plant in Ireland. One-third ofits shipments are now finished at the Irish plant. AccuRay is one of 400 U.S.companies now operating in Ireland where there is a skilled and low work-force.

Ford motor company moved the production of agricultural tractors from itsMichigan plant to its plants in Belgium and England. Lower wage costs, the strongU.S. dollar, and the ability to consolidate production volumes saved enough to offsetshipping costs to the U.S.

Caterpillar tractor company shifted the production of bulldozers from Illinois andIowa to Scotland, where more than 1000 Scots are now turning out bulldozers.

Influx of Foreign Firms

Several Japanese firms are locating production facilities in the U.S. Honda located anautomobile plant in Marysville, Ohio, with a work-force of 2300. Mazda is building aplant in Flat Rock, Michigan and will employ 3500 workers. Nissan motor companyexpanded its plant in Smyrna. Tenessee, to make the Sentra passenger car inaddition to light trucks. These three facilities alone will have a capacity of 7,80,000cars and trucks per year. Moreover a Joint venture between Toyota and GM resultedin a new assembly plant in Freemont, California.

Four Japanese Electronics companies (NEC, Fujitsu, Seiko and Kyocera) are buildingfive manufacturing plants in the Portland, Oregon area. They will manufacture suchproducts as personnel computer printers and advanced fibre opticstelecommunication equipment.

The Le Blont company has made metal working lathes since 1877. It is now called theLe Blont Makino, after Japan's Makino milling machine limited bought 51% interestin the company. Le Blont makes a wider range of products than before and is muchmore international. It has now a plant in Singapore and selling lathes made by aGerman firm. The machining centers assembled at its home basing Cincinnati, Ohiowill have half U.S. and half Japanese parts and labor.

Despite the advantages of more international production, a new set of problemsarises, including differences in language, politics, and culture. Many firms are poorlyequipped to handle these differences. For example, few U.S. managers know aforeign language. There are more English teachers in Russia than students studyingRussian in the U.S. Such problems create three recurring issues for managers ofinternational production:

(i) Environmental adjustment

(ii) Exporting techniques

(ill) Organizing multi-nationally

9.6.1 Environmental adjustment:

The overseas plant confronts the manager with unfamiliar labor laws, tax laws, andregulatory requirements. The role of government in foreign countries can be moredominant, requiring know-how to handle bureaucratic red tape. Hiring a foreignnational to handle government contacts is not without problems, since this person isnot well-versed on the firm's own policies and procedures. The economicenvironment can. also be quite different. What seemed to be good policies onautomation or inventory may be inappropriate overseas because of a different costmix. Cultural differences are perhaps the most baffling. Foreign nationals comprisethe work force and often much of the management team at an overseas plant. Theirvalues, customs, and attitudes toward work can collide with policies adopted at thehome office. These employees may not be sympathetic to what they consider to bestrange approaches and may resist change.

9.6.2 Exporting techniques:

A second recurring issue is that of how much of the corporation's productionmethods to transplant overseas. If a firm totally accepts the approaches of the foreignmanagers and workers, some effective techniques and policies may be overlooked.The other extreme can be as bad, since some techniques and policies may not fit thenew environment. Some compromise between the two extremes is normally best. Forexample, Mc-Donald's menu (that is, its product plan) and restaurant layout are thesame in Japan as in the United States. However, sites are selected and restaurantsare built closer to adjoining buildings with Japanese preferences in mind. The chain'strademark character is named Donald McDonald (rather than Ronald McDonald)because it is easier to pronounce.

9.6.3 Organizing multi-nationally:

Having multiple plants always raises the question of how much control the homeoffice should retain. Language, cultural, and economic differences make this questionthat much more crucial for international operations. The home office can providetechnical specialists to make decisions about equipment, inventory systems, qualitycontrol procedures, and the like. Such centralized control fits the strategy of doingthings "our way" and can improve interplant coordination. The decentralizedstrategy of giving local managers more autonomy has its own advantages such asadapting policies to local conditions, preserving incentives at lower levels andminimizing the cost of large central office.


9.7 SUMMARY

Location decisions have strategic implications. Four trends in location patterns aregeographic diversity, the growing, sunbelt, the decline of urban areas and the Intel-nationalization of production. Despite the advantages of international productiondifferences in language, policies and culture introduce new problems. Threerecurring issues are environmental adjustments, exporting techniques andorganizing multinationality.

9.8 KEY CONCEPTS

· Geographic diversity· Growing sunbelt· Urban areas· Internationalization of production· Environmental adjustment· Exporting techniques· Organizing multinationality

9.9 MODEL QUESTIONS

1. What factors have expanded the range of possible locations?

2. What are the attractions of the sunbelt or manufacturing plants?

3. What can make foreign locations attractive?

4. Why does an overseas location confront a manager with a different set ofproblems?

5. Explain about Intel-nationalization of production.


1. Krajewski and Ritzman, "Operations Management", Addlson-Wesley.

- End Of Chapter -

LESSON - 10

LAYOUT OF FACILITIES

10.1 Preamble

10.2 Principles of a good layout

10.3 Plant layout factors

10.4 Basic types of layout

10.5 Determining what to move

10.6 Process layout

10.7 Product layout

10.8 Hybrid layout

10.9 Fixed position layout

10.10 Quantitative analysis for process layout

10.11 Quantitative analysis for product layout

10.12 Service facilities

10.13 Principles of materials handling

10.14 Materials handling equipment

10.14.1 Lifting and lowering devices

10.14.2 Transporting devices

10.14.3 Combination devices

10.14.4 Common material handling equipment

10.14.4.1 Conveyors

10.14.4.2 Cranes, Hoists, Monorails

10.14.4.3 Industrial trucks

10.14.4.4 Auxiliary equipment

10.15 Summary

10.16 Key concepts



10.1 PREAMBLE

Plant layout is the integrating phase of the design of a production system. The basicobjective of layout is to develop a production system that meets requirements ofcapacity and quality in the most economical way. The specification of what to make(drawings and specifications), how it is to be made (route sheets and operationsheets) and how many to make (forecasts, orders or contracts) become the basis fordeveloping an integrated system of production. This integrated system must providefor machines, workplaces and storage in the capacities required so that feasibleschedules can be determined for the various parts and products. The system shouldalso provide a transportation system which moves the parts and products throughthe system. It should provide auxiliary services for production such as tool cribs andmaintenance shops and for personnel such as medical facilities and cafeterias.

Because of the dynamic character of our economy, the design of this integratedproduction machine must retain an appropriate degree of flexibility to provide forfuture changes in product designs, product volumes and mixes and for advancingproduction technology. Both the site and building should make it possible to expandoperations in a way that dovetails with existing operations. Certain financial andphysical restrictions are a normal part of the layout problem. The physical restrictionmay be due to the site: its size, shape and orientation in relation to roads, railroadsand utilities. Or they may be due to local laws which specify building restriction andsafety codes. In redesign or relay out of facilities the existing building Impose severerestrictions.

These general statements of the layout problem indicate something of its complexity.Almost all of the factors which enter the problem tend to interact. For example,providing flexibility affects the nature of processes and capacities which in turninteract with short and long run costs. Material transportation methods affects notonly transportation costs but also the amount of handling at machines andworkplaces. The physical arrangement and relative location of work centers areImportant in determining transportation costs and direct labor costs. Storagelocations and capacities interact with transportation costs and delay times.

10.2 PRINCIPLES OF A GOOD LAYOUT

An optimum plant layout is one which provides maximum satisfaction to all partiesconcerned; that Is the employees and management as well as the stock holders. Eachof the parties involved has certain interest in obtaining a good plant layout. Keepingthis interest in mind the major principles of a good layout are:

(I) provide over all simplifications

(II) minimise cost of materials handling

(III) provide high work-in-process turnover

(iv) provide effective space utilisation

(v) provide for worker convenience and promote Job satisfaction and safety

(vi) avoid unnecessary capital investment

(vii) stimulate effective labor utilisation

Simplify the production process

This is the broadest objective in obtaining a good layout. A good layout should beplanned to facilitate the over-all manufacturing process so that it can be carried on inan optimum manner. More specifically, simplification may come from the following:

a. Equipment should be arranged to provide greater utilisation. Equipment involvinghigh capital inventory should be located so that it can be conveniently used on amultiple- shift basis. Material handling equipment, like conveyors should be locatedso that a group of products can utilise it conveniently.

b. A good layout will minimize production delays and reduce congestion, productiondelays may be reduced or eliminated by good line balancing. Provision of properamount of storage space reduces congestion on the floor.

c. Good plant layout allows for the needs of maintenance of equipment. Equipmentmust be located so that routine maintenance is easy to perform. Good layout calls forprediction of future maintenance problems.

d. Increasing output or shortening manufacturing time can be provided in animproved layout. Increased output means greater output with the same or less cost,saves the man hours and reduce machine hours. Manufacturing time can be reducedby eliminating idle time and removing unnecessary storages.

Minimizing Materials Handling

In a plant the production machines should be arranged such that the materials passdirectly from one machine to another. Material handling is brought to a minimum bythis arrangement of machines. In many situations manual material handling is mosteconomical. Even in this situation reducing the distances required for manualmaterial handling should be considered when planning.

Providing high work-in-process turnover

Every day material remains in the plant and adds cost to the product because of thetied-up capital investment. In the process industries, for example, in a petroleumrefineries where the product is in the liquid state, work-in-process turnover is highand unnecessarily in-process stages are reduced to a minimum. When the product isin the solid state, it is much more likely to involve a high capital investment in work-in-process. Although this is primarily a production control problem, good layout canbe helpful in reducing work-in-process.

Effective space utilisation

Making good use of space involves considering not only production and storageareas, but also the floor area required by service departments. Stock bins spread outon only one level, idle aisles, and unorganised storage areas are all lead to poor spaceutilisation. The cost of floor space varies from one location to another location butconsiderable thought have to be given for accurately calculating floor area cost.

Worker convenience and Job satisfaction

Workers want to work in a convenient environment. Providing the worker with aplace to leave his tools and with easy access to materials storage, reducing excessivenoise with sound- deadening walls, as well as considering his safety are factors thatshould be examined when planning a layout. Attention to such items as heat,ventilation, light and removal of moisture and dirt is important in promotingworker's job satisfaction. Layout that calls for unstable stacking of materials shouldbe changed to correct safety hazards. The layout engineer should keep close contactwith the safety engineer in order to assure that safety has been thoroughlyconsidered in a given layout.

Unnecessary capital Investment

Capital investment in equipment can sometimes be reduced by the properarrangement of machines and departments. By conveniently locating a particularpiece of equipment. two different parts, both requiring part-time use of a broach,may be routed through the same broach. Thus the cost of a second machine isavoided. During the process planning phase capital investment can be minimized by

making use of idle time on previously owned equipment. This type of problem isprimarily one of the production scheduling, but by being aware of the problem thelayout man can facilitate production scheduling by installing a good layout.

Labour utilisation

Every year so many productive man-hours are wasted because of poor layout. Properlayout does not guarantee but certainly stimulates the effective utilisation of manpower. The following suggestions should be considered in making effective utilisationof labour.

a. Direct labour utilisation: Improper layout can make the production jobextremely wasteful. Making it necessary for the production worker to walk greatdistances to obtain tools or materials can waste a number of man hours. Goodmethods engineering and line balancing can minimise worker idle time.

b. Indirect labor utilisation: Building design to provide ease of maintenance cansave many rupees per year. Proper design of aisles can result in better utilisation offork-lift operator.

c. Better supervision: A supervisor should theoretically be in contact with hisdepartment at all times. An enclosed office should be provided for a foreman withdirect line authority. This is essential when a foreman finds it necessary to disciplinea subordinate.

10.3 PLANT LAYOUT FACTORS

Everyone with in an industrial organisation is concerned with plant layout in someway and everyone within a plant is interested in its layout to some degree. Theworker is interested in the arrangement of his work station. The foreman isinterested in layout as it affects the output of his department. Middle management isinterested in layout as it affects the output and costs. Suggestions that result in plantlayout thinking may come from anyone in the organisation from the director to theproduction worker.

Most plant layout decisions are stimulated by one of the following factors.

(i) product-design change

(ii) new product

(iii) change in volume of demand

(iv) facilities becoming obsolete

(v) frequent accidents

(vi) poor working environment

(vii) change In the location or concentration of markets

(viii) cost reduction

Product-design changes

Automobile models are radically changed frequently which usually require a changeIn plant layout. A full time plant layout department is essential in an automobileindustry. In industries manufacturing a more stabilized product, plant layout maynot be a crucial problem. These concerns must solve the plant layout problemswhenever a product change comes even though it may occur infrequently.

New product

The addition of a new product as well as the dropping of an old one is a developmentwhich results m thinking about the plant layout problem. Progressive companies arecontinually on the alert for new product developments. Research and developmentdepartments are continually providing new products for the industrial or homeconsumer. As these products come to the production-planning stage plant layoutshould be integrated with the planning of the production processes.

Changes In the volume of demand

An increased demand for a product may result in the revision of a present plantlayout. It may result in the planning of a completely new plant. A decreased demandfor a product may also result in plant layout changes.

Facilities becoming obsolete

Plant layout problems are often created by the obsolescence of industrial equipment,processes and buildings. Equipment replacement results in only minor changes in apresent layout. On the other hand, when an industrial process becomes obsolete,changes in plant layout are usually-demanded. Buildings that become obsolete,whether because of size limitations or some other reason, may result in plantexpansion of present building, the building of a new plant or a move into a newbuilding. Any one of these alternatives involve considerable plant layout work.

Frequent accidents

Hazards to safety must be forseen while designing good plant layout Where-electricwelding is a part of an industrial process, shields or screen must be provided aroundthe arc-welding production centers in order to prevent injury to the eyes of personnelin surrounding areas. Aisles should be designed so as to minimise the possibility ofaccidents caused by materials handling equipment.

Poor working environment

Worker complaints regarding working conditions such as noise or changes intemperature, may be resolved by changes in plant layout. Providing the worker witheasy accessibility to materials, tools and instructions are considered in good plantlayout A layout which considers these factors helps to establish the reputation of afirm as being a good place to work.

Change In the location or concentration of markets

Changes of market locations lead not only to plant layout problems but often makeplant location studies necessary. Often the planning of a completely new plant is theanswer to changes in market location.

Cost reduction

Cost reduction is a general term indicating management's device to reduce any one ofthe numerous costs involved in operating an Industrial concern. Since the time of theIndustrial Revolution it has been one of the most vital of all the considerations inmanufacturing industries. It must continue to have top priority if productivity curvesare to continue upward.

Costs can be reduced in many ways. New materials develop which can be substitutedfor expensive materials. The development of a faster production process can reducethe inventory tied-up in work-in process Inventory. Improved layout is synonymouswith improved methods. In addition, improved plant layout can result in thereduction of cost brought by better utilisation of buildings, tools and equipment.With automatic factory on its way .the costs of maintenance will rise rapidlycompared to the-costs of production. Proper layout can facilitate maintenanceprocedures and thereby achieve cost reductions.

10.4 BASIC TYPES OF LAYOUT

Layout choices must closely be tied to higher level decisions. Several fundamentalstrategic choices must be made in layout planning.

10.5 DETERMINING WHAT TO MOVE

Production consist of combining and manipulating men. materials and machines.These elements may be combined in various ways during production activity. Theproportion In which these elements will be used depends on their relative cost andon the production process selected. Before laying out a plant it is necessary todetermine which of these elements are to be fixed and which will be mobile duringthe process of production. Various alternatives are available in determining whichfactor to move.

(i) to move the product and worker from one workstation to another workstation

(ii) to move the product from one workstation to another workstation, keepingmachine and worker stationary

(iii) to move the worker and the machine to the product which is held at one location

The decision as to which arrangement to employ depends on the relative mobility ofeach factor In plant and on the comparative cost of each method.

The first method that is moving both product and worker from machine to machineis not very common in modem production. It is-employed in some job-lot production

plants turning out custom- made products, worker moves with his work frommachine to machine usually operating a limited variety of machines.

The second method is common in the manufacture of standardised products.Product moves through machine work stations and continuous process equipmentwhich are fixed to locations and attended by workers. Example is the flow ofmaterials in any automobile manufacture.

In the third arrangement the worker and the machines are brought to the materials.Manufacturing operations producing bulky products as large steam turbines, boilers,generators, locomotives and ships.

Fabricated and assembly of smaller parts are usually carried out under the first andsecond arrangement. There are many instances where the machining of largecastings and other parts of the product is dene by portable machine tools which arebrought to the product In most manufacturing concerns producing standardproducts and custom made products employs the first two alternatives.

10.6 TYPES OF LAYOUT

This is designed for the non-repetitive, intermittent types of production wherespecial orders are handled. In process grouping similar processes or equipment aregrouped together. When strategy calls for process focus, resources (employees andequipment) must be organised around the process. A process layout accomplishesthis purpose by clustering in one center the resources that perform similar functions.For example all grinding is done in a grinding department, all drills are located in thesame area of a shop and all bills are processed in an accounts payable section. Thisformat is most commonly used when many different products (customers) must beproduced or served intermittently at the same work stations. Demand levels are toolow or unpredictable to allow human and capital resources to be set aside exclusivelyfor a particular product line or type of customer. Resources are relatively generalpurpose, flexible and less capital intensive.

The process layout is less vulnerable to changes in product mix or new marketingstrategies. Employee supervision can be more specialised which is important whenthe job content requires a good deal of technical knowledge. A block diagram ofprocess layout arrangement is shown in fig. 10.1.

Advantages of process layout

(i) Lower capital investment: Less capital is needed because productionmachines will be utilised to greater capacity. Machine can be kept in operation mostof the time. Equipment is highly productive.

(ii) Wide flexibility in production facilities: Greater variety of jobs can behandled on a comparatively small investments because of utilisation of various typesof general purpose equipment. Each machine can perform a wide range of similarkinds of operations. Moreover there is flexibility in planning production. Jobs are

scheduled for a department as a whole. So it is possible to assign work to anyavailable machine in the given department.

(iii) Effective supervision readily achieved: Each foreman supervises only alimited range of machine operations like foreman over welding, grinding and so on.Because task for each foreman is not too diverse, he becomes highly proficient intime and with practice. He is able to direct the setup and performance of every kindof operation done on the equipment. He also becomes expert in maintenance andrepair of equipment, inspection requirement and planning and production control ofhis department.

(iv) Machine failures do not seriously disrupt production schedules:Industrial machine break-downs do not hold up subsequent operations. If there isbreak-down in one machine in a department the work can be easily transferred toanother machine in the same department.

Disadvantages of process layout

(i) More material handling: There will be no definite channels through which allthe work will flow. Work, in-process, may return to the same department more thanonce for processing and this makes backtracking of work making higher cost ofmaterials handling.

(ii) Greater total floor area required: A greater proportion of the floor space isrequired for service activities which result in a lower proportion of total plant areabeing devoted to actual production activities. There is greater need for aisles,temporary storage at each department. All of these need more floor space per unit ofproduct turned out.

(iii) Higher skilled labor and difficulty in labour procurement: Workersmust be skilled because they operate a number of general purpose machines doing avariety of jobs. More highly skilled labour is required and wage rates will be usuallyhigher. Further there may be difficulty in procuring such labor on short notice.

(iv) Need for more frequent inspection: Inspection is generally necessarybefore the work goes to the next operation in another department. Strictdepartmental responsibility for quality of work turned out is the main reason for theneed of inspection in each department. Subsequent rejection of material by anotherdepartment causes a considerable amount of handling, confusion and rerouting torework the faulty part.

(v) Longer processing times: Total time needed for processing production ordersunder process layout is greater than that required in product layout. More time isconsumed because work necessary for loading the machines must be delivered toeach department and after processing work is to be held for inspection. More overlarge amount of materials handling is necessary between departments. It is difficultto co-ordinate material handling because personnel cannot always be made availableto move when it is released from a department. The end result is longer period ofprocessing time.

Process layout is suitable for intermittent production. It is employed when the samefacilities are used to fabricate and assemble a wide variety of parts when part andproduct designs are not stable. From historical point of view process layout precededproduct layout. Any considerable growth in demand for product of any industrygradually makes advisable the conversion of layout in part or whole from process toproduct. A gradual transition from process to product layout may take place asdemand increases for products. Product layout is introduced first either.-in parts offabricating activities or in assembly operations. The complete product layoutarrangement is finally introduced to whole production process.

10.7 PRODUCT LAYOUT

Equipment needed to fabricate or assemble the product is brought to-gether andsetup in accordance with the required sequence of operations as shown on theprocess chart. Material flows through the predetermined channels of operations fromthe receipt of raw materials to fabrication of various component parts to finalassembly. Product layout is designed for the flow type of production wherecontinuous or repetitive operations are carried on to produce large quantities of astandardised product. Under product grouping all the machines needed to producepart or subassembly are arranged sequentially in a continuous line in the order inwhich the successive operations on the product must be performed. The part flowsfrom machine to machine moving a short distance at a time until all requiredoperations are completed. This arrangement results in processing of the product in aforward flow from the receipt of raw materials to shipment of finished product.Straight line production has been adopted in numerous continuous processindustries such as sugar refineries, cement plants, automobiles etc. In recent yearsmany other Industries have recognised the advantages to be gained by adopting lineproduction methods. A block diagram of product layout arrangement is shown in Fig.10.2.

Advantages of Product Layout

(i) Channelised, flow of work reduces materials handling: Definite anddirect channels for the flow of materials, short distances between operationselimination of backtracking and mechanisation of handling are features of productlayout. This greatly reduces materials handling cost.

(ii) Low cost labour and easy in procurement and training: Because of theuse of special purpose automatic or semi-automatic machine's and elaborated toolingproduct layout can effectively utilise low cost unskilled and semiskilled labor.

(iii) Less inspection required: A limited amount of inspection at the end or atsome critical point in the line is usually sufficient.

(iv) Floor area more productive: Minimum aisles. General absence of largebanks of, temporary storage and numerous inspection. There is less need formovement of quantities to centre and temporary storage.

(v) Short processing time: Intermediate activities between machine operationssuch as travel, storage and inspection occurs less frequently. Therefore opportunitiesfor delays will be reduced. Hence the total time For processing product isshortened.

(vi) Simplicity and easy production control : As long as changes in design ofproduct are held to a minimun and operations are standardised engineering andproduction planning activities is largely limited to initial program necessary toestablish production. At the beginning it is necessary to prepare drawings, list ofparts, materials requirement, routine procedures and so on. This simplifiesproduction planning and control problem.

Disadvantages of Product Layout

(i) Higher initial investment: In product layout frequently at various workcenters more than sufficient capacity will exist. This condition result in a unavoidableduplication of facilities and increases the investment required for product layout.

(ii) Production line shut down will occur: If a machine fails under productlayout there is a shutdown of production. Shut down of line can also be caused by amini shortage of material, employee absenteeism or poor production

(iii) Supervision more difficult: Line is a collection of numerous kinds ofmachine requiring a wide range of knowledge on the part of supervisor. Foreman'sjob involves supervision of diverse activities because each machine requires aknowledge of various setups, kinds of operations and operating feeds. He is alsoresponsible for the quality control of many kinds of jobs being simultaneouslyprocessed. He must be also familiar with the maintenance requirements of hisequipment.

(iv) Inflexibility of facility: Equipment under product layout consist of facilitiesdesigned to perform special operations. Usually no machine unit of the line is exactlyinterchangeable In capacity, kind of work performed with any other unit. Thischaracteristic of strict product layout results in inflexibility of facilities. This makesfor interruption, costly change over or machine replacement design changes aremade.

10.8 HYBRID LAYOUT

More often a positioning strategy combines elements of both a product and processfocus. This Is an intermediate positioning strategy which calls for a hybrid layout.Some portions of the facility are designed as a process layout and other portions aredesigned as a product layout. This treatment is often applied when group technologycells, one-worker-multiple-machine stations, or flexible manufacturing systems areintroduced. These "islands of automation" represent miniature product layouts, sinceall resources needed to make the family of parts are together as one center. At thesame time, not all production can be handled this way and the rest of the facilityrepresents a process layout. Hybrid layouts also are found when facilities have bothfabrication and assembly operations. Fabrication operations, where components are

made from raw materials, tend to have a process focus. Assembly operations tend tohave a product focus.

Another example of a hybrid layout is a retail store. Similar merchandise may begrouped so that customers have a fairly good idea of where to find desired items(aprocess layout). At the same time customers often are routed along fairlypredetermined paths product layout. The motive is to maximize exposure to the fullarray of goods, thereby stimulating sales.

10.9 FIXED POSITION LAYOUT

The fourth basic type of layout is the fixed-position layout. When a product isparticularly massive or bulky it does not make sense to move it from one work stationto another as with process, product or hybrid layouts. Such is the case inshipbuilding. Assembling airplanes or locomotives, making huge pressure vessels,building dams or repairing home furnaces. Workers, along with their tools andequipment, come to the product to work on it until it is finished, or at least untilmuch of the work is completed. This layout type minimizes the number of times thatthe product must be moved and often is the only feasible solution.


10.10 QUANTITATIVE ANALYSIS FOR PLANT LAYOUT

Having addressed the more strategic issues of layout, it is time to consider actualdesigns. The approach differs, depending on whether a process layout or productlayout has been chosen. We begin with an approach to process layouts, which alsoapplies to the parts of hybrid layouts that have a process focus. Three basic steps areinvolved, whether you are designing a new layout or revising an existing layout:

(i) Gather information

(ii) Develop a block plan

(ill) Design a detailed layout

Gather information (Step 1):

Figure 10.3 illustrates the type of information needed to begin designing a. revisedlayout for a company's product.

sl.no. DEPARTMENT SQUAREMETER

1. BURR AND GRIND 100

2. NC EQUIPMENT 95

3. SHIPPING AND RECEIVING 75

4. LATHES AND DRILLS 120

5. TOOL CRIB 80

6. INSPECTION 70

TOTAL 540

(a)

2 4 3

6 5 1

<______________ 27m____________________>

(c)

1. SHIPPING AND RECEIVING (DEPARTMENT 3) SHOULD REMAIN WHERE ITIS, SINCE IT IS NEXT TO THE DOCK

2. KEEP LATHES & DRILLS (DEPARTMENT 4) AT ITS CURRENT LOCATIONBECAUSE RELOCATION COSTS ARE PHOHIBITIVE

(d)

FIG. 10.3 LAYOUT INFORMATION FOR LONG HORN PRODUCTS

(a) SPACE REQUIREMENTS BY CENTER

(b) AVAILABLE SPACE ADN CURRENT BLOCK PLAN

(c) CLOSENESS RATINGS

(c) OTHER CONSIDERATIONS

Space Requirements by Center

As shown in Fig. 10.3(a), the company has grouped its processes into six differentdepartments, or center. For example, department 1 is the burr and grind area, anddepartment 6 is the inspection area. The exact space requirements of eachdepartment, expressed in square feet, are shown in Fig. 10.3(a). You can calculatespace requirements in various ways, but you must tie them to capacity plans. Itemizeall equipment and specific space needs for each center. Add enough "circulation"space

to provide for aisles and the like. It is not unusual for circulation space to be at least 5percent of the center's total space requirement.

Available space: Fig.10.3(b) shows the available space and dimensions of thefacility, along with a rough allocation of space for each department. Whenever thereis an existing layout, it is called the current block plan. Available space at the plant Is27 m by 20 m, or 540 sq. meter. You could start by dividing the total amount of.space into six equal blocks of space (equivalent to 90 square meter), one for eachdepartment Tills amount of space is too much for inspection (needing only 70.59square meter) and too little for lath«8 and drills(needing 120 square meter).However, the approximation is good enough until you reach the last step of processlayout design.

Closeness Ratings: Another type of information required is the need for locatingdifferent centers close to each other. This helps us determine the best relativelocation for each department Either a From-To matrix or a REL chart provides theneeded information. Fig. 10.3(c) shows a From-To matrix for the company. Theestimated number of materials handling trips from each department to every otherone is shown. The greatest number of one-way trips is from department 1 todepartment 6 and from 6 to 3. Thus department 6 should be located near both 1 and3, which certainly is not true in the current layout You can estimate the number oftrips from the routing and ordering frequencies for typical items made at the plankStatistical sampling or polling of experts are other ways to obtain this information.

A REL chart is a different way to express closeness ratings. The ratings arequalitative judgements of managers or employees. An A could signify the judgementthat it is absolutely necessary to locate two departments close to each other, an Ecould represent the Judgement that it is especially important, and so on. Beingqualitative, the A rating is higher that the E, but we do not know by how much.

Other consideration: The last information gathered for the company, otherconsiderations. is shown in fig. 10.3(d). Some performance criteria depend on theabsolute location of a department. These criteria cannot be reflected in a REL chart.Similarly, a From-To matrix tends to focus only on materials handling.

Develop a block plan (Step 2): The second step in layout design is to develop ablock plans that satisfies performance criteria and area requirements insofar aspossible. The most elementary way to do this is by trial and error but depends onyour ability to spot patterns in the data. There is no guarantee that you will identifythe best or nearly best solution. However, one study showed that such as approach,at least when supplemented by the use of a computer to evaluate solutions, oftencompares quite favorably with more sophisticated techniques.

A good place to start is with the closeness ratings shown in Fig.10.3. To make it easierto identify significant interactions, you should merge the flows between departmentpairs in both directions. The results are shown in Fig. 10.4 and only the upper righthalf of the matrix is used. For example, the total number of trips betweendepartments 1 and 6 is 80 Looking at the greatest interactions, a good block planwould locate;

(i) Departments 3 and 6 close together

(ii) Departments 1 and 6 close together

(iii) Departments 2 and 5 close together

(iv) Departments 4 and 5 close together

(v) Departments 3 and 4 at their current locations because of the otherconsiderations listed in fig.10.3

It is not clear that all five requirements can be achieved. If after several attempts youcannot make them work, drop one or more and try again. If all five can be easilyachieved. add more requirements. Fortunately, finding a good block plan for thecompany turns out to the fairly easy. The plan in fig. 10.5 was worked out by the trialand error method and satisfied all five requirements. Start by placing departments 3and 4 and their current positions. Since the first requirements is to locatedepartments 3 and 6 close to each other, you can put 6 in the southeast corner of thelayout this location minimizes the distance between 3 and 6. The second requirementis to have departments 1 and 6 close to each other. You can achieve it by putting 1 inthe space just to the left of 6 and so on.

It helps to have a total desirability score for at least some aspects of a layout in orderto see how much better one plan is than another. You can easily adapt the load -distance model for location problems to this purpose when relative locations are akey concern. In terms of material handling costs.

1 * d = n∑j=1 n∑i=1 1ij dij

where Id = Total load - distance score measuring the materials handling

1ij = Load, measured as the number of trips between departments 1 and j in bothdirections

dij = Units of distance (actual Euclidean, or rectilinear) between department 1 and j,Where dij = 0 If i = j and

n = Total number of department

* ALL OF THESE NONZERO RATINGS COME FROM FIG.10.4

# RECTILINEAR DISTANCES ARE CALCULATED FROM THE CURRENT PALN(FIG.10.3B0 AND THE PROPOSED PLAN (FIG.10.5) IN THE CURRENT PLAN.DEPARTMENTS 1 & 2 ARE AT THE SOUTHEST & NORTHWEST BLOCKS OF THEPLANT, RESPECTIVELY. THE DISTANCE BETWEEN THE CENTRES OF THESEBLOKS IS THERE UNITS OF DISTANCE (TWO HORIZON TALLY & ONEVERTICALLY)

Table 10.1 shows the results of applying this formula to the current and proposedblock plans. The Id-score drops from 785 to 400. which represents an almost 50percent improvement with the proposed plan. You must now decide whether thisimprovement is worth the cost of relocating four of the six departments. If relocationcosts are too much, you must come up with a less expensive proposal. Looking at thecalculation for the current plan in Table 10.1, you can get some clues. Much of 785score comes from the trips between departments 3 and 6 and between departments 5and 6. This solution puts department 6 closer to both 1 and 3. Additional calculationswill show that the Id-score for this plan drops to 610, and only two departments haveto be relocated. Perhaps this is the best compromise.

Design a Detailed layout (step 3):

After a satisfactory block plan is found, it should be translated into a. detailedrepresentation showing the exact size and shape of each center, the arrangement ofelements within it, and the location of aisles, stairways, and other unproductivespace. These visual representations can be 2-dimensional drawings, 3-dimensionalmodels, or even computer-aided graphics. This last step in the layout design processis important because it helps decision makers to grasp the essence of the proposaland even spot problems that might otherwise be overlooked. If others in the

.company are to be Involved In layout decisions, the detailed layout becomes thefocus of the discussion.

10.11 QUANTITATIVE ANALYSIS FOR PRODUCT LAYOUT

'We now' turn from process layouts to produce layouts, which raise entirely differentissues for management. The two types of product layout are the production line andthe assembly line. In both cases the work stations are arranged serially, and theproduct moves from one station to the next until the work is finished. Employees atone station work on a unit forwarded from the preceding station on the line.Although similar to an assembly line in most respects, a production line is differentin one essential respect. Production-line* work is more capital intensive, andspecialized equipment is used at each station; work cannot be partially shifted fromone machine to an entirely different one, just to balance workloads. As assembly line,on the other hand, is more labor intensive, giving it much more flexibility forrepackaging work elements and better balancing loads; this flexibility is anadvantage, but it also adds complexity. We therefore begin with production lines.

Production lines: Designing a production line would be simple If desired outputrates never varied, equipment capacity could be added In small Increments,processing times were constant, and there were no unexpected capacity losses.Unfortunately, such an environment is difficult to find. Several items belonging tothe same product family might be produced on a line, but their processing times maynot be identical at certain work stations. Customer demands fluctuate, creating eithercapacity or inventory problems. Yield losses do occur. These instabilities areparticularly challenging in product layouts because of the serial dependency of workstations. Capacity and pacing decisions are crucial.

Capacity: One question concerns the best capacity for each station. Should there beone, two or three machines at the station? The greater its capacity cushion, the lesslikely it will delay production at downstream stations. The answer depends largely onthe Increments possible in adding capacity, the cost of adding increments, andmanagement's strategy on workforce flexibility. There is some evidence of a bowlphenomenon in production lines, which means that extra capacity helps more at thecenter of a line to compensate. Such a line might actually perform better than aperfectly balanced one, where the amount of capacity cushion is equally distributed.

Pacing: Another question is whether to use inventory to decouple work stations.Paced lines have no buffer inventory, making them particularly susceptible tounexpected capacity losses. With unpaced lines, inventory storage areas are placedbetween stations. These storage areas reduce the likelihood that unexpecteddowntime at one station will delay work downstream but do increase space andInventory costs. If unpaced lines seem to be a good strategy, they introduce thetactical question of how big the storage areas should be. A station can be held up fortwo reasons:

(i) The first station has fallen behind to the point where the inbound inventory forthe second station is depleted. The second station is delayed.

(ii) The second station has fallen behind to the point where its inbound storage areais temporarily full. The first station Is delayed until there is room for the inventory.

The second delay Is called blocking. It seems to happen more often at stations nearthe beginning of a line.

Assembly lines: The additional complexity of assembly lines is narrated in theIllustration given below for a company. The management wants to set up anassembly line that will produce 2400 Big Broadcaster spreaders per week andoperate one shift per day. The work elements and the times required to do them foreach spreader are known. For example, bolting the leg frame to the hopper takes anaverage of 51 seconds. More than one work element can be performed at a station,but each work element is assigned to only one station. One worker at each stationdoes the same work over and over. After the worker at one station finishes theassigned work for one unit, a conveyor moves the unit to the next station. The basicquestion is: "How many stations are needed and what work elements are to beassigned to each one?" Answering this question is called assembly-line balancing.

Illustration: Assembly-line balancing at a company

A company is expanding its product line to include a new concept in fertilizerspreaders called the Big Broadcaster. This spreader cuts fertilizer application time to30 percent of that required with traditional methods. The Big Broadcaster is to bemade on a new assembly line in one of the plants of the company. Most parts are tobe purchased from outside suppliers. Management decided against further verticalintegration until customer response to the new spreader is better known. The plantmanager, has just received marketing's latest forecasts for the next year. He wantsthe line to be designed to make 24OO spreaders per week for at least the next threemonths. The plant will operate 5 days per week, 1 shift per day, and 8 hours per shift.A few utility workers are used in the plant to relieve others for breaks, cover forabsenteeism, and help at temporary bottlenecks. Since equipment failures will benegligible, the line should be operating practically 40 hours per week.

The plant manager's staff has already identified the work that must be performed toassemble the spreader. The work is broken down into work elements which are thesmallest units of work that can be performed independently. Each element is listed inthe table with its corresponding performance time.

The plant manager has decided on a paced line because of materials handling andspace considerations. With no inventory storage, each" operator will have the sametime to complete the assigned work elements. It also means that the whole line canmove only as fast as the slowest station. In order to maximize productivity, themanager wants a line with the minimum number of stations that will assemble therequired 2400 Big Broadcasters per week. The design problem is to determine thenumber of stations needed and the work elements to be performed at each station.

Workelement Description Times(sec.)

___________________________________________________________

Attach leg frame1 Bolt leg frame to hopper 512 Insert impeller shaft into hopper 73 Attach agitator to shaft 24

4 Secure with cotter pin 10Attach axle5 Insert bearings into housings 256 Slip axle through first bearing and shaft 40

7 Slip axle through second bearing 20Attach drive wheel8 Slip on drive wheel 359 Place washer over axle 3510 Secure with cotter pin 6

11 Push on hub cap 9Attach free wheel12 Slip on free wheel 3013 Place washer over axle 614 Secure with cotton pin 15

15 Push on hub cap 9Mount lower post16 Bolt lower handle post to hopper 2717 Seat post in square hole 13

18 Secure leg to support strap 60Attach controls19 insert control wire 2820 Guide wire through slot 1221 Slip T handle over lower post 2122 Attach on-off control 2623 Attach level 5824 Mount name plate 29

576Total

Precedence diagram:

If the work elements had to be performed in the each sequence listed in illustration,the preceding question could be easily answered. While most assembly lines mustsatisfy some technological precedence requirements among work elements, thereusually is a fair amount of latitude and more than one possible sequence for doing

them. 'Fig 1.6 shows a precedence diagram for assembling the Big Broadcaster. Eachcircle represents a work element, with the time to do it shown below the circle. Thearrows show the precedence requirements. For example, either work element 2 or 5can be done after 1. If the choice is 2, then either 3 or 5 can follow next. It also showsthat 7 cannot start until after 4 and 6 are done. Work elements 4 and 6 must beassigned either to the same station as 7 or to a prior station.

Desired output rate:

The plant manager at the company has decided on an output rate of 2400 BigBroadcasters per week. While closely related to demand forecasts, the output ratealso depends on policies on rebalancing frequency, capacity utilization, and jobspecialization. All else being equal, production rates should match demand rates asclosely as possible. Matching ensures on- time delivery and prevents the build-up ofunwanted inventory. The disadvantage is that it increases rebalancing frequency.Each time a line is rebalanced, the jobs of many workers on the line must beredesigned. If the line is speeded up, a worker is given fewer work elements. If theline is slowed down, a worker is given more work elements. Time spent relearningjobs temporally hurts productivity. The changeover may even require a new detailedlayout for some stations.

Capacity utilization is another factor that has to be considered. Multiple shiftsincrease equipment utilization, which is crucial for capital-intensive facilities, butthey may be unattractive because of higher pay rates or low demand. A third policyarea related to the desired output rate is the degree of job specialization. As thedesired output rate from a line increases, fewer work elements can be assigned to astation and jobs become more specialized.

Cycle time:

After the desired output rate for a line has been chosen, its cycle time can becomputed. An assembly line's cycle time is the maximum amount of time allowed forwork on a unit at each station. If the time required to do the work elements at astation exceeds the line's cycle time, the station will be a bottleneck, preventing theline from reaching its desired output rate. Returning to illustration, let's convert thedesired output rate to an hourly rate. Dividing by 40 work hours per week we get 60units per hour. The cycle time is the reciprocal of the desired hourly output rate. Weneed to convert it to seconds because

Idle time = nc - t

Efficiency (%) = (t/nc)(100)

Balance delay (%) = 100 - Efficiency

Idle time is the total unproductive time for all stations in the assembly of each unit.Each of the n stations spends c seconds per unit, which means that nc is the totaltime spent per unit. Subtracting the productive time t gives us the idle time.Efficiency is the ratio of productive time to total time, expressed as a percent.Balance delay is the amount by which efficiency falls short of 100 % . So long as c isfixed, we can optimize all three goals by minimizing n.

Finding a solution:

An overwhelming number of assembly-line solutions are possible, even for this smallproblem, and the number of possibilities expands as quickly as for process layouts.Once again, computer assistance is available. One software package, for example,considers every feasible combination of work elements that do not violate precedenceor cycle time requirements when forming a new station. The combination thatminimizes the station's idle time is selected. If any work elements remainunassigned, a second station is formed, and so on.

The approach we will use is even simpler. At each iteration, a work element isselected from a list of candidates and assigned to a station. This process is repeateduntil all stations are formed. Two commonly Used decision rules for selecting fromthe candidate list are:

Rule 1.

Pick the candidate with the longest work-element time. Intuitively, this tends toassign the more difficult work elements to stations as quickly as possible. Workelements having shorter times are easier to fit into a station and should be saved forfine tuning the solution.

Rule 2.

Pick the candidate having the largest number of followers. Figure 10.6 shows, forexample, that work element 18 has six followers and 21 has two followers. Intuitively,this rule helps to keep your options open for forming subsequent stations. Otherwise,precedence requirements may leave only a few possible sequences of work elements,and all of them may require an unnecessary amount of idle time.

Returning to illustration, let's develop solutions manually using these rules. Ouroverall solution procedure is much like the logic that would be used in computerprograms.

Step 1. Let k=l, where k is a counter for the station being formed.

Step 2. Make a Iist of candidates. Each work element included in the list must satisfythree conditions:

FIG. 10.6 PRECEDENCE DIAGRAM FOR ASSEMBLING THE BIGBROADCASTER

(a) it has not yet been assigned to this or any previous station

(b) all its predecessors have been assigned to this or ; previous station and

(c) the sum of its time and those of the work elements (i any) already assigned tothis station does not exceed the cycle time.

If no such candidates can be found, go to step 4.

· Step 3. Pick a candidate using one of the two decision rules. Assigning it tostation k. Go to step 2.

· Step 4. If some work elements are still unassigned, but there are n candidates,a new station must be started. Increment k by and go to step 2. Otherwise, youhave a complete solution Stop.

Figure 10.7 shows a solution that begins with picking candidate at step 3, usingdecision rule 1. Let's follow the first few iterations until the second station is formedto see the pattern.

· (step 1) Start with station 1 (k=l).· (step 2) Figure 1.6 shows us that only work element 1 can be candidate. It is

a predecessor to all others.· (step 3) Work element 1 is the first one assigned to station 1

· (step 2) Only 2 is a candidate. Work element 5 would exceed the station’s cycletime of 60 seconds.

· (step 3) Thus 2 is the second work element assigned to station 1· (step 2) No candidates can be found. since adding either 3 or 5 would exceed

the cycle time· (step 4) Move on to station 2 (k-2)· (step 2) The candidates are 3 and 5· (step 3) Pick 5, since its time is longer. This is the first instance of a real choice

because there was only one candidate for each previous iteration.· (step 2) Work element 3 is the only candidate. The time for 6 is too long to fit

into station 2· (step 3) Thus 3 is the second work element assigned to station 2· (step 2) Only 4 is a candidate, again because of cycle time.· (step 2) No candidates exist. Since adding 6 would exceed the cycle time.

Station 2 is completed, consisting of work elements 5, 3, and 4

Continuing on in this manner, we find that the final solution shown in Fig. 10.7 callsfor only 10 stations. The efficiency is 96% and balance delay only 4%. Ourcalculations of the theoretical minimum number of stations told us that we could dono better than this. It is impossible to product 2400 spreaders per week with lessthan 10 stations. Such a happy ending does not always occur, and, sometimes,

another procedure would do better. Computer-based techniques tend to give good,although not necessarily optimal, result. Human judgment and pattern recognitionoften allow us to improve on computer generated solutions in fact, manual methodsare still the most prevalent practices.

10.12 SERVICE FACILITIES

Many plant services must fit into the overall layout. The facts of these activities arenot a part of the direct production activity of the enterprise has often tended topromote the idea that whatever space is left over is good enough for them. Actually,some of these activities, such as receiving. Shipping, and warehousing, is in the directmaterial flow and they process the product as do the production departments.Others, such as maintenance facilities and tool cribs, do not work on the product butinteract with production costs so that their physical location and capacity deservecareful thought. The overall material flow patterns should be the major factors indetermining the relative locations of receiving, shipping, storage, and warehousingareas.

The capacity question for receiving areas does not have an obvious answer. Ingeneral, the problem is such that we do not have control over the rate at whichmaterials come in. Since receipts of shipments from suppliers occur in a somewhatrandom pattern, a good design provides capacity that meets the reasonably expectedpeak loads for truck and rail docks, unloading crews, and temporary setdown areasfor determining what these capacities should be. Of course, many other factorsinfluence the details of the layout of receiving areas, such as climate, safety codes,handling equipment, dock heights, and the necessity to accommodate a variety ofvehicles.

The location of tool cribs is important because of the travel time of high-pricedmechanics to and from the area. Therefore, a study of .the use frequency in relationto the physical layout of the production areas should determine a good location orlocations. The tool storage problem is comparable to the material and part storageproblem in using space efficiently while making items available quickly andconveniently. The number of attendants required to serve the tool crib is anotherwaiting line problem.

Maintenance facilities are commonly provided for building and grounds, plantutilities, and machinery and equipment. The capacity of maintenance for machineryand equipment again poses the problem of balancing the idle time of maintenancecrews against the idle time of production workers, as well as losses of outputcapacity. Ordinarily, a considerable amount of idle capacity in equipment and crewsis justifiable, as would be shown by solutions to waiting line models of these types ofproblems.

Present-day personnel services cover a broad spectrum including parking, cafeterias,medical services, credit unions, locker rooms, toilets and lavatories, and, quite often,recreational facilities. Obviously, providing for these services presents layoutproblems. In many instances, the location of these services does not have an effect on

production costs since the services are used after hours. In these instances, the layoutproblem is to provide the space designed to perform the services in the amountsrequired. The activities must be studied to determine what must be done andfacilities provided accordingly.

For those services used during working hours, such as medical facilities, toiletfacilities, and drinking fountains, the size of the facility and its location in relation tothe users become important. Studies of travel distances to and from the servicefacility should be made in order to determine reasonable locations.Waiting linemodels are again useful in determining a balance between waiting times ofemployees and service capacity costs. In one large company which offered a broadmedical service, the question of whether or not an additional doctor on the staff waswarranted was answered by a waiting time study. The results of the study indicatedthat there was an average of 15 employees in the waiting room during the 8-hourwork day; assuming a 2000 working hour year and a modest average hourly wage ofRs. 20, this translates into Rs.60,000 of waiting time per year. The study led to bothan enlargement and decentralization of medical services.

10.13 PRINCIPLES OF MATERIALS HANDLING

The three major principles of material handling are:

1. Reduction in time.

2. Reduction in handling.

3. Equipment design.

Reduction in time:

Time lost means paying men wages when they are not doing productive work. Losttime reduces the total production possible in a given length of time. Time isconsumed principally in three things:

(i) Waiting,

(ii) Loading and unloading,

(iii) Travel time.

Waiting may be due to the bad scheduling or bad organization of the later force or itmay be due to improper or insufficient facilities for loading.

Loading and unloading time is the question of the efficiency of labor and theequipment for loading and unloading. In general, the larger the unit uploaded orunloaded, the greater the reduction that can be made in loading time. The greater theuse of mechanical means that are faster than the manual labor, the more efficient canloading and unloading be made.

Travel time depends upon the speed with which the equipment gets from one pointto another. This is the factor of the individual speed of a truck and its rate ofacceleration. A great deal of time can be lost by improper routing or through theselection of routes in which delays occur.

Reduction In Handling:

When there is less handling, less labor is involved and less time is Involved inproduction. Factors that are involved in reduction in handling are as follows:

1. Process changes,

2. Layout improvement.

3. Increased size of units handled,

4. Use of proper equipment.

Layout improvement will make unnecessary the transfers of loads at various pointsto avoid obstructions. Changes In process Involving a layout change may make Itpossible to eliminate a transfer of load. If the material is loaded in the largest unitsthat can be handled, the amount of •handling is reduced. Equipment should bechosen which can be loaded most easily and with a minimum amount of hand labornecessary.

Equipment Design:

Factors In equipment design are efficiency, speed, weight, safety, maintenance andrepair, first costs and operating costs obsolescence, flexibility and standardization.

The efficiency of materials handling equipment is determined by the power input andlabor required. Both of these are expressed in units of loads handled in order tomeasure efficiency.

Speed in equipment design varies depending upon the nature of the product and theprocess.

Weight is a factor in efficiency. The more dead weight the less the efficiency of theequipment. Weight must also be considered in connection with safe loading on thefloors.

The safety of the equipment is Important. Poor plant lighting, improper warningsigns, blind comers or failure to keep aisles clear of pedestrians or workers may leadto a great many unnecessary accidents.

The principles are summarised as follows.

1. All handling activities should be planned.2. Plan a system integrating as many handling activities as possible and

coordinating the full scope of operations.

3. Plan an operation sequence and equipment arrangement to optimize materialflow.

4. Reduce, combine or eliminate unnecessary movements and/or equipment.5. Utilize gravity to move material whenever practicable;6. Make optimum utilization of building cube.7. Increase quantity, weight, size of load handled.8. Provide for safe handling methods and equipment.9. Use mechanized or automated handling equipment when practicable.10. In selecting handling equipment, consider all aspects of the material to be

handled, the move to be made, and the methods to be utilized.11. Standardize methods as well as types and sizes of handling equipment.12. Use methods and equipment that can perform a variety of tasks and

applications.13. Minimize the ratio of mobile equipment dead weight to pay load.14. Equipment designed to transport materials should be kept in motion.15. Reduce idle or unproductive time of both handling and manpower.16. Plan for preventive maintenance and scheduled repair of all handling

equipment.17. Replace obsolete handling methods and equipment when more efficient

methods or equipment will improve operations.18. Use material handling equipment to improve production control, inventory

control, and order handling.19. Use handling equipment to help achieve full production capacity.20. Determine efficiency of handling performance in terms of expense per unit

handled.

10.14 MATERIALS HANDLING EQUIPMENT

The various types of equipment available for materials handling may be divided intothree major divisions.

1. Lifting and lowering devices (Vertical motion)

2. Transporting devices (Horizontal motion)

3. Combination devices (Lifting and lowering plus transportation)

10.14.1 lifting end towering devices;

In establishing this division only vertical motions not accompanied by any horizontalmotion are considered.

A block and tackle is one of the oldest and simplest methods of lifting somethingthrough a vertical distance. It depends on manpower and gives only the mechanicaladvantage. It is the oldest form of lifting, the most inexpensive in cost and the mostwasteful of manpower.

Winches are devices that effect vertical motion by the rope or cable on a drum. Hereit-is possible to get much greater mechanical advantage than with a block and tackle

by using manpower or other power. These are frequently used in loading heavyequipment into ships, construction equipment into building and in similar jobs.

Hoists are power driven devices often operated between fixed guide nails for liftingthings vertically. They are similar to elevators except that, a hoist does not carry theoperator on it.

Elevators are differentiated from hoists by the fact that the operator rises with theload. Generally electric drive is used in elevators.

10.14.2 Transporting devices:

The simplest transporting devices are wheel barrows and hand trucks. All thisequipment involves a large amount of manpower for a relatively small load. The chiefadvantage of this equipment is its very low cost, its great flexibility and its easyportability from one Job to another.

Industrial railways are narrow-gauge railroads. In general, little use is made of suchequipment because it requires a heavy investment in the road bed and tracks, haslittle flexibility and is difficult to change at a later date.

Tractors and trailers are one of the most common methods of horizontaltransportation. Great flexibility is secured as tractors can be used to haul such avariety of different types of trailers. Trailers can be left loaded and can be picked upby different tractors. This system has the advantage of great flexibility plus all theadvantages of industrial railways and there is no investment in laying tracks.

Pipe lines and pumps are also horizontal transportation for many commodities. Mostobvious among these is oil, which is pumped great distances through pipe lines. Gasis also carried through pipe lines. Water is similarly transported.

10.14.3 Combination devices (lifting and lowering plus transportation):

One of the simplest devices that have both vertical and horizontal motion is a chutewhich may either be straight or spiral. Gravity is utilized in order to move materialdown and to change the portion of the load horizontally. Chutes are common inrailway and airline terminals for handling packages and baggage. Chutes are alsoused in departmental stores in a spiral form to bring the stock from reserver on theupper floors to the lower selling floors.

Small crane trucks are also used for handling materials both in horizontal andvertical direction.

Conveyor is an another equipment used for this purpose.This is continuoustransportation system. Wheel gravity conveyor,' roller conveyor, screw conveyor andRoller spiral conveyor are the types of conveyors used normally.

10.14.4 Common materials handling equipment:

The definitions, characteristics and uses of some types of handling equipmentcommonly used in mechanically oriented enterprise are explained below.

10.14.4.1 Conveyors:

Flat belt conveyor- an endless fabric, rubber,plastic,leather,or metal beltoperating over suitable drive, tail end, and bend terminals and over belt idlers orslider bed for handling material, packages, or objects placed directly upon the belt.

1. Top and return runs of belt may be utilized.2. Will operate on level. Incline up to 28 degrees, or downgrade.3. Belt supported on flat surface is used as carrier of objects or as basis for an

assembly line.4. Belt supported by flat rollers will carry bags, bales, boxes, etc.5. Metal mesh belts are used for applications subjected to heat, cold, or

chemicals.6. High capacity.7. Capacity easily adjusted.8. Versatile.9. Can elevate or lower.10. Provides continuous flow.11. Relatively easy maintenance.12. Used for:

· Carrying objects (units, cartons, bags, bulk materials)· Assembly lines· Moving people

Power and free conveyor- a combination of powered trolley conveyors andunpowered monorail-type free conveyors. Two sets of tracks are used, usuallysuspended one above the other. The upper track carries the powered trolleyconveyor, and the lower is the free monorail track. Load-carrying free trolleys areengaged by pushers attached to the powered trolley conveyors. Load trolleys can beswitched to and from adjacent unpowered free tracks.

1. Free trolleys move by gravity, or by pushers supported from trolley conveyoron upper level.

2. Interconnections may be manually or automatically controlled.3. Track switches may divert trolleys from power to free tracks.4. Dispatching may be automatically controlled.5. Free gravity tracks may be installed between two power tracks for storage.6. Speeds may be varied from one power section to another.7. Can include elevating and lowering units in free line.8. Can recirculate loads on all or sections of system.9. Can be computer controlled.10. Used for

· Temporary storage of loads between points on machining, assembly, and testlines.

· Routing loads to selected points.

· Overhead storage for later delivery of loads to floor level.· Integrating production, assembly, and test equipment· Provides for surge storage against a breakdown.

10.14.4.2 Cranes. Hoists, Monorails:

Jib crane- a lifting device travelling on a horizontal beam that is mounted on acolumn or mast, which is fastened to:

(a) floor,

(b) floor and a top support, or

(c) wall bracket or rails. .

Bridge crane- a lifting device on a bridge consisting of one or two horizontalgirders, which are supported at each end by trucks riding on runways installed atright angles to the bridge. Runways are installed on building columns, overheadtrusses, or frames. Lifting device moves along bridge while bridge moves alongrunway.

1. Covers any spot within the rectangular area over which the bridge travels, i.e.,length of one bay.

2. Can be provided with crossover to adjacent bay.3. Produce 3 dimensional travel.4. Designed as:

· Top-running, where end trucks ride on top of runway tracks.· Bottom-running where end trucks are suspended from lower

5. Hoist can also be top or bottom running,6. Bottom-running usually limited to about 10 tons.7. Bridge propelled by hand, chained gearing or power.8. Two hoists may be mounted on one crane.9. Usually designed and built by specialist companies.10. Does not interfere with work on floor.11. Can reduce aisle space requirements.12. Can reach areas otherwise not easily accessible.13. Crane ways can extend out of building.14. Can be pendent or radio controlled from the floor.15. Used for:

· Low to medium volume.· Large, heavy and awkward objects.· Machine shops, foundries, steel mills, heavy assembly and repair shops.· Intermittent moves.· Warehousing and yard storage.· With attachments such as magnets, slings, grabs, and buckets, can handle an

extremely wide range of loads.

Monorail conveyor- a handling system on which loads are suspended fromwheeled carriers or trolleys that usually roll along the top surface of the lower flangeof the rail forming the overhead track, or in a similar fashion with other track shapes.

1. Relatively low installation cost.2. Low operating cost.3. Little maintenance.4. Track may be pipe, T, I, flat-bar or other formed structural shape.5. Can be hand or motor propelled on both travel and lift.6. Motor may be controlled by pendant switches, from integral cab, or

automatically.7. Removes traffic from floor.8. Release floor space.9. Makes use of overhead space.10. Easily extended.11. Switches, spurs, transfer bridges, drop sections, swinging sections, cross-

overs, turntables provide flexibility.

10.14.4.3 Industrial trucks:

Four wheel hand truck- a rectangular load-carrying platform with 4 to 6 wheels,for manual pushing, usually by means of a rack or handle at one or both ends. Somehave 2 larger wheels at center of platform for easy maneuverability.

1. May be fitted with box or other special body for variety of handling tasks.2. Inexpensive3. Versatile4. Used for:

· Manual handling of large loads· Supplementing mechanical handling· Low frequency moves· Low volume movement· Short distances· Relatively light loads· Temporary storage; in process storage· Handling awkward shapes· Weak floors· Small elevators· Narrow aisles· Crowded areas

Hand lift truck- essentially a wheeled platform that can be rolled under a pallet orskid, and equipped with a lifting device designed to raise loads Just high enough toclear the floor and permit moving the load. Propulsion is by hand and lift Is byhydraulic or other mechanism. Platform type is used for handling skids, and forktype for handling pallets.

1. Low cost2. Durable, minimum maintenance

3. Light weight4. Compact5. Simple to operate6. Versatile7. Used for:

· Loading or unloading carriers· Supplementing powered trucks, spotting loads· Moderate distances· Intermittent, low-frequency use· Low volume moves· Increasing utilization of powered equipment· Captive use In a local area· Loading and unloading elevators· Tight quarters; narrow aisles

Fork lift truck- a self loading, counterbalanced, self-propelled, wheeled vehicle,carrying an operator, and designed to carry a load on a fork fastened to telescopingmast which is mounted ahead of the vehicle to permit lifting and stacking of loads.

1. May be powered by petrol, diesel, battery, or LP gas engine.2. Mast may be tilted forward or backward to facilitate loading and unloading3. Operator may ride in center or at back end of truck-or, with special

attachments, on the lifting mechanism, with the load4. Operator may sit or stand5. Used with a wide variety of attachments to provide an extremely flexible and

adaptable handling device6. Carries own power source- therefore useful away from power lines7. Wheels and tires can be provided for a variety of floor conditions or

operating locations-wood, concrete, highway,8. yard.9. Wide range of capabilities10. Electric type especially useful where reduced noise or no fumes are desired11. Used for:

· Lifting, lowering, stacking, unstacking, loading, unloading, maneuvering· Variable and flexible paths· Medium to large units loads· Uniform shaped loads· Low to medium volume of material· Intermittent moves

10.14.4.4 Auxiliary equipment:

Dock board- a specially designed platform device to bridge the gap between theedge of the dock and the carrier floor. Sometimes known as bridge plates. Carrierfloors vary from 1200mm for rail cars, to 1300mm for pickup trucks, to 130mm forhighway trucks, plus special bodies of even lower design.

1. Made in formed shape to provide strength and side guards.

2. Usually lightweight metal.3. Often designed with loops to permit moving by fork truck.4. Can be fastened to dock edge.5. Some can be slid along a rail from one location to another.6. Often have pins to lock lateral position7. Have non-skid surfaces.8. May be flared for narrow docks.9. Should be carefully selected for intended use.

Dock levelers- a platform-like device, built into the dock surface and hinged topermit raising and lowering to accommodate truck height when bridging the gapbetween dock and truck floor.

1. Permits extension of dock floor into carrier.2. Adjusts up and down, left and right, or for vehicle tilt.3. May be counterbalanced or hydraulically operated.4. May be automatic; i.e., adjustment to truck Initiated upon bumping by

vehicle.5. Has lip, to level out vehicle end of platform.

Pallet- a horizontal platform device used as a base for assembling storing andhandling materials as a unit load. Usually consists of two flat surfaces, separated bythree stringers.

1. May be expendable, general purpose, or special purpose.2. May be single or double faced.3. May be flush stringer, single or double wing.4. May be one-way, two-way or four-way entry.5. Made of wood, plywood, metals, corrugated, plastic, etc.6. Protects goods being moved from damage, pilferage, etc.7. Facilitates inventorying.8. Promotes cleanliness and good housekeeping.9. Keeps material off floor, therefore easier to handle.10. Used for:

· Fork-truck-based systems.· Unitizing items.· Utilizing building cube.· Increasing load size.· Reducing handling of individual items.· Minimizing packaging of individual items.· Rack- a framework designed to facilitate the storage of loads, usually

consisting of upright columns and horizontal members for supporting theloads, and diagonal bracing for stability.

1. May be classified as Selective: A

· Bolted· Lock-fit· cantilever

· Bar stock· A frame· Custom or Bulk: . A Drive-in· Drive-through· Live or Portable:· Integral unit· Rigid· Knock-down· Collapsible· Pallet stacking frame i2r Bolt-on· Snap fit-Independent of pallet

2. Made of metal, wood, pipe, etc.

3. May be fixed or adjustable in shelf height.

4. Usually built for pallets, but may be used or adapted for skids, rolls, drums, reels,bars, boxes, etc.

5. May have shelves for storage of loads, but may be designed for drive-in or drive-through applications.

6. Facilitates inventory taking.

7. Rugged; minimum maintenance

8. Live racks are designed for loads to flow to the unloading position.

9. Cantilever racks best for long items.

10. Used for:

· Increasing utilization of storage space

· Increasing selectivity of goods stored

· Protecting goods

· Control of inventory

· Improving housekeeping.

10.15 SUMMARY

Principles and factors of layout are discussed. Product layout and process layout areexplained In detail. Advantages and disadvantages of these layout types arediscussed. A three step procedure for evaluating process layout and the linebalancing technique for product layout are explained. Principles of materialshandling and the common materials handling equipment like conveyors, cranes andtrucks are discussed in this lesson.

10.16 KEY CONCEPTS

· Process layout· Product layout· Hybrid layout· Fixed position layout· Space requirement by a centre· Closeness rating· Block plan· Production line· Assembly line· Lifting and lowering devices· Transportation devices· Conveyors· Cranes· Hoists· Monorails· Trucks


1. What are the principles of a good layout?

2. What is product layout? Give its advantages and disadvantages.

3. What is process layout? Give its advantages and disadvantages.

4. What are the principles of materials handling?

5. Briefly Identify four basic types of handling equipments. Indicate examples foreach.


1. Apple, J.M., "Plant layout and materials handling", Prentice Hall.

2. Moore, F.G., "Plant layout design", John Whieley.

3. Krajewski and Ritzman, "Operations management", Addison-Wesley.

4. Buffa, "Modern production management", 4th edition. John Whieley.

- End Of Chapter -

LESSON - 11

HUMAN FACTORS IN JOB DESIGN

11.1 Preamble

11.2 Man-machine systems

11.3 Man versus machines

11.4 Conceptual Frame work for man-machine systems

11.5 Types of man-machine systems

11.6 Information input

11.7 Visual displays

11.8 Auditory and tactual display

11.9 Human control of man-machine systems

11.10 Analysis of control activities

11.11 Strength and forces of body movements

11.12 Speed and accuracy of motor responses

11.13 The working environment

11.14 Temperature, Humidity and air flow

11.15 Noise

11.16 Light

11.17 Contaminants and Hazards in the working environment

11.18 Summary

11.19 Key concepts



11.1 PREAMBLE

Over the years since Adam Smith, the main guide for determining job content hasbeen division of labor. This idea has been accepted almost completely. Adam Smith

specified no limit to the division of labor and the principle has been applied as a one-way mechanism to achieve the maximum benefits of job design. Jobs have beenbroken down to the point where the worker finds little satisfaction in performing histasks. In recent years there has been a reaction against excessive job breakdown; afew investigators have found that combinations of operations to create Jobs ofgreater scope recaptured the worker's interest; increase in productivity, quality level,etc., were reported. A new term, job enlargement, appeared. Practical applications ofjob enlargement that were written up in the literature tended to verify the findings ofthe investigators. Unfortunately, although exponents of job enlargement recognizethat division of labor can be carried too far, they have not been able to specify anyprinciples or guides on how far to go in the other direction. Job enlargement is also aone-way mechanism. It does, however, provide a balancing force through theinclusion of job satisfaction as a major criterion of successful job design. Theultimate answer lies in research attempts to Isolate the factors that determine anoptimal combination of tasks to make up jobs. This effort has been called job design.

The past and present viewpoint of business and Industry emphasizes the economiccriterion as the controlling factor In determining job content and considers othercriteria as effective mainly in so far as they meet economic requirements. Thus, aquality criterion often reduces to an economic one, when the job design thatimproves quality levels also improves productivity. For example, removing fatiguingelements of a job commonly improves productivity; eliminating hazards may reduceinsurance premium rates as well as Improve productivity; designing task thatincrease employee satisfaction often also improves productivity.

However, there certainly are instances where the various sub criteria do not correlatewith the economic criterion. To obtain higher quality levels often demands increasedcosts, and the value of the reduced scrap may not counterbalance the higher laborcosts. The employee satisfaction criterion would not necessarily decrease costs. Toreduce the risks of hazards to extremely low levels might be very costly.

In Taylor's time the noneconomic criteria would have been shrugged off. Today jobsand methods are frequently designed or altered to meet noneconomic needs. It istrue that the economic criterion is dominant, and job and method designs are seldomset or altered without reference to the effects on costs. Most often, costs are regardedas the "quantitative" measure, with noneconomic criteria being considered in the listof "intangible" advantages or disadvantages. Fig 11.1 shows in schematic form therelationship of Job constraints, criteria and others. The inputs to the determinationof Job methods then become job content plus a host of other inputs related to man-machine systems.

FIG. 11.1 RELATIONSHIP OP CONSTRAINTS. CRITERIA AND OTHERPRESSURES IN DETERMINING JOB CONTENT INPUTS TO JOB

METHODS DESIGN

11.2 MAN-MACHINE SYSTEMS

The great advances in computers and automation technology has changed theconceptual framework for man in productive systems. While there is still a great dealof manual labor in business and industry today, most work involves the use of atleast some kind of mechanical aid, and, therefore, the conceptual framework of man-machine systems is appropriate for the entire spectrum of systems involving thehuman operator.

Even in an automated system, labor is necessary in a surveillance capacity. In suchsituations, an operator may be seated in front of a control board which continuallyflashes information about the progress of the manufacturing process. It is importantthat these display panels be designed to transmit the essential information withminimum error.

Perhaps the majority of business and industrial manual jobs today consist of somecombination of man and machine. Where there is a fixed machine cycle as in mostmachine tool processes, the design of the machine cycle as in most machine toolprocesses, the design of the machine in relation to the operator is of greatimportance. The location and design of controls, working heights, informationdisplays, the flow of work, safety features, and the utilization of both the man and themachine in the cycle are all important determinants of quality, productivity, andworker acceptance of the job situation.

Many jobs are strictly manual, such as assembly, maintenance, and heavy labor. Heremechanical aids or tools are common, and we need to consider the design of thesetools from the viewpoint of the user. In addition, we must consider the layout of theworkplace, the flow of work, and physical and mental fatigue produced in the workerby his physical environment. In some situations, environmental factors of heat,humidity, light, noise, and hazards can seriously affect fatigue, productivity, quality,health, and worker acceptance of the Job. Thus, in studying man-machine systemswe assume that the questions of job content have fairly well been settled, and weconcentrate attention on the detailed design of jobs.

11.3 MAN VERSUS MACHINES

Man has certain physiological, psychological, and sociological characteristics whichdefine both his capabilities and his limitations in the work situation. Thesecharacteristics are not fixed quantities but vary from individual to individual. Thisdoes not mean, however, that we cannot make predictions about human behavior.Rather, it means that predictive models of human behavior must reflect thisvariation. To take a physical factor as an example, the distribution of the armstrengths of men indicates the per cent of the male population that can exert a givenforce. This distribution also indicates the limitations in demand for arm strength.The average man can exert a right-hand pull of 50 Kg. If we design a machine leverthat requires the operator to exert this force, approximately half of the malepopulation would be unable to operate the machine. On the other hand, thedistribution also tells us that about 95% of the male population can exert a right-hand pull of 22 Kg. A lever designed to take this fact into account will accommodate alarge proportion of the male population.

In performing work, man's functions fall into three gdneral classifications:

(i) Receiving information through the various sense organs, that is, eyes, ears, touch,etc.

(ii) Making decisions based on information received and information stored in thememory of the individual.

(iii) Taking action based on decisions. In some instances, the decision phase may bevirtually automatic because of learned responses as in a highly repetitive task. Inothers, the decision may involve an order of reasoning and the result may becomplex.

Note that the general structure of a closed-loop automated system is parallel inconcept. Wherein lies the difference? Are automated machines like men? Yes. theyare in certain important respects. Both have sensors, stored information,comparators, decision makers, effectors, and feedback loops. The differences are inman's tremendous range of capabilities and in the limitations imposed on him by hispsychological and sociological characteristics. Thus, machines are much morespecialized in the kinds and range of tasks they can perform. Machines perform tasksas faithful servants, reacting mainly to physical factors; for example, bearings maywear out because of a dusty environment. But man reacts to his psychological andsociological environment as well as to his physical environment. The latter factrequires that one measure of effectiveness of job design must be worker acceptanceor job satisfaction.

Although there are few really objective guides to the allocation of tasks to men andmachines on other than an economic basis, a subjective list of the kinds of tasks mostappropriate 'for men and for machines is given by McCormick

Human beings appear to surpass existing machines in their ability to:

(i) Detect small amounts of light and sound.

(ii) Receive and organize patterns of light and sound.

(iii) Improve and use flexible procedures.

(iv) Store large amounts of information for long periods and recall relevant fact at theappropriate time.

(v) Reason inductively,

(vi) Exercise judgment,

(vii) Develop concepts and create methods.

Existing machines appear to surpass humans in their ability to:

(i) Respond quickly to control signals,

(ii) Apply great force smoothly and precisely.

(iii) Perform repetitive and routine tasks,

(iv) Store information briefly and then erase it completely.

(v) Perform rapid computations.

(vi) perform many different functions simultaneously.

Such lists raise a question. Why do business, industry, and government not use menand machines according to these guides? We have all observed that man is usedextensively for tasks given in the list for machines. The answer lies in the balance ofcosts for a given situation. Both labor and machines cost money; when the balance ofcosts favors machines, conversions are normally made. In many foreign countriesextremely low-cost labor, in relation to the cost of capital, dictates an economicdecision to use manual labor in many task in which man is not well suited. Becauseof relatively high wages in the United States, machines are used much moreextensively.

11.4 CONCEPTUAL FRAME WORK FOR MAN-MACHINE SYSTEMS

As we noted previously, men and machines perform similar functions inaccomplishing work tasks though they each have comparative advantages. Thefunctions they perform are represented in Figure 11.2. The four basic classes offunctions are sensing, information storage, information processing, and action.Information storage interacts with all three of the other functions; however, sensing,information processing, and action functions occurs in sequence.

FIG. 11.2 FUNCTIONS PERFORMED BT MAN OR MACHINECOMPONENTS OF MAN-MACHINE SYSTEMS

Information is received by the sensing function. If by a man, sensing s accomplishedthrough the various sense organs of eyes, ears, sense of ouch, etc. Machine sensingcan parallel human sensing through electronic or mechanical devices. Machinesensing Is usually much more specific or single purpose in nature than broadlycapable human senses.

Information storage for man is in the human memory or by access to records.Machine information storage can be by magnetic tape or drum, punched cards, camsand templates.etc.

The function of information processing and decision takes sensed and/or storedinformation and produces a decision by some simple or complex process. Theprocessing could be as simple as a choice between two alternatives, depending on-input data, or very complex. Involving deduction, analysis, or computing to producea decision for which a command is issued to the effector.

The effector or action function occurs as a result of decisions and command, and mayinvolve the triggering of control mechanisms by man or machine or a communication

of decisions. Control mechanisms would in turn cause something physical to happensuch as moving the hands or arms, starting a motor, increasing or decreasing thedepth of a cut on a machine tool, etc.

Input and output is related to the raw material, or the thing being processed. Theoutput represents some transformation of the input. The processes themselves maybe of any type, that Is, chemical processes to change shape or form, assembly,transport, clerical and so on.

Information feedback concerning the output states is an essential Ingredient for itprovides the basis for control. Feed back operates to control the simplest handmotion through the senses and the nervous system. For machines feedbackconcerning the output states provides the basis for machine adjustment. Automaticmachines couple the feedback information directly so that adjustments are automatic(closed-loop automation). When machine adjustments are only periodic based oninformation feedback, the loop is still closed but not on a continuous and automaticbasis.

11.5 TYPES OF MAN MACHINE SYSTEMS

We shall use the module of the functions performed by man or machine shown infigure 11.2 to discuss the basic structure for three typical systems: manual,semiautomatic, or mechanical and automatic systems. Figure 11.3 uses the module offigure 11.2 to show the structure of the three types of systems in schematic form.

Manual system involves man with only mechanical aids or hand tools. Man suppliesthe power required and acts as controller of the process; the tools and mechanicalaids help multiply his efforts. The basic module of figure 11.2 describes the functionswhere the man directly transforms input to output as shown in figure 11.3(a). Inaddition we must envision the manual system operating in some workingenvironment which may have an impact on the man and the output

Semiautomatic systems involve man mainly as a controller of the process asindicated in figure 11.3(b). He interacts with the machine by sensing informationabout the process, interpreting it and using a set of controls which may start and stopthe machine system and possibly make intermediate adjudtments. Power is normallysupplied by the machine. These are the combinations of the manual andsemiautomatic systems where the man is also supplying some of the system power,perhaps in loading the machine or in some activities in which he may be involvedwhile the machine goes through its cycle. Common examples of semiautomaticsystems are the machine tools commonly used in the mechanical industries.

Automatic systems presumably do not need a man since all of the functions ofsensing information processing and decision, and action are performed by the

machine. Such a system would need to be fully programmed to sense and takerequired action for all possible contingencies. automation at such a level is noteconomically justified even if the machines could be designed. Figure 11.3(C),therefore, indicates man's role as a monitor to help control the process. In this rolethe man periodically or continuously maintains surveillance over the process throughdisplays which indicates the state of the crucial parameters of the process.

11.6 INFORMATION INPUT

Modern technology has made it possible to present vital information concerning theprocess which humans cannot sense directly, or atleast cannot sense precisely in adirect way. On the otherhand some sensing may result for direct observation, forexample if the transfer mechanisma were jammed, the pathways of information fromoriginal source to human sensory receptors is shown schematically in Fig 11.4

Figure 11.4 indicates immediately some marriage between man and machine inindirect sensing which involves an intermediate sensing by mechanisms and a codingor conversion to some new form which is then presented and sensed by the human.Therefore, in man-machine systems, human sensing can be direct, but increasingly isindirect, placing emphasis on encoding and information display systems. The designof these systems of display for information input to man is important if operation areto be effective.

Figure 11.5 implies the full range of possible human sensory receptors. The mostcommon business and industrial application focus on the use of the eyes, ears, andnerve endings, in that order with visual display being by far the most common.

11.7 VISUAL DISPLAYS

Much of the postwar effort of experimental psychologists has been directed toeardimproving visual displays. Questions such as these have been raised. Which dialshapes are most legible? What scale should be used and how should they be markedon the dials? Do people have number preference patterns that affect theinterpretation of dial readings? What characteristics of numbers and letters makethem most

legible? Are black numbers on a white background superior to white on black? Howbig should letters and numerals be and what proportions of lie thickness, height, andwidth are best? How should systems of dials be arranged? Experimental work hasbeen carried on these and many other questions.

Scientists have experimented with the shape of dials. An experiment around fivetypes of dials was constructed. Fig. 11.5 shows the results in terms of percentage oferrors recorded. A multitude of studies, indicated the following general guides ondial design.

(i) A dial about 70mm to 80mm in diameter is probably the best all-around size if weare going to read it at a distance of 750mm or less.

(ii) Mark should be located at the 0, 5, 10, 15, 20, etc. (or 0, 50, 100, 150, 200 etc.)positions. The marks at the 0, 10, 20 for 0, 10, 20 for 0, 100, 200) positions shouldbe longer than those at the 5, 15, 25 (or 50, 150, 250) positions. Only the mark at the0, 10, 20 should be numbered.

(iii) The distance between the numbered markers should be about 12 mm asmeasured around the circumstances of dial.

(iv) The separation between the scale markers should be the same all around the dial.

(v) There should be gap between the beginning and the end of the scale.

(vi) Values on the scale should increase in a clockwise direction.

When there is a bank of dials to be read, it helps to orient them in a pattern so thatthe normal readings are in the nine o’clock or twelve o’clock position. This makes itpossible to tell at a glance if an abnormal reading is among the group instead ofreading the each dial individually. As a matter of fact we often find that the operatoris presented with too much information. He may not need to read the dial at all.Perhaps all that is required is simple recognition of whether the reading is in thenormal operating region or not. Or perhaps the real need is to know only ifsomething is functioning or not. Simple on-off lights may be satisfactory in suchsituations.

There is also the questions of the letters and numbers that are used on visualdisplays. Studies have indicated that capital letters and numbers are read muchaccurately when stroke width to height ratio is between 1:6 and 1:8 and when theoverall width to height ratio is about 2:3

11.8 AUDITORY AND TACTUAL DISPLAYS

While auditory displays are not as commonly used as visual, they have particularvalue as warning devices or to attract attention. There are of course otheropportunities for using the auditory channel, for example, when vision is impaired,or at night or in photographic dark rooms, when vision cannot be used. Some of thecommon devices are bells, sirens, buzzers, horns, chimes and whistles.

Tactual displays are even less common than auditory in business and industry. Yetthere are applications when vision cannot be used such as in photographic darkrooms or the shape coding of control knobs. So they can be identified by touch.

11.9 HUMAN CONTROL OF MAN-MACHINE SYSTEMS

Given information input by direct or indirect means the human operator qf a man-machine systems responds by performing work in the physical sense. He may beassembling objects, manipulating controls and in general using his body toaccomplish the required tasks to fit in with the objectives of the system. The analysis

of the hand and body motions and how they contribute to effective operation isimportant

Manipulative activity in handling controls has been studied with considerable careand this knowledge can be used to design effective systems.

Finally, work place layout can be used on knowledge of anthropometry so thatmanual motions can take place within a prescribed area and chair and table heightscan be set at levels appropriate to human body sizes.

11.10 ANALYSIS OF CONTROL ACTIVITY

The .design of controls and control system has an important impact on theeffectiveness of a man machine system. Knowledge of the forces that man can exertmay be of importance in some systems so that these capabilities are not exceeded inthe design of controls and control coding is sometimes important so that controls arcnot confused.

11.11 STRENGTH AND FORCES OF BODY MOVEMENTS

Data on the forces that can be exerted by most of the working population isimportant for designing machines and tools which do not require operators withunusual physical strength. Rather exhaustive population measurements have beenmade for arm strength, grip strength, turning strength, elbow, back leg- strength.

In general it can be seen that left hand strength is consistently less than that for theright hand, and that pushes and pulls are weaker when the arm is down at the side.With upward and downward movements, however, greater forces can be exertedwhen the arm is down at the side. Pull is slightly better than push, down slightlybetter than up, in better than out.

11.12 SPEED AND ACCURACY OF MOTOR RESPONSES

A motor response is one that involves physical movement and /or control of bodyparts. It is a muscular activity. Since man's hands are his most important asset forperformance of muscular tasks, we find that most of the available data pertain tohands. Thus, in designing tasks that involve positioning elements, for e.g.. aknowledge of where in the work area positioning can be accomplished mostaccurately may affect the work place layout.

Positioning elements:

Much experimental effort has gone on to determine how positioning elements ofvarious types can be best accomplished. A number of interesting results have beenfound, some expected and some unusual. It has been shown that where some sort ofmechanical guide or stops are used to establish the exact final desired position of thepart or hand. The amplification of this fact tend to corroborate the idea of a fixed anddefinite location for everything. The rapid typing speeds attained by the touch systemare based partially on this fact since key locations are fixed. Conceptually, it is the

difference between finding something in a carefully Indexed and maintained file or ina stack of papers.

Positioning through setting of dials, cranks and hand wheels:

Movements to position dials, knobs, cranks, handwheels are common means bywhich the human operator controls processes and machines. Several studies havebeen made to determine facts that optimize the design of such devices. For e.g. whenknob settings must be accomplished without visual control, the average errors andvariability of settings are minimised at the 12 'o' clock position of the dial.

A set of experiments have been performed to determine optimal sizes of cranks andhand wheels under various conditions of friction torque, position and height. Thesetypes of handwheels and cranks are common devices used to move the carriages andcutting tools to desired settings.

Coding controls: In complex operations where a number of controls are used,coding" by colour, size .shape or location helps to distinguish between them so thatmistakes are minimised. It was found that round knobs could be distinguish fromeach other. The location of controls can be used to distinguish them from each other.For example the clutch brake and accelerator pedals of automobile used with outlooking to see where they are.

It has been also investigated knob shapes that could be distinguished solely by touch.He classified designs into 3 groups: Multiple rotational knobs, Fractional rotationalknobs and detent positioning, that Is where knob position is critical as a televisionchannel selected dial where each position 'clicks' in to place.

Work area limits : Many tasks such as assembly work the operation of many typesof machines, and much clerical work are performed by worker is seated or standingat a bench, table or desk. Movements beyond the work area require the trunk of thebody to be moved. For repetitive operations these trunk movements are fatiguing.Similar measurements have been made in vertical plane; guides for location of thematerials, supplies tools and controls are available in 3-dimensions.

Chair and table heights : Since there is so much manual and clerical activity, theheight of chairs and tables is Important. The two are closely related. Table height iscommonly specified In relation to elbow, so that adjustments In either chair or tableheight from the floor can be made to give greatest comforts to Individual worker.Actual table and chair heights then depend on whether the setup is designed forsitting - standing or sitting only.

11.13 THE WORKING ENVIRONMENT

The working environment which includes such factors as temperatures humidity,light and noise can produce marked effect on productivity, errors, quality levels, andemployee acceptance, as well as physiological well- being. Therefore we cannotmeasure the effectiveness of the Job design without knowledge of the workingenvironment in which it will be placed. It Is a part of total picture.

11.14 TEMPERATURE, HUMIDITY AND AIR FLOW

We have all experienced that our feeling of comfort Is not determined solely bythermometer reading. If there is a breeze we feel cooler, even though the temp issame. On a stifling day we have heard of the comment “It isn’t the heat, it's thehumidity." The sensation of warmth or cold is affected by each of these factors, whichhave been combined into a single psychological scale called effective temperature.Effective temperature is the temperature of still, saturated air, which gives theidentical sensation of warmth or cold as the various combinations of air temperaturehumidity and air movement would.

The human body has automatic heat regulating system that allows compensation forthe environment over a certain effective temperature range. This compensation also,of course, depend on the activity level. Thus, a higher activity level can produce bodycomfort at lower temperature.

Control of thermal atmosphere: A scientist experimented with protectiveclothing for workers who must operate In very hot atmospheres such as nearindustrial furnaces.

He found that simple protective clothing actually increased the heat stress. However,a ventilated suit, through which a continuous air flow was maintained, reduced theheat stress considerably.

Control for workers adjacent to hot areas such as furnaces, where heat radiation Ismain problem, can be accomplished by shielding and by isolating the hot spot.General thermal control is accomplished through air-conditioning but is notuniversally done.

11.15 NOISE

Unwanted sound is commonly called as Noise. There is growing evidence that it canproduce damaging effects, especially when workers are exposed to it over a period ofyears.

Noise effects on work performance: Industry of course has been interested Inthe possible direct effects that high noise levels may have on performance measuressuch as output, errors and quality levels. In a number of studies on this subject, thegeneral result was that if the injection of noise in the environment had any badeffects, they were temporary. We should note that good experimental design isdifficult in such situations because the experiments usually must go on over a periodof time; It is difficult to know whether the results are attributable to noise effects ordue to other changes which may have taken place during the same time interval. Theone sure reaction is that higher noise levels are annoying, but human beings seemable to adapt to them.

Noise Control: Noise control can be accomplished in many ways depending on thenature of the problem. Acoustical engineers often control it in the source, byredesigning the noise producing parts by using vibration isolation mounting ofequipment, or some times isolating the source of noise through the construction of

proper enclosures so that the amount of noise transmitted beyond the enclosures isreduced. In the, later method, a knowledge of physics of sound transmission isImportant. The wrong enclosure design might transmit the noise with little or no lossor might even amplify it.

Other forms of control are baffles, sound absorbers, and acoustical wall materials.Sound absorbers can be installed near or above noise sources to help reduce noiselevels. Acoustical wall materials can be used to reduce noise levels within a room byreducing reverberation, the reflection of sound waves back and forth in the room. Ofcourse these wall materials have no effect on the original sound waves emanatingfrom the source.

11.16 LIGHT

The conditions for seeing are important aspects of the working environment.However no universally accepted standard for lighting is available, although thereare recommended levels from many sources. Part of the difficulty lies in the fact thatvarious criteria have been used, such as visual acuity, blink rate, preference rating,and critical illumination levels. From a business and industrial view point criticalillumination level makes the most sense, since they are essentially performance typesof criteria. The critical level for a given task is that level beyond which there ispractically no increase in performance for increases in illumination intensity. Thusincrease in intensity beyond these levels are assumed to be of no value.

Illumination effect on work performance: There have been many laboratorystudies of the effect of illumination level on some measure of performance of a task.In general there is a rapid improvement in performance as illumination levelsincrease to critical level, at which point performance measures level off and furtherincreases in illumination produce little or no improvement in performance.

In many actual work situations where illumination levels have been increased,records of output and quality before and after the changes have' indicated substantialimprovements. Some studies report that output went up to 4 to 35 %. We should beaware of this type of support data. However, in the complex set of conditions existingin a business or industrial environment, variables other than Just the illuminationlevel could very well have changed .such as work methods, product design, controlprocedures. supervision, the weather, and the psychological climate. For example, inthe famous Hawthorne studies, at the haw throne works, western electric company,lighting values were increased for an experimental work group and the performancewent up. Some one thought to check on the result by lowering intensities. Theemployees cooperated again by lowering performance. But performance increasedagain when employees were told that the light intensity had been increased whenactually it had been lowered, and then the smiles drained. It was finally realized thatthe employees were reacting to the psychological situation. They were experimentalsubjects, set aside from "ordinary" employees, and unconsciously were simply beingvery cooperative for those "nice experiments". When the situations were understood,the direction of the study changed to an evaluation of factors

Glare can reduce the effectiveness of the illumination provided; glare is produced bysome bright spot in the visual field, such as bright light or reflected light from apolished surface, and can cause discomfort as well as reduce visual effectiveness.

Based on the experimental results, the effect of glare become acute when the sourcesare close to the line of sight

Glare effects can be reduced by moving light sources where possible by diffusing lightsource that cannot be moved, or by Increasing the general illumination level of thesurroundings so that the brightness contrast between the glare source and thesurrounding is reduced. Reflection surface may sometimes be moved in relation towork places or changed so that the surfaces diffuses light

Criteria for the lighting environment: There is little doubt that it is worthwhileto provide atleast the general critical levels of illumination. Although there is littleevidence of any changes in performance above the critical levels, these levels may beexceeded without any known bad effects in order to allow for a margin of error. Thisidea seems to represent current practical philosophies. General illumination levelsthat are more than adequate are provided and the problem is forgotten. Oftenmissed, however, is the need for special lights for fine detailed work and eliminationof glare.

11.17 CONTAMINANTS AND HAZARDS IN THE WORKINGENVIRONMENT

A large number of fumes, gases, liquids, and solids have proved harmful to workers.These, together with the general mechanical hazards from machining parts, trafficfrom material, transportation, falling objects, etc., from a part of the workingenvironment

Noxious substances: The number of industrial poisons Is tremendous.Fortunately, however, in most situations only a few would be present and potentiallydangerous. Industrial medicine is a special field which concerns itself with thediagnosis, treatment and control of the noxious substance. Maximum availableconcentration (MAC) have been determined for most of these substances as a basisfor proper control.

Control procedures: Control procedures vary greatly because great variation ofpossible contaminants and their characteristics. In general the control of emissionsof these substances in manufacturing process poses engineering problems.Protection of workmen require exhaust system to collect dust gases and vapours inorder to maintain the concentration below maximum allowable concentration.Personal protective gear, such as respirators and gas masks, supplement exhaustsystem. Other protective clothing, such as rubber aprons, coats, gloves, boots andgoggles, is available for various jobs which involve the handling of chemicals andwhere the unprotective skin may leave the employee exposed to injury. In addition,vigilance through careful explanation of safe operating procedures and safetyprograms is common.

11.18 SUMMARY

Men and machines perform similar basic functions in accompolishing work;however, their abilities are sharply divergent in the nature of tasks each can do well.The essence of man's great advantage lies in his flexibility, whereas, machine can

perform consistently. In general man's role in man-machine system falls in to threemain classes: as a power source and controller in manual systems, as a controller ofsemi-automatic systems and as a monitor of automatic system.

11.19 KEY CONCEPTS

· Man versus machine· Visual display· Auditory display· Tactual display· Working environment


1. Compare man's capabilities with those of known machines.2. What are the various ways that visual and auditory information can be coded?3. Summarise the general guides for dial design.4. What sort of information is available concerning the speed and accuracy of

positioning elements?5. What kind of control measures are available for the thermal environment?6. How can noise be controlled?7. What are glare effects and how can they be controlled?


1. Buffa, "Modern Production Management". 4th edition, Prentice Hall.

2. Buffa, "Modern Production/Operations Management". 7th edition, Prentice Hall.

3. McComick, E.J., "Human Factors in Engineering", McGraw Hill.

- End Of Chapter -

LESSON - 12

PRODUCTION CONTROL

12.1 Preamble

12.2 Need for production control

12.3 Objectives of production control

12.4 Functions of production control

12.5 Relationship between production control and other departments

12.6 Types of production

12.7 Distinction between intermittent and continuous production

12.8 Characteristics of intermittent production

12.9 Pros and Cons of intermittent production

12.10 Characteristics of continuous production

12.11 Pros and Cons of continuous production

12.12 Similar processes

12.13 Characteristics of similar processes

12.14 Loading

12.15 Scheduling and controlling of production

12.16 Scheduling

12.17 Scheduling procedure and techniques

12.17.1 Perpetual scheduling

12.17.2 Order scheduling

12.17.3 Loading by schedule periods

12.18 Progress control

12.19 Methods to take corrective action

12.20 Follow-up or expediting

12.21 Summary

12.22 Key concepts



12.1 PREAMBLE

Production control is the factory's nervous system. Almost all factories can perform atremendous variety of operations and turn out various types of products. Yet nothing

happens until it is directed to the shop what it has to do. The directions have to beminute and specific. These directions tell it to perform Individual operations on allkinds of component parts and to put them together into finished products.Production control sends the necessary continuous stream of directions to all parts ofthe factory.

Production control is defined as the design and use of a systematic procedure forestablishing plans and controlling all the elements of an activity. That is the mainproblem in production control are involved with

i. designing a sound and systematic procedure

ii. properly using the system that has been designed

The production control includes

i. a complete planii. a follow-up procedure for determining how closely the plan is followed

iii. a means of regulating execution to meet the plan's requirements

12.2 NEED FOR PRODUCTION CONTROL

Products are manufactured by the transformation of raw materials into finishedgoods. This is how production is achieved. Planning looks ahead anticipates possibledifficulties and decides in advance as to how the production is carried out. Controlphase makes sure that the programmed production is constantly maintained.Production control is an on-going activity designed to strike a balance betweenseveral conflicting objectives. To focus on any one single objective will lead to asuboptimal situation. For example if inventory cost is minimized customer servicewill probably suffer. Costs will be higher than if optimal balance of all factors isattained.

Holding down inventory is one goal. That is ideally try to finish making product justin time to be sold but no sooner. But some inventories have to be carried out thefactory operate economically. If the volume is big products can be made continuouslyat a steady rate and hold inventory. It takes time to make products and this fact alsois to be considered while achieving minimum cost. Both continuous and lotproduction decide ahead how much to produce and when. If it is guessed whatcustomers will buy and when, running out of some products and having too many ofothers happen. To complicate matters customers may change their minds. They maywant more products than they first ordered or they want fewer. They want theirorders sooner or they want them latter. They want to change the design of theirproduct.

12.3 OBJECTIVES AND BENEFITS OF PRODUCTION CONTROL

Sound production control may result in many tangible and intangible benefits ifproperly installed and operated. In order to obtain these benefits, it is- essential that

adequate auditing of the system be made continuously. Following are some of theobjectives and results of a sound production control system.

i. Efforts can be directed into those production areas that will contribute mosttowards accomplishing a given objective.

ii. Programs can be closely followed to the wants and needs of the company.iii. Manufacturing cycles are shortened which in turn reduces in-process

Inventory costs and provides better customer service.iv. Work must be performed according to the preplanned schedules.v. Supervisors are forced to take corrective action when it is necessary.

vi. Information is provided quickly to customers concerning the status of theirorders.

vii. Over-all expenses are reduced because of systematizing and reducing theamount of paper work Involved.

viii. Production is maximised by making greater use of facilities, equipment andmanpower through sound, scheduling and loading.

ix. Necessary information can be provided for determining where and whenpreventive or corrective action is necessary.

x. A yardstick is provided by which management can measure both the progressand the effectiveness of the activities in which the company engages.

xi. Administration of the activity is put on a factual basis rather than one ofexperienced guesswork.

xii. Reports are more timely, adequate and accurate.xiii. Continuous evaluation of the effectiveness of the planning and control system

and of other function is made possible.xiv. Graphical or visual presentation of data is facilitated.xv. Time becomes available to work out details that would otherwise be left to

improvisation.xvi. Time phasing of all elements of the activity becomes a necessity.

xvii. More flexibility is obtained to accommodate necessary changes that occur inschedules or orders.

12.4 Functions of productions Control

The functions of production control may be divided into three main categories orphases.

1. The planning phase

2. The action phase

3. The follow-up or control phase

Planning Phase

1. Prior Planning

2. Action Planning

Planning is a course of action established in advance. Prior planning is an activity inadvance of normal planning stages not generally considered to be the part of theproduction control department. Action control consists of material control, toolcontrol loading and scheduling.

Forecasting

Forecasting is an estimation of future activities. It is a basis for projection of workload In future. It Includes long range and short range objectives and provides thebasis for establishing future requirements for men, materials, machines, time andmoney. It is subjected to possible wide variations in accuracy.

Order writing

Order writing is to control the work. lt must begin with a specified documentauthorizing it. It is the preparation of work authorization. Documents may be amanufacturing order, customer order, etc.

Product design

Product design is the preparation of specifications. After the work authorization hasbeen prepared, next step is to collect all information necessary to describe the workto be done. This will include blue print, drawings, etc. This activity would comeunder the product engineering department.

Process planning routing,

Process planning is the preparation of work detail plan. The function of preparationwork detail plan consists of two parts

(i) determination of most economical methods of performing an activity - processplanning

(ii) determination of where the work is to be done – routing

For process planning it is necessary to have following Information.

(i) volume of work to be done

(ii) quality of work required

(iii) equipment, tools and facilities available to do the work

(iv) personnel available to do the work

(v) schedule to show when the equipment, tools and personnel will become available

Routing is normally dependent on the plant or activity workload.

Materials control

Materials control is the determination of material requirements and control ofmaterials. Materials or inventory control is vital to an activity because of thenecessity to assure sufficient raw materials to satisfy production needs and finishedproducts to satisfy customer needs. For these reasons it is desirable to maintainoptimum Inventory levels at all times.

Tool control

Tool control is the determination of tool requirement and tool control. Tool controlmay be subdivided into two categories

i. design and procurement of new toolsii. control, storage and maintenance of tools after procurement

Loading or routing

Loading is the determination and control of equipment and manpower requirements.In most activities loading function is combined with routing and scheduling. It isvery difficult to distinguish or to separate these functions. Usually these functions areconsidered simultaneously. Loading may be defined as assignment of work to afacility. Facility can be equipment, manpower or both.

Scheduling

Scheduling is the determination of when work is to be done. Scheduling consists oftime phasing of work load. That is setting both the starting and ending time for thework to be done. Many different techniques are used in scheduling. The commonpractice is that routing, loading and scheduling are performed simultaneously.

Action phase

Only one function exists in the action phase.

Dispatching

Dispatching is starting the work. It is a transition from planning phase to actionphase. It consists of actual release of detailed work authorization to work center. It iscommonly performed by an individual called dispatcher. In the formal productioncontrol function, dispatching is commonly performed by an individual calleddispatcher. In the informal system, dispatching may be done by the foreman orsupervisor or may even be done verbally. Every job that goes to department goesthrough the dispatcher. Dispatching is the first step in the line of communicationfrom the work center to production function.

Follow up or control phase

Once the work is started it is to be evaluated continuously regarding progress interms of plan. Any deviation can be detected and corrected quickly.

Follow up phase consists of two parts

i. progress reportingii. corrective action

Progress reporting or activating

It is primarily a matter of communication. Timely, adequate and accurateinformation about the performance of an activity is furnished by this function. Datais collected regarding what has actually happened in the activity. Data is gatheredand communicated to the management. In the formal activity, dispatcher is theoriginating point of communication. When there is no dispatcher, foreman orsupervisor is the originating point of communication. After collecting data, it isnecessary to interpret it by comparing the actual performance against the plan.System must be designed in such a way that they must almost automatically evaluatethe situation for management. Management should not be required to interpret theraw data in order to come up with the evaluation.

Corrective action

The whole process of production control would be defeated if corrective action wascalled but not taken. Corrective action may consist of one or both of the two coursesof action that is, expediting and replanning.

Expediting

In this function current work corrections are made. If the data from the productionunit initiates that there is a significant deviation from the plan then some actionmust be taken to get back on plan (if plan cannot be changed). Progress reportshould indicate the reasons for the deviation in the formal system. The function offollowing up to eliminate the cause of deviating from plan is performed by expeditinggroup. In the informal system, the function is usually performed by the persondirectly in charge of the activity such as foreman or supervisor. Obviously, noproduction control system is perfect, and therefore some expediting will always berequired. However it should be minimized by continuously improving the productioncontrol system.

Replanning

Replanning is making plan corrections. It should be emphasized that a plan is notmade to be changed, but to be followed. However, if after expediting to correctdeviations, it is found that it is impossible to perform according to the plan, it wouldbe foolish to attempt to continue with original plan. It may also be found that therewere errors made while developing the plan. It may also be found that there wereerrors made while developing the plan. In these cases changes in the plans arenecessary. The changes in the original plan should never be made just because ofdeviations. Careful analysis is always required.

12.5 RELATIONSHIP BETWEEN PRODUCTION CONTROL AND OTHERDEPARTMENTS

There are many important relationships which exist between production control andother elements of the organization.

The most important of these are:

(i) sales department

(ii) purchasing department

(iii) traffic department

(iv) materials handling function

(v) plant engineering and maintenance

(vi) new product development

(vii) industrial engineering

Without the coordination of production control with these groups, it would beimpossible for production control to operate effectively. It is vital that the designer ofthe production control system understands what the relationship is and assures thatthere is a proper co-ordination and communication between production control andthe various co-ordinating functions. Production control men first do their own work(preparing direction) and second get other departments to do their work (carrying

out direction). Where one department has to issue directions covering the work orother departments, trouble sometime arises. Minor frictions and frustrations arecommon.

12.6 TYPES OF PRODUCTION

To understand the job of controlling production, it is needed to look into the variousmanufacturing situations being controlled. There are so many differences in productsand in methods how they are made. It is not possible to analyze the manufacturingsituations of all the products individually. So classes or .groups of manufacturingsituations are considered. Most manufacturing situations fall reasonably well intothree groups

(i) companies in job lot work - intermittent production (ii) mass productioncompanies - continuous production

(iii) similar processes - batch production

The first group makes a wide variety of products, each in limited quantities. Thesecond group makes big volumes of a limited variety of products. In the third groupthe quantities to be made are in lots or batches.

A survey was carried out by the American Management Association to find out howprevalent each kind of operation is. Survey was-conducted with a large number ofmanufacturing companies about what kind of operations they carried on.

20% said job lot work and rarely made a second order

13% said job lot work and usually no reorder

46% said job lot work and many products made again and again

13% said mass production basis

8% said processed materials In batches

It can be considered that the last two together as being In highly repetitiveproduction then 34 of factories surveyed were In Job let work and 14 were In massproduction.

12.7 DISTINCTION BETWEEN INTERMITTENT AND CONTINUOUSPRODUCTION

Intermittent and continuous production differs in the length of time during whichequipment setups can be used without change. If you use a machinery setup for onlya short time and then change it to make a different product, you are In Intermittentproduction. Perhaps you are able to use the machine setup for only a few or a fewhours before the required quantity is produced. If you setup equipment and use itwithout change for months, we call that continuous production.

12.8 CHARACTERISTICS OF INTERMITTENT PRODUCTION

(i) Most products are made in small quantities. Parts and assemblies are made inlots, usually small lots.

(ii) Similar equipment is grouped. Similar kinds of machines or machines performingthe some work are located together in single work areas or departments. Adepartment is a place that does a certain kind of work not a place where a certainproduct is made. This arrangement is called "process controlled layout".

(iii) Workloads are unbalanced. Departmental workloads are usually unbalanced. Itmay be found that some departments working overtime while others are on shorthours. Or within a department you may find some machines working overtime whileothers are on short hours or are idle. This is not because anyone wants it that way. Ithappens because the machines you own reflect usual need, but day-to-day & week-to-week variations In the product mix result in different demands for specificmachines. Which machines are idle and which are overloaded depends on thevariations in the product mix.

(iv) General purpose machines are used. The term 'general' is relative because allgeneral purpose machines are to some extent specialized machines. You can't use aband saw to drill holes and you don't use a drill press to polish flat surface or to applypaint. We call a drill press a general purpose machine because by changing drill bits,It can be used to drill holes of various diameters and depths. Important point is thatyou can use it for different jobs. You have to drill each hole separately & you can drillbig or little holes, shallow or deep & can be drilled wherever it is needed.

(v) Machine operators are highly skilled because of short runs which usually happenwith general purpose machines. Often setting up of machines for new jobs happens.Setup man has to select the proper tools and fasten them on the machine in exactlythe right way. He must figure out & install holding and fastening arrangements forthe product. Finally the operator has to put the products onto machines and do theoperation both setting up and operating take skill and experience. Foreman need tobe skilled operators because you expect them to be able to step in and show their bestworkers how to do difficult jobs.

(vi) Numerous job instructions are necessary. Specific Instructions usually in writing,telling them what to do on every new job have to be given to machine operators,truckers and others. You have to tell them what materials to use, what quantities toprocess, what operations to perform and when and where to perform them. You haveto tell them how good the products have to be in order to pass inspection. SuchInstructions have to be given over and over again for every lot of materials. All thismakes for much clerical work.

(vii) Raw materials Inventories are high. Use of any particular raw material issomewhat irregular. A relatively large stock of standard raw materials have to be keptin hand.

(viii) In process inventories are high. Almost always you finish one operation onevery item in a lot of products before you start the next operation. The first item

finished lie around until all the rest are done. Then completed lot waits for trucker.When he delivers the order to next machine, he parks the lot nearby because thatmachine may be busy. There it waits until the machine is free. Other orders mayalready be waiting & so the newly arrived order may have to be stored for days beforeits turn comes. Other delays caused by shortage of tools. Inspection delays, etc. slowthings still more. Job lot work means materials move through production line slowlyand you always have big inventories in process.

(viii) Materials move by truck. Conveyers are rarely found in Job shop. Materialsfollow a great variety of paths through these plants. Power driven or hand trucks areused to move materials. Trucking is a highly flexible method of transportation and iswell suited to move things through diverse paths.

(ix) Wide aisles, ample storage and numerous elevators are needed when materialsare moved by trucks. Enough aisle space is needed for two-way traffic and formaneuvering space so that loads can be put down or picked up at machines.

Temporary storage space is needed next to machines so that workers can unloadmaterials directly from truck and back again afterwards. Large permanent storageareas should be available in order to store jobs between operations. Elevators used tomove items to other floors. It should be large enough to carry trucks & there shouldbe enough of them so that trucks don't have to wait long. Wide aisles sample storagespace, though needed, are not always found because space is often scarce but if youdon't have them, you will waste a lot of time & money in moving things around incrowded areas.

12.9 PROS AND CONS OF INTERMITTENT PRODUCTION

The best thing about intermittent production is its flexibility. It is well adapted toproducing numerous orders for small quantities of a wide variety of products.Flexibility will be there in the plant layout, types of machines used, transportationsystem, skills of workers & procedures used to direct their work. One machinebreaking down is not usually serious. Work planned for that machine can be shiftedto other similar machines. Orders requiring that machine can't be shifted. Only theorders requiring it are held up. Orders using other machines are not delayed.Intermittent production also allows to push emergency rush orders through ahead ofregular orders. Flexibility of intermittent production is a kind of insurance againstheavy losses if the market demand changes unexpectedly. Most general purposemachines cost less than special purpose machines. First investment in intermittentmanufacturing is usually lower than in continuous manufacturing. If big ordersreceived, some of the savings that ordinarily go with special purpose machines can belost. Continuous production requires high volume & nearly completestandardization. If you don't have these two conditions, intermittent production isthe only practical method.

12.10 CHARACTERISTICS OF CONTINUOUS PRODUCTION

Continuous production factories make a limited of products in large quantities.Plants are usually large.

(i) Large volume and small variety are essential in continuous production. Thequantity produced must be great enough to allow the same equipment setup formonth’s to-gether. We can say that continuous production plants are gigantic, singlepurpose machines. Years ago Charles F. Keffering of General Motors said "we don'tmanufacture automobiles, we publish them". Continuous manufacturing infabricating industries is a duplicating process. Decide on the origin.il model, set upthe equipment to make it in quantities and then run off hundreds of thousands ormillions of copies. But even large companies do not have such completestandardization and enough market to absorb the output of a continuous productionplant for very long period. Even large companies have to change now and then ormore commonly provide for minor variations in style or design or products. A fewvariations don't cause serious problems.

(ii) Production lines are used. Machines required for successive operations on theproduct are placed side by side. Machines are lined up according to the sequence ofoperations required on the product. This is called a 'straight line' production andthe movement of the product dictates the layout 'as product layout'.

(iii) Machine capacities are balanced in continuous production. Materials move fromoperation to operation in a steady stream. The capacity of successive operations mustbe balanced. If one operation takes longer than the others it will be a bottleneck ifyou don't equalize their production capacities.

(iv) Special purpose machines are used. The machines are designed and build to doone specific operation. A special purpose machine will do one operation rapidly andalmost perfectly & requires little skill on the part of the operator.

(v) Machine operators are not highly skilled and fewer operators are needed for agiven volume of output. Most machines used in continuous manufacture are almostfully automatic. Operator is only to load and unload the machine. Continuousmanufacturing requires relatively unskilled men since special purpose machines arefast and automatic. Only one man is needed to operate several machines.

(vi) High skill is needed behind the scenes. Although specialized machines requirelittle operator skill, they require a very high degree of skill on the part of the machinedesigners and machinery makers. They require highly skilled maintenance men.Some of the machinery is so complicated that maintenance men need specialtraining. Perhaps the training have to be given at machinery materials plant.

(vii) Few Job instructions are necessary in continuous manufacturing. Few changesoccur after the first instructions are given. Workers need almost no day-to-dayinstructions but first instructions telling workers how to do their jobs are sometimesgiven in great detail. Once the men learn the job no more instructions are needed.

(viii) Raw material inventories are low. Raw materials are used in steady rate and inlarge quantities. This allows to setting raw material delivery schedules so that newsupplies are received and no need to carry much on hand. Some companies carry solittle raw materials that when new supplies arrive they are delivered directly to thefirst operation & not to stockroom. Automatic companies sometimes work with onlyone or two hours bank if their supplier is located nearby. Occasionally companies

producing continuously carry low inventories of raw materials. This occurs incompanies using rubber or grain because their source raw material is sometimes veryfar away & is not wholly dependable. Besides they have to contend with seasonality.Someone has to carry rubber and grain inventories after the harvesting season untilthey are used. Also when the prices go down companies lay in big supplies. Except Insuch cases continuous manufacturing companies rarely carry big inventories.

(ix) In-process inventories are low. Inventories of materials going through factory isalmost dominated in continuous manufacturing. As soon as an operation on a pieceof material is finished, the price goes right onto next operation which is performedalmost immediately. Machines performing successive operations will be close-by.

(x) Preventive maintenance and quick repair are musts because there is so little float(material moving down the), if one machine stops all stop. As the successiveoperations are tied together, a good job of preventive maintenance & of quick repairmust be done. Otherwise the line's downtime is to use preventive maintenance,inspect, overhaul & repair machines during off-hours before anything happens. Toolwear, in particular, needs watching. If a drill or a thread taper gets dull from wear itwill cut improperly. The result will be either nonstandard work or a broken tool.Either is bad.

(xi) Materials move rapidly through the plant. Materials in process keep movingexcept for small emergency stocks in a few places. Partly processed materials neverpile up ahead of operations. Once started the first operation, materials keep moving& soon emerge as finished products.

(xii) Materials move by conveyer. Mechanical conveyers are the cheapest way tomove things wherever large quantities follow the same paths.

(xiii) Medium or narrow aisles, little storage space and few elevators are needed.Utilization of floor space by machines & conveyers is nearly complete in continuousmanufacturing. Since trucks are rarely used, aisles can be narrower than they are inintermittent manufacturing. Elevators are scarce because conveyers take things up &down.

12.11 PROS AND CONS OF CONTINUOUS PRODUCTION

The best thing about continuous production is its low unit cost when you have largevolume & nearby complete standardization. Special purpose machines speed up thejob& cut labor costs. Output is more and cuts down operator’s time. No waste ofman's time going after materials and for materials handling. No machine setupfrequently. There is a big savings in labor cost. There will be saving from the higheroutput per worker and not from lower hourly pay rates. Bad features of continuousproduction are vulnerability to work stoppages, rigidity of output rate, productchanging difficulties and investment commitment.

12.12 SIMILAR PROCESSES

In this method of operation, the work being performed is similar nature from orderto order, but not identical.

12.13 CHARACTERISTIC OF SIMILAR PROCESSES

The characteristics which distinguish the similar process are as follows:

1. The product or end result of the work is highly standardized.2. The order or work quantity is usually very large.3. The type of equipment required, if any, is usually highly specialized.4. Equipment is laid out by the type of end product.5. The materials handling equipment may be both mobile and permanent

installation conveyer.6. The end-product inventory is relatively low.7. The required worker skills are relatively low because of the repetitiveness of

the work.8. It is relatively easy to supervise the workers.9. Relatively few job instructions are required because of the similarity of the

work.10. Prior-planning is essentially completed at one time and is relatively easy

compared to the prior-planning required on custom and job-order types ofprocess.

11. Control of the process is relatively easy because of the repetitiveness.12. There is some degree of flexibility but not as great as in the custom and job-

order types of process.13. The cycle time Is relatively short.14. The balancing of the work load, is relatively difficult because the work is laid

out according to the end product of the work.15. A relatively high equipment Investment is required in manufacturing

operations.16. Disruptions in the flow of work usually result in a considerable amount of lost

production.

12.14 Loading or routing

Loading means assignment of work to manpower, machinery etc., without specifyingwhen the work is to be done. Loading results in a tabulated list or chart showing theplanned utilization of the machines or work stations in the plant as shown in

The objectives of the loading function is to maintain an up to data picture of theavailable capacity in the plant.

Loading can be defined as the study of the relationship between load and capacity atthe where work is done. The information provided by loading is used.

(1) to ensure the efficient utilization of the plant and labour in a factory.

(2) to help in the setting of reliable delivery promises,

(3) and to assist in the forward planning of the purchase of new plant.

Aims of loading

(1) To check the feasibility of production programs

(2) To assist in the efficient planning of new work

(3) To assist in balancing the plant to the existing load

(4) To assist in the fixing of reliable delivery promised

A load chart as shown in fig. 12.1 shows the productive capacity that has been soldand at the same times the available productive capacity. Load chart may be preparedfor each machine or a group of machines available in the factory. Load charts, assuch, are not too common because loading function is usually combined withscheduling and only one see of charts is maintained that is, the schedule charts.

12.15 SCHEDULING AND CONTROL OF PRODUCTION

Once the planning to meet sales is complete and a set of decisions have beenformulated using Graphical or Linear programming methods the next step is theimplementation of the decisions through detailed plans and schedules. Schedules aremade for the use of facilities like equipment and manpower.

Scheduling and control of production focus attention on the following:

(a) Knowing the total overall production targets - how to determine the amount ofeach product to be manufactured if there are products of different types and sizes?

(b) How to decide about and deploy work force and equipment to achieve the targetproduction rate?

(c) How to determine individual work assignments?

(d) What should be the information system to feed back quickly and accurately theactual output duly compared with the scheduled one?

Scheduling and control of production have one stage in between them, which is"known as dispatching. In general, first of all the order is scheduled, then it isdispatched for necessary operation and lastly the progress of the order is tracked, tobe certain that the schedule is being met. This phase of tracking the progress of anorder and making corrections is known as control of production.

12.16 SCHEDULING

In brief, scheduling means - when and in what sequence the work will be done. Itinvolves deciding as to when the work will start and in a certain duration of time howmuch will be finished. Scheduling deals with orders and machines, i.e., it determineswhich order will be taken up on which machine and in which department by whichoperator. While doing so, the aim 13 to schedule as large amount of work as the plantfacilities can conveniently handle by maintaining a free flow of material along theproduction line.

Scheduling may be called as the time phase of loading. Loading means theassignment of task or work to a facility whereas scheduling includes in addition, thespecification of time and sequence in which the order /work will be taken up.

A production schedule is similar to a railway time table and shows which machine isdoing what and when. A production schedule, is a statement of target dates for allorders or operations in hand and reveals their starting and finishing dates.Scheduling finalizes the planning phase of Production Planning and control system.

The following factors affect production scheduling and are considered beforeestablishing the scheduling plan.

(a) External Factors :

1. Customer’s demand

2. Customer’s delivery dates and

3 Stock of goods already lying with the dealers and retailers

(b) Internal factors :

1. Stock of finished goods with the firm

2. Time interval to process finished goods from raw material. In eachcomponent, subassembly and then assembly

3. Availability of equipment and machinery: their total capacity andspecifications

4. Availability of materials, their quantity and specifications

5. Availability of manpower

6. Additional manufacturing facilities if required, and

7. Feasibility of economic production runs


12.17 Scheduling Producer and Techniques

Scheduling normally starts with the master schedule. Fig.12.2 shows the masterschedule for a foundry shop.

A master schedule resembles central office which possesses information about allthe orders in hand. Master schedule, in fig.12.2 is a weekly breakdown of theproduction requirements. The total capacity in any work is of 100 hours of work inthe foundry shop.

As the orders are received, depending upon their delivery dates they are marked onthe master schedule. When the shop capacity is full for the present week the newlyacquired orders are carried over to the next week and so on. A master schedule isthus updated continuously, it depicts a running total of the production requirementsand shows the work ahead - yet to be completed. Master schedule is actually the basisfor all subsequent scheduling techniques.

A Master Schedule possesses the following advantages, disadvantages andapplications.

Advantages:

1. It is simple and easy to understand

2. It can be kept running

3. It involves less cost to make it and maintain

4. It can be maintained by non-technical staff, and

5. A certain percentage of total weekly capacity can be allocated for rush orders

Disadvantages

1. It provides only overall picture, and

2. It does not give detailed information

Applications

It finds applications:

1. In big firms, for the purpose loading the entire plant

2. In Research and Development organizations, and

3. For the overall planning in foundries, computer centers, repair shops, etc.

After framing the overall picture of production requirements through a MasterSchedule chart, the detailed schedules are thought of and made for each componentand subassemblies so that all parts are available at the time of assembly. There are anumber of visual aids and techniques, both in the form of conventional charts andcommercially available boards, which aid in detailed scheduling. The technique to beemployed for scheduling purposes depends upon the type of production, type andfrequency of tasks, demand patterns, etc. A useful scheduling device normallyportrays planned production, actual performance and their comparison. Actually, theGantt chart forms the basis of commonly used scheduling techniques

Some of the techniques employed for Loading and Scheduling purposes are:

(a) Perpetual schedule

(b) Order schedule

(c) Loading by schedule period

12.17.1 Perpetual scheduling:

Like master scheduling, It is also simple and easy to understand is kept current,involves less costs and can be maintained by clerical staff. But, the information whichit provides is very gross and at the same time it is not clear from the chart - When thework take place.

Making of perpetual schedule involves two steps:

(i) Preperation of load analysis sheet from the orders in hand. Fig. 12.3 shows a loadanalysis sheet.

(ii) The total load against each section is added up and knowing the weekly capacityof a section, the number of weeks load against each department is calculated andplotted on a Gantt load chart as shown in fig. 12.4

The shaded bars show the actual work load against each section. Additionalinformation, if any can be indicated by dotted line.

12.17.2 Order scheduling:

It is a most elaborate technique. Fig. 12.5 shows an order schedule chart. Time ismarked horizontally and the vertical axis shows the particular facility. Theinofrmation required to generate an order schedule is regarding the number of partsto be manufactured, name of the machines, their set up times, total production timeand the date of completion of the order.

The scheduling is started by planning the last operation at the date of completion andthen working backwards. For example, if order X takes 3 days to complete and it is tobe delivered to the customer on 7th of january, the work will be started on 5thJanuary.

Orders schedule chart has the following advantages and limitations.

Advantages:

(1) It is very detailed

(2) The earliest possible completion dates can be met

Limitations:

(1) It is very costly

(2) It requires time standards and good communication system.

(3) It is difficult to maintain effectively if there are many active orders.

12.17.3 Loading by Schedule period:

The task is broken into different operations which will be required to turn rawmaterials into finished product. A gantt type of chart as shown in fig. 12.6, isemployed for scheduling purposes. The rows, mark difficult facilities and eachcolumn denoted a time period. There are as many time periods as the number ofoperations. The first operation is carried out in the time period-1, second operationin the time period-2 and so on. It is however not specified that within the time periodwhen the operator will start and finish; but the operation is very much supposed tobe completed during that particular time period. The shop supervisor does thedetailed scheduling within the framework of the specified time period.

The shaded bars show the work ahead of each facility.

This type of scheduling involves a longer in process time because only one operationis to be performed in one time period. However, this makes it more flexible as anoperation can be taken up at the most convenient time within the specific timeperiod.

12.18 PROGRESS CONTROL OR ACTIVATING

Once the actual production has started, it becomes essential to keep an eye at theprogress of the work so that, if required, timely corrective action can be taken.Progress control means trying to achieve the standards set, i.e., a certain level ofefficiency or a certain volume of production in a specified duration. The system ofprogress control should be such that it furnishes timely, adequate and accurateinformation about the progress made, delays and under or over loading.

Steps Involved in progress control

(a) Setting up a system to watch and record the progress of the operating facility.

(b) Making a report of the work progress or work accomplishment

(c) Transmission of report to:

1. Control group for necessary control action, and

2. Accounting group for recording material and labour expenditures.

(d) Interpretation of the information contained in the progress report by the controlgroup.

(e) Taking corrective action, if necessary.

The above mentioned five steps have been briefly discussed as under:

System to Record the work Accomplishment: (or) Monitering

Progress charts are normally employed for this purpose. They compare the workprogress against a prescribed target, and point out the failure to achieve the same;thus progress charts draw attention for an action or investigation.

The charts construction may have the following four forms:

1. The Bar chart

2. The Curve chart

3. The Gantt chart

The Bar chart:

It consists of a number of bars. Each bar has its length proportional to the activityduration. A bar chart is generally used to point out and analyze interrelated datawhich otherwise is difficult to read. Such a chart is shown in fig. 12.7.

The Curve chart:

It is a graph between two variables marked along X and Y axis. As the day pass, thenumber of items being produced are marked over the graph. When all such pointsare joined, they indicate the production trend. A curve chart is shown in fig. 12.8.

Both the bar and curve charts show the past data. They are not readily adaptable tocurrent of future action.

The Gantt Chart:

It was developed by Henry L.Gantt. It is frequently used to keep track of the multiplemachine schedules. Gantt chart is actually a modified bar chart, where in load ismarked against a time scale whith one horizontal bar or line allocated to eachmachine. A Gantt chart displays the folowing:

(1) Plans for future

(2) Progress on present operations

(3) Past achievements till date

(4) Replatioship among several variables

(5) It focuses attention on situations threatening delays

(6) It tells whether a plan has fallen short and if the delivery dates can be met, and

(7) A cursor attached to Gantt chart can be moved across the chart to know the workprogress till any particular day.

Two basic types of Gantt chart are used extensively for production control.

Order Control Chart:

Time is marked along the horizontal axis and orders in hand are listed along thevertical axis as shown in fig. 12.9. The amount of work planned or scheduled isshown by the firm line and the machine on

which the order will be processes is marked on the line. The actual progress ofvarious orders is shown dotted. Cursor placed at today's date indicates that order A-372 is going as per schedule. Work on order B-260n. started one week before theschedule date and it is about 70% complete which otherwise would have been only50% as per the plan. Thus order B-260 is ahead of the schedule. Order c-300 whichstarted on the schedule date , due to reasons, has got delayed ny one week.

Machine Load chart:

Time is marked along the horizontal axis and various machines are listed along thevertical axis as shown in fig. 12.10. The amount of work planned and the actualprogress made have been shown by firm and dotted lines respectively. Orders bytheir numbers have been marked on

the horizontal firm lines. Cursor set at today's date shows that machine 3 is workingas per schedule. Machine 2 started work on order B-260 before the scheduled dateand the progress is very good. Machine 1 which completed the order A-372 In time,for some reasons could not take up the order C-390.

From the above Gantt charts the progress of various orders and machine loading canbe seen at a glance. Order C-390 has fallen behind the schedule and needsexpediting. Machine-1 is loaded up to the middle of February, however machine-2 isavailable for the third week of February, whereas Machine-3 can be booked only afterthe middle of March.

Making a Report of work accomplishment:

1. The progress report should contain the following information in order to evaluateactual performance against the anticipated plan and to take corrective action, it any:

(i) Job Identification. It includes order number and operation number.

(ii) Time of report, and

(iii) Work completed

2. A progress report should contain absolute minimum of Information.

3. Progress Reporting Time. Progress can be reported:

(i) at fixed intervals of time, I.e., weekly, monthly, or yearly depending uponthe project duration;

(ii) after the work has been completed, or after each stage of the work Iscompleted; it depends upon the size of the work;

(iii) by using the principle of 'Management by Exception'; According to which,one reports only those things and at that time when they require an action'by theplanning group. It is assumed that unreported events are going as per the schedule.

Transmission of Report: The progress report may be transmitted by employingany one of the following systems:

i. Written system (pre-written papers),ii. Oral system (telephone, radio, etc.), and

iii. Electronic system (telautograph, teletype equipment, etc.)

Written system:

Advantages:

(1) It provides a record for future reference.

(2) The chances of misinterpreting the report are minimized, and

(3) good amount of necessary Information can be supplied.

Disadvantages:

(1) There are chances of papers being misplaced in transit'

(2) Generally, it takes more time for the report to reach the other end;

(3) File keeping is necessary; and

(4) There is a tendency to send large amount of Information.

Oral system:

Advantages

(1) Progress can be reported in no time

(2) Doubts, if any, can be clarified instantly, and

(3) File work is very much minimized

Disadvantages

(1) There is no detailed record for future reference

(2) There are more chances of misinterpreting the report, and in addition

(3) Only brief Information can be sent

Electronic System:

Advantages

(1) It possesses all the advantages of the written system and

(2) Progress can be reported much faster

Disadvantages

(1) Equipments required are costly, and

(2) Trained operators are needed

Based upon the above systems the commonly used techniques for sending progressreports are:

Pre-written or Pre typed papers.

These are sent through messengers from one department to another.

Pre-written papers using pneumatic tube equipment.

Papers are put inside a capsule, which is then placed inside a tube, running from onedepartment to another. The capsule is shot by air to its destination.

Teletype Equipment.

It has a key board similar to a typewriter. Pressing different keys gives rise to electricsignals which are transmitted to receiving stations where the message is recorded.

Telephone and Intercommunication Equipment

Radio and Loudspeaker.

They are especially useful for outdoor applications to control the movements ofmaterials handling equipments and earth moving machinery.

Closed circuit T.V.

It is employed for keeping an eye over the processes emitting harmful radiations.

Corrective Action:

Factors creating the need for corrective action are,

External Factors: These factors are beyond the control of the organisation; forexample:

1. Change In the priority of orders due to the arrival of some new orders or due tothe cancellation of a few previous orders:

2. Delay In receiving equipments, tools, or raw material. This may be due to strikeor theft at the vendor's end or due to the reasons that the raw material which arrivedearlier was substandard and hence, was returned for replacement;

3. Unexpected rush orders.

Internal Factors: These factors results from within the organisation; for example:

1. Labour turnover or mass absenteeism,

2. Lack of necessary Instructions and materials,

3. Late staring of the work, tea breaks, etc.

12.19 METHODS TO TAKE CORRECTIVE ACTION

Schedule Flexibility: It means keeping the schedule flexible to accommodateunexpected events. Planning is done only for a percentage of the total working timeand the remaining time is kept free to take care of the unexpected jobs. Thepercentage of time kept free for rush order, etc., is decided from the past experience.

Capacity Modification: The following three methods can be employed formodifying the capacity of an organisation:

(a) Changing the number of working hours, either by employing more workers orby using over-time with the same number of workers

(b) Changing the amount of work within the plant by appropriate MakeBuydecisions or by subcontracting the work to others.

Schedule Modification: If the situation is otherwise non-manageable even afteradopting the above mentioned measures, the previously established plan can bemodified to suit the new set of conditions.

12.20 FOLLOW-UP OR EXPEDITING

The manufacturing activity of a factory is said to be in control when the actualperformance is as per the planned performance. Follow up or expediting regulatesthe progress of materials and the components through the production process.Follow up serves as a catalytic agent to fuse the various separate and unrelatedproduction activities into the unified whole that means progress. Follow up isconcerned with the reporting of production date and the investigating of anydeviation from the predetermined production schedules. Follow up ensures that thepromise is backed up by performance.

The work within the organisation can be expedited by the following two principles:

i. The exception principle andii. The fathering principle

In exception principle, the scheduling group, explores the jobs behind the schedule.The expediting group takes up such jobs, procures necessary materials, tools, etc..i.e., solves all problems related to these jobs and intimates the scheduling group toreschedule them.

According to fathering principle each expediter is made responsible for a job or agroup of jobs for which he arranges the tools, materials, equipment, etc. Such asystem works very well for controlling large projects.

12.21 SUMMARY

Production control is essentially a systematic procedure. Effective production controlis depending upon a soundly designed system and proper evaluation and auditing ofits use after proper installation. Production control consists of three phases, theplanning phase, the action phase and the follow-up phase. Type of process is one ofthe most important factors in determining the type of production control system.Loading and scheduling is one of the most important phases of any productioncontrol system. It is a technique by which the overall coordination of variousfunctions and facilities is accomplished. It is also essential that the difficultiesInvolved in progress reporting be thoroughly understood.

12.22 KEY CONCEPTS

· Forecasting· Order writing· Product Resign· Loading· Scheduling· Progress reporting


1. Describe the functions of production control.

2. Discuss the characteristics of intermittent type of production.

3. What is continuous production? Explain its characteristics.

4. Indicate the principle limitations of master scheduling. Under what type ofsituation it would be used?

5. Explain the perpetual loading method.

6. Discuss the reasons why progress reporting is so important to productioncontrol.

7. Explain the method of progress reporting.


1. Buffa, "Modern production Management", 4th edition, John Wiley

2. Eilon, Samuel, "Elements of Production Planning and Control"

3. Schele, Westerman and Wimmert, "Principles and -design of Production ControlSystems", Prentice Hall.

4. Moore, F.G., "Production Control", Prentice Hall.

- End Of Chapter -

LESSON - 13

INVENTORY CONTROL

13.1 Preamble

13.2 Definition of inventory

13.3 Inventory functions

13.4 Inventory decision

13.5 Inventory costs

13.6 Minimum cost inventory

13.7 The basic fixed order quantity model

13.8 Sensitivity to changes in variable values

13.9 Fixed order quantity with non-instantaneous delivery model

13.10 Safety stock

13.11 ABC classifications

13.12 ABC analysis procedure

13.13 Summary

13.14 Key concepts



13.1 PREAMBLE

Inventory control has a significant impact on an organisation, both operationally andfinancially. Inventory should be kept high enough to hedge against shortage and toprovide product line flexibility, but low enough to minimize the capital investment ininventory.

High inventory levels represents high capital costs, high operating costs andincreased congestion in the processing area. Too low an inventory level might lead toshortages and require tight scheduling.

One-fifth of the Indian gross national product is tied up in inventories. Obviouslyoperations managers should be aware of the potential savings and penalties involvedin keeping inventory.

13.2 DEFINITION OF INVENTORY

Inventory consists of stores of goods and other stocks. Alternatively, inventory is aquantity of goods and other stocks held for a specific time period in an unproductivestate, awaiting intended use or sale.

Manufacturing organizations carry inventory in the form of stock items, such as:

1. Raw materials

2. Work-in-process

3. Finished but undelivered products

4. Supplies (spare parts, lubricants, etc.).

Inventory of finished services in labor-intensive services, such as restaurants orbranch operation In a bank, Is mostly nonexistent The service is consumed as it isproduced and is not kept as inventory. For example, a lecture at a university beingdelivered by a professor cannot be stocked. A lecture is consumed as it is delivered(unless it is stored on a video cassette).

In service-oriented organizations that are not labor-intensive, such as masstransportation organizations, finished stock inventories are present. Blood bankskeep inventories of blood types, and the news media hold news pieces for timelyrelease.

Inventory control is the technique of maintaining stock items at predetermined,desired levels. Inventory management is concerned with determining polices that setthe goals for the Inventory control system.

13.3 INVENTORY FUNCTIONS

The major reason for holding Inventory is the impossibility of exactly matchingsupply and demand in terms of time and quality. Inventory has a number offunctions:

Hedge against future increases in costs and prices: An anticipated Increasein labor costs causes stocking of finished goods. An anticipated Increase in sellingprice calls for a delay in disposing of stock on hand.

Hedge against stockouts: Since demand and supply do not match and are attimes unpredictable, unsatisfied orders and expediting efforts become expensive.Buffer stocks are kept to hedge against stockouts, and are determined carefully.

Decoupling of operations: Inventories break operations apart, so that oneoperation's demand Is independent of another's supply. In this way, local materialshortages or maintenance downtime do not carry throughout stages.

Leveling of production: During slack periods, inventories are built up. Duringhigh-demand periods, inventories are depleted. This is done while the productionrate is kept at a constant level.

Ordering of economy: Basically, there Is a trade-off between numerous low-quantity orders that present a high reordering cost and a few large orders thatpresent a high carrying cost. The optimum-size order is a result of this trade-off andgenerally calls for some inventory. Besides, larger orders may entitle the buyer to avolume discount.

Control system economy: A larger inventory facilitates less control effort. Fewerreview actions to determine whether reordering is necessary are required if a largerinventory is kept. Frequent review action of this kind are costly.

Reducing on investment: Inventory should be carried so long as it comparesfavorably with other possible capital investments available to the organization. Asinflation pushes purchasing costs and selling prices up, hoarding inventory presentsa favorable Investment.

Reducing of material-handling charges: Moving of a single completed unitsfrom one process to another is costly. Moving of batches of completed units is lessexpensive, and can be done by means of a fork-lift truck, an overhead crane, or a tray.The batches, however, constitute an inventory that involves carrying costs.

Displaying to customers: Departmental stores, grocery stores, and car dealershold inventory to be able to display it to the customers and to have it on hand forsale.

13.4 INVENTORY DECISION

"When" and "how much" are the two major decisions that the operations managershould make. A decision must be made as to when to reorder inventory-namely, as tothe reorder point. The reorder point

is determined either in terms of the level of inventory or in terms of a calendar date.When an order is triggered, a decision must also be made as to the order size. Thesetwo decisions should be made while keeping in mind the organizational implications.

Economic considerations have to be given with respect to both decisions. Theeconomic considerations are expressed in quantitative formulas, called inventorymodels. Fig. 13.1 shows a breakdown of the major Inventory models.

Depending on the specific situation involved, the operations manager tries either tominimize inventory costs or, alternatively, to maximize profit. Whether costs orprofits are concerned, inventory models may be either of a deterministic nature, or ofa stochastic nature. There are two kinds deterministic or stochastic inventorymodels. In periodic order quantity models, reordering is triggered by a certain date.In fixed order quantity models, reordering is triggered when a certain level ofinventory is reached.

Under the periodic order quantity model, the inventory level is checked only oncertain days - for example, at the beginning of the week or beginning of the month.An order is placed on these dates in such ' a quantity as to bring the Inventory to apredetermined, optimal level. Under the fixed order quantity model, the inventorylevel is monitored closely, and as it reaches a certain level, an order of a fixedquantity is placed.

The fixed order quantity model behaves as described in Fig. 13.2. The level ofinventory is depleted at a certain rate until it reaches a predetermined reorderinglevel, R. At that point, an order is placed for a predetermined quantity, Q. Followingthe appropriate lead time, the order arrives and the inventory level rises by thordered point.

While the fixed order quantity model requires close monitoring of inventory levels ona frequent bases, the periodic order model does not require such monitoring. Atpredetermined dates, an order is placed in the amount that brings the inventory levelto a predetermined optimal level R. This is isslustarted in Fig. 13.3.

The orders are placed at equally spaced times, T1 and T2. Fpr example, at time T1,where the actual level of inventory is I1 and order of size (R - I1) is placed.

13.5 INVENTORY COSTS

As was stated earlier, inventory models are quantitative formulas. These formulasconsider various invenotry costs. Only those costs that vary as the inventorydecisions of "when" and "how" change should be considered. Costs that are fixed and

independent of how much or when to order are not considered in developing themodels. Operations managers should identify these costs and then minimize theirtotal. The costs are of five types:

(i) Item cost

(ii) Ordering cost

(iii) Costs of carrying Inventory

(iv) Stockout costs associated with shortages

(v) Fixed overhead costs

The costs vary from one product to another but their nature stays the same.

Item cost:

Item cost is the purchase cost or the value of the Item to the Inventory holder.Whether at book value or market value, the item cost does not affect the reorderdecision if there are no quantity discounts. If there are quantity discounts, then theItem cost has an impact on the reorder decision, because the larger the order is, thelower is the cost per single unit purchased.

Ordering cost:

Ordering cost includes all the necessary expenses involved in placing one order. Thiscost is assumed to be constant and is incurred each time an order is placed. If thiscost becomes very large, one would prefer placing a large order once or twice a year.The ordering cost Includes clerical and paper work expenses, incoming Inspection,bookkeeping, records updating, expediting expenses, postage, and delivery costs. Theaverage procurement cost can be found from accounting records by totaling theannual costs of the above items and dividing by the number of orders placedthroughout the year.

Carrying inventory cost:

Carrying inventory costs are costs that reflect the investment in inventory and thecosts associated with maintaining it in storage. A higher inventory level may requirean expansion of warehouse, increased material-handling costs, and Increasedmaintenance costs. The costs may be extracted from the accounting records. Itemsthat should be considered are:

(i) Capital cost

(ii) Storage costs: land and building costs and rent

(iii) Service costs: (inventory taxes, insurance, material handling)

(iv) Risk costs:Obsolescence and shrinkage (pilferage, damage, spoilage, theft)

The most significant cost among those is the capital cost. It may constitute anywherefrom 49% to 96% of1 the total carrying costs. The capital cost Is either:

(i) The average cost of borrowing (interest) to the company

(ii) The marginal cost of borrowing to the company

(iii) The return on an alternative investment that is not realized due to the fact thatmoney is tied up in inventory.

The cost associated with land and building is estimated by allocating total annualbuilding costs on the basis of square meter to the inventoried items.

Obsolescence costs are obtained from write-offs by the plant department that dealswith waste. Plant engineering data and public assessments information are used inthe cost estimates.

Stock-out cost:

Stock-out costs are associated with shortages. These costs occur when an item is outof stock and demand is unsatisfied. The stockout costs includes items that arespecified in Table 13.1.

TABLE 13.1 ITEMS OF CARRYING INVENTORY

-----------------------------------------------------------------------------------------

Cost of Raw Material Shortage

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Cost of Idle production

Cost of idle labour

Premium material price

Loss of purchase quantity discount

Cost of extra ordering

Cost of expedited shipment

Cost of product spoilage

--------------------------------------------------------------------------------------------

Cost of Finished Products Shortage

---------------------------------------------------------------

Cost of ill will to the seller

Loss of good will to the seller

Premium labour rate

Cost of shift premium

Subcontracting cost

Reduced quality cost

-----------------------------------------------------------------------------------

Cost of spareparts shortage

------------------------------------------------------------------------------------

Cost of idle machine

Cost of idle labour

Cost of expediting

-----------------------------------------------------------------------------------------------------------

A Shortage may occur internally or externally. An external shortage may bedetrimental to the company, as customer dissatisfaction may develop. An internalshortage may also be detrimental to the company, since it may cause an externalshortage or may become very costly, due to idle labor and equipment.

Shortage cost estimation is difficult. Shortages are a random phenomenon; thus,there is a need for estimation of the probability of the occurrence of shortages.Shortage costs are partially hidden costs, or costs that are not reflected in theaccounting records.

Fixed-overhead cost:

Fixed-Overhead costs are costs that do not change as the number and size of reorderschange. These costs support the administration activities that are part of the regularoperation of the organization. They may include manual or computerized recordsupdating. These costs are fixed over a significant range of inventory volume.

13.6 MINIMUM COST INVENTORY

An inventory policy is a set of rules that assigns managerial actions to specificinventory occurrences'. As has been stated earlier, one would like to try to determinethe reorder point and reorder quantity that keep the total operating costs to aminimum. The optimum inventory policy is the one that minimizes the followingtotal cost equation:

Total annual Inventory cost = Item Cost = Ordering cost = Carrying inventory cost

= Stockout cost = Overhead cost

. . . (4.1)

The first four costs in above equation - 4.1 may be expressed in terms of reorderquantity and reorder point for a specific inventory case.3

The solution for a two-variable reorder quantity and reorder point is found by threealternative methods:

(i) .Graphical solution (ii) Trial-and-error method (iii) Use of calculus

The graphical solution, when only ordering costs and carrying costs are considered,is straightforward. Fig. 13.4 illustrates this economic trade-off. When the reorderquantity is very small, the average inventory carried is small, the carrying costs areminimal.and the number of orders placed over a period is large and the carryingcosts are high. The optimal reorder quantity is the one that minimizes the sum ofboth costs, and is denoted by Q*. Q* is found at the intersection of the curverepresenting the carrying costs and the curve representing the ordering costs.

When more costs are considered, the graphical cost analysis cannot be applied.However, the economic trade-off is still applicable. It is also important understandthat some inventory situations in industry have not been formally analyzed in amanner recommended here. These situations are being dealt with by operationsmanagers on the basis of past experience. However, decisions made in this way aregenerally not optimal.

Inventory models:

The development of inventory models consists of five straightforward steps:

(i) List assumptions concerning the inventory situation. These assumptions shouldreflect the studied situation as accurately as possible

(ii) Develop a cost equation qualitatively

(iii) Develop a cost equation quantitatively

(iv) Minimize the total cost equation and reorder quantity and reorder point

13.7 THE BASIC FIXED ORDER QUANTITY MODEL (or) ECONOMICORDER QUANTITY:

The basic fixed order quantity model, otherwise known as the economic orderquantity (EOQ) system, was developed more than seventy years ago in the context ofbatch production. However, the formula has been rediscovered by several authors in

different contexts. Babcock in 1914, Harris in 1915, Taft in 1918. and other authorspresented extended treatments of it. The assumption are :

(i) Demand is deterministic and a constant number of units are demanded each day.

(ii) No. stock outs are allowed.

(iii) Lead time is constant and independent of demand.

(iv) All costs are assumed to be known and constant.

(v) All order are placed independently

(vi) Orders are delivered at once.

In computing the annual total cost applying this inventory model., only the costs thataffect the recorder quantity should be included. Thus, from equation, one canexclude the annual cost of the items. Since no volume discounts are applied.Furthermore, no stock out costs and no fixed costs are considered. Thus,

Total annual

Inventory cost = Ordering cost + Inventory carrying cost . . . (4,2)

The ordering cost is equal to the number of orders placed annually times theprocurement cost per the number of orders. Carrying cost is the average number ofunits in inventory more than one a year, times the cost of carrying an Inventory unit.Equation - 4.2 then becomes :

Total annual inventory cost = number of orders placed annually * ordering cost*average inventory * carrying cost per unit ….(4.3)

In order to express the equation : 4.3 in a more concise form, let us define symbolsthat will be used in developing the various models.

D = Annual demand in units

K = Ordering cost or set up cost

H = Carrying cost per unit, expressed as a fraction of cost of an Individual item

Q = Recorder quantity

Q = Optimal recorder quantity

N = Number of orders per year

R = Recorder point

R* = Optimum reorder point

tL = Lead time

C = Cost of an individual Item

P = Delivery rate in units per unit of time

dL = Average demand per unit of time during lead time

DL = Average total demand during lead time

Tc = Total annual cost

The total annual cost of operating the fixed order quantity system uner the statedassumption is :

TC = number of orders (K) Average (RC) placed annually + Inventory . . . (4,4)

Let us express the total annual costs of operating the fixed order quantity model interms of the annual demand (D), the reorder quantity (Q), and therefore reorderpoint (R). If try to keep the excess Inventory charges to a minimum with no safetystock and assume immediate delivery.

R* = O . . . (4,5)

Whenever the Inventory level reaches zero, we shall place an order. But what shouldbe the optimal size Q*. of the order? To find it, we note that

N = Number of orders placed annually = Annual demand / Reorder Quantity

= D / Q . . . (4,6)

and

Average Inventory = (Highest inventory level - Lowest inventory level) / 2

= (Recorder quantity - 0)/2 = Q/2 . . . (4,7)

The means that throughout the time that the fixed order quantity model is in effect,the average inventory level is half of the reorder quantity. That is, so long as the leadtime is zero, safety stock is not needed and replenishment is instantaneous.Substituting 4.6 and 4.7 into 4.4 provides us with the total annual cost :

TC = K× (D/Q) + HC (Q/2) . . . (4,8)

Figure 4.4 demonstrates the basic economic trade - off. The figure shows that theannual cost is at its minimum when the carrying costs equal the ordering costs, orwhen

K (D/Q) = HC (Q/2)

The optimal reorder quantity is then

Q* = {(2 × D × K) / (H × C)}1/2 . . . (4,9)

The optimal reorder quantity, Q* is as started in equation - 4.9. The same equationmay be found by using calculus. Equations 4.5 and 4.9 represent the operatingconcept of the basic fixed order quantity model. When the Inventory level reaches

R* = 0

the operations manager should order

Q* = {(2× D× K) / (H×C)}1/2

The total annual cost is kept in this way to a minimum, and is equal to

TC* = {K × (D/Q*)} + {H× C× (Q*/2)}

In many cases the variable values, such as annual demand, ordering cost, andholding cost, are only rough estimates, and may vary. Is there a considerable impact,then, on the operation of the system? Is the optimal order quantity affectedconsiderably? In other words, how is examined in the following section.

13.8 Sensitivity to changes in variable values

To analyze the sensitivity of the system to a change in costs or demand, let uscompare the optimal EOQ, Q*. From equation - 4.9, one can see that a change in anyone of the variables causes a change in EOQ that equals the square root of the changein the variable.

13.9 Fixed Order Quantity with Noninstantaneous Delivery Model.

The fixed order quantity with nontinstantaneous delivery model is sometimes calledthe economic lot size model. Sometimes, the actual delivery of units into thepurchaser’s warehouse occurs over a period of time. As is shown in figure 13.5, as thelevel of Inventory drops to a predetermined level, R*, and order of size Q* is placed,and delivery starts. However, as delivery continues, units are drawn from Inventoryat a rate of 1 per unit of time. If replenishment rate a exceeds the withdrawal rate d,the inventory level rises, but not up to the level of the order or lot size in the EOQmodel.

Let us define symbols that have not appeared before :

T1 = Delivery period

T2 = Non delivery period

During T1, the units are delivered and consumed, while during T2 there is nodelivery, but only consumption. The delivery period T1 is

T1 = Fixed order size / Rate of delivery = Q/p . . . (4, 10)

Q is the order size delivered or the batch size produced. During period T1, theInventory is accumulated at a rate of (p-d) per unit of time, assuming that the rate ofdelivery, p, is greater than the rate of consumption, d. The maximum level ofinventory is :

Imax = (p-d)× T1 = (p-d) × (Q/P) . . .(4,11)

The average inventory level is determined by the maximum inventory level,Imax’ and the minimum inventory level, zero.

Average Inventory = (Imax -O)/2 = (p-d)× Q/(2×p) . . . (4,12)

The annual carrying cost, then is :

Annual carrying cost = [(p-d) × Q / (2×p)] (H× C)

The total annual cost of operating this inventory model is :

TC = {{{(p-d)×Q)× Q)/(2×p)} × {H× c)} + {(K× D) / Q)

D is, as before, the annual demand. Obviously, D can be found by multiplying d bythe number of working days in one year.

Again, the optimal order quantity can be found by equating the carrying andprocurement costs :

{[(p-d) × Q] / [2×P]} × (H×C) = (K×D)/Q

Q* = {[(2×K×D)/(H×C)] × [P / (p-d)]}1/2 ... (4,13)

The consumption or non-delivery period is.

T2 = 1max/d = [(p-d) × Q) / [d*p]

The total cycle time is

T = T1 + T2

The fixed order quantity with non instantaneous delivery model can be used tocalculate optimal lot or batch sizes in manufacturing organizations. This occurs whenone production department orders parts sizes in manufacturing organizations. Thisoccurs when one production department orders parts from another productiondepartment and uses the parts as soon as they arrive, on a continuous basis, rather

than waiting for the whole lot to arrive. This particular use of the model is thereason for the alternative name, economic lot size.

13.10 Safety Stock

Let us try to determine the optimal safety size. As the demand for the product isaffected by numerous variables, one can assume a normal distribution for thedemand over lead time.

The variability of the demand over the lead time is presented as a standard deviationσL = σ2 daily

where n is the number of days of lead time. The average demand over lead time. DL,is the average daily demand times the number of days of lead time.

DL =(n) × (Ddaily)

The safety stock is expressed as the number of standard deviations. Z, away from theaverage demand over lead time. When one assumes a normal distribution of demandover lead time.

Safety stock = (Z) × (σL)

This relationship is shown in figure 13.6. The values for Z are read from normaldistribution table. The average demand over lead time is DL, the safety stock is equalto (Z) (σL), and the reorder point is at DL + (Z) (σL)

The economical size of safety stock:

The main problem is to decide on the economical size of the safety stock, taking intoaccount the shortage cost and the carrying cost for various service levels.

One should look for the trade - off between shortage cost and carrying cost. Let asassume the optimal reorder quantity, *, has been determined already, and the one isinterested in the optimum safety stock size.

Annual shortage cost = cost of one shortage x no of orders per year x probabilityof one shortage

Where

Ps = Probability of one shortage = (1-Service level)

D/Q* = Number of orders per year

S = Cost of one shortage

Annual shortage cost = [S(DQ*)] × [1 - Service level]

The annual carrying cost is :

Annual shortage cost = (H × C)(safety stock)

= (H × C)( × 1)

where,

Z = the number of standard deviations that provides a certain service level

L = the standard deviation of demand over lead time

Thus, the total annual cost for a certain demand variability, L, and a certain servicelevel is :

TC = S × (D/Q*)[1-Service level) + (H × C)(Z × J)

In order to find the best safety stock level. Z× L, one should calculate the total cost.TC, for various service levels and choose the one that corresponds to the lowest totalcost.

13.11 ABC Classification

The calculations and the data required to operate the quantitative inventory modelsbecome more complex as the number of different items in Inventory increases. It isnot practical to calculate reorder quantities, using the models described above, foreach item carried, but only for those items that call for a high degree of control.

The ABC classification is a method of identifying the degree of control required forvarious items. It categorizes all inventoried items into three groups, based on theannual inventory rupee value of each.

Group A includes approximately 20% of the items that account for approximately80% of the total annual inventory value. All items in this group are closely controlledand call for the use of quantitative models. The equations presented in the precedingsections should be used to determine the reorder quantity and economical safetystock.

Group B includes approximately 30% of the items that account for approximately15% of the total annual inventory value. Less control is exercised over these items.For example, while the economic order quantity determination is recommended,safety stock considerations are somewhat less important.

Group C includes approximately 50% of the items that account for approximately 5%of the total annual inventory value. No special effort should be invested in controllingthese items, as the cost of control may exceed the potential savings.

The actual percent of items and percent of total annual inventory value may varyaccording to the specific situation. The three groups are shown in fig. 13.7.

FIG. 13.7 THE ABC CLASSIFICATION OF INVENTORIED ITEMS

13.12 ABC ANALYSIS PROCEDURE

step 1 : Prepare a list of inventory items

step 2 : Calculate the annual inventory rupee value for each item andcorresponding percentage.

step 3 : Arrange the items in descending order of annual inventory rupee value.

step 4 : Compute the cumulative percentage of the annual inventory rupeevalue.

step 5 : Compute the cumulative percentage of the number of items

step 6 : Determine the ABC categories

13.13 SUMMARY

This lesson has covered the essentials of inventory control and inventorymanagement for independent demand. Inventories are used to hedge against futureincreases in costs and prices, to hedge against stockouts, to provide productionflexibility and lot size economy, etc. The " when " and " how much " are the majorquestions answered through a systematic use of the analysis.

The basic fixed order quantity model and the fixed order quantity with non-instantaneous delivery model have been treated quantitatively.

In these models it was assumed that the time between orders varied while an order ofa predetermined, fixed size was placed.

Considerations of safety stock size and service levels were also treated^ as well asdetermination of the items that should be controlled closely based on the ABCclassification.

13.14 KEY CONCEPTS

· Economic order quantity· Ordering cost· Carrying cost· Stockout cost· Re-order point· Lead time· Safety stock· ABC classification


1. Clarify the importance of inventory and magnitude of the problem Involved.

2. What are the functions of inventory ?

3. What are the types of inventory costs ?

4. What are the steps involved in the development of inventory policy ?

5. Describe the ABC classification system.


1. Buffa, "Modern production management", 4th edition, John Whieley.

2. Buffa, " Modern production /Operations management", 7th edition, JohnWhieley.

3. Menipaz, "Essentials of production and operations management", Prentice Hall.

- End Of Chapter -

LESSON - 14

MAINTENANCE

14.1 Preamble

14.2 Types of maintenance

14.3 Break-down maintenance

14.4 Break-down time distribution

14.5 Preventive maintenance

14.6 Preventive versus break-down maintenance

14.7 Guides to a preventive maintenance policy

14.8 Replacement decisions

14.9 An example

14.10 Maintaining several machines

14.11 Simulation of alternate practices

14.12 Simulation of optimal size or repair crews

14.13 Summary

14.14 Key concepts



14.1 PREAMBLE

Efficient use of plant and equipment is a vital factor for the Industrial growth,particularly in a developing country like ours. Plant and equipment besides beingvery expensive, are in many cases imported involving valuable foreign exchange.Further the cost of plant and, equipment forms a considerable portion of the totalcost of production. Thus it is imperative to look after them as carefully as possible.Plant maintenance is of great importance as it provides a means to maintain theplant and equipment in a high state of operating efficiency and enhance itsproductivity.

Generally in Indian industries the utilization of plant and equipment needs to beconsiderably improved. While there may be many reasons for underutilization,downtime due to unscheduled breakdowns and stoppages is one of the primarycauses. It is necessary to increase the working life of the existing plant and increasethe utilization. Efficient utilization of plant becomes extremely important in orderthat the capital resources are available for expansion schemes rather thanreplacement of equipment which in turn will help industrial development.

Poor maintenance causes economical loses such as:

(i) Increased downtime

(ii) Poor efficiency

(iii) Deterioration of equipment

(iv) Poor quality of product

(v) Higher labor costs

(vi) Loss of material in. process

(vii) Higher production costs

(viii) Increased hazards etc.

Systematic maintenance procedure offers tremendous possibilities for saving inmoney, materials and manpower. These savings come through:

(i) Reduction in downtime

(ii) Reduced losses of material in process

(iii) Increased life of the equipment

(iv) Reduction in overtime

(v) Optimum spares Inventory

(vi) Timely replacement of spares and machines

(vii) Maintenance of product quality

(viii) Proper running of equipment

(ix) Optimum operational cost of the machines

Through proper maintenance the downtime of equipment comes down considerably.Machines are attended to before they breakdown. Spare parts are replaced beforethey fail. Lubrication is done regularly and according to a timetable. All these andmany other activities keep the equipment in good running condition.

Whenever the equipment breakdown, particularly in a chemical plant the materialsin process, which are all inside the various types of equipment, undergoing somereaction or the other get spoiled. Often these materials need to be flushed anddrained before starting the plant again. The losses due to this wastage can besubstantial if the materials being treated are expensive. Rayon plant is one suchexample. If the raw materials are imported it will be still worse and hence such lossesare to be reduced, which/is possible through proper maintenance.

In India the cost of plant and machinery is quite high and many sophisticatedequipments are still imported. Replacements are not easy. Capital is scarce. Hencethe installed equipment should be kept in good working order as long/as possibleand its life must be prolonged to the extent possible, proper maintenance, timelyreplacement of parts, modifications to suit the conditions of operation etc., help toenhance the life of the equipment.

Good maintenance leads to higher output through lower downtime of plant andequipment, better quality of products through improved efficiency and lower unitcosts through reduced breakdown expenses. Plant and equipment deteriorate withuse. If the deterioration is not checked they will not function and will becomeunserviceable. Maintenance primarily aims at keeping the plant and equipment Inefficient operating conditions, minimizing the downtime, as to ensure theirmaximum availability for production.

Broadly, the objectives of a systematic maintenance scheme are, to safeguard theinvestment, to keep the equipment in good working condition, to prolong the life ofthe equipment and to assure optimum availability.

14.2 TYPES OF MAINTENANCE

Maintenance practices can be broadly classified into following two types:

i. Breakdown maintenanceii. Preventive maintenance.

14.3 BREAK-DOWN MAINTENANCE

In the case of breakdown maintenance the equipment is generally attended onlywhen it breakdowns. The maintenance crew will carry out the necessary repairs,when the machine has actually broken down and is not able to function, In order toput it back into commission. Such breakdowns may occur to any machine at anytime. There are many disadvantages in this system. Some of them are:

(i) There is always an urgency to put the machine back in the working condition andhence the machine may not get adequate maintenance.

(ii) Since the type and time of breakdown is uncertain, production plans getcompletely disrupted.

(iii) Planning of maintenance work Is not possible,

(iv) Distribution of workload is difficult,

(v) Results in imbalanced utilization of maintenance staff,

(vi) May result in overstaffing the maintenance department.

(vii) Increased overtime.

(viii) Increased downtime of equipment due to non-availability of man-power.

(ix) Excessive inventory of spares.

(x) Waste of materials in process in continuous chemical Industries.

(xi) Poor working conditions for maintenance staff.

However, breakdown maintenance system may be suitable in certain conditions suchas

(i) where plant capacity exceeds market demand

(ii) standbys are available and quick switching over is possible

(iii)process is obsolete and more modem equipment is under consideration

(iv)may be economical for non-critical equipment where this type of maintenance ischeaper than any other system.

Normally, breakdown maintenance system is not recommended in a general practicesince it has many disadvantages and this system of maintenance Is now beinggradually replaced by more systematic types maintenance.

14.4 BREAK-DOWN TIME DISTRIBUTION

Breakdown time distribution data are basic to the formulation of any general policiesconcerning maintenance. Breakdown time distributions show the frequency withwhich machines have maintenance-free performance for a given number of operatinghours. Ordinarily, they are shown as distributions of the fraction of breakdowns thatexceed a given run time. Breakdown time distributions are developed fromdistributions of run time free of breakdowns, as shown in figure 14.1.

CURVE(a) SHOWS LOW VARIABILITY FROM THE AVERAGEBREAKDOWN TIME T.

CURVE(b) IS THE NEGATIVE EXPONENTIAL DISTRIBUTION ANDEXHIBITS MEDIUM VARIABILITY

CURVE(c) EXHIBITS HIGH VARIABILITY VERTICAL LINE SHOWSCONSTANT BREAKDOWN TIMES FIO.

14.2 BREAK DOWN TIME DISTRIBUTIONS

Figure 14.2 shows three breakdown time distributions. These distributions takedifferent shapes, depending on the nature of the equipment with which we aredealing. For example, a simple machine with a few moving parts would tend tobreakdown at nearly constant intervals following the last repair. That is it wouldexhibit minimum variability in breakdown time distributions. Curve of Figure 14.1would be fairly typical of such a situation. A large percentage of the breakdownsoccur at the extremes.

In a more complex machine with many parts, each part would have a failuredistribution. When all these parts were grouped together in a single distribution ofthe breakdown time of the machine for any reason, we would expect to find greatervariability. The machine could break down for any one of a number of reasons.

Some breakdowns could occur shortly after the last repair, or at any time. Therefore,for the same average breakdown time Ta we could find much wider variability ofbreakdown time, as In the curve b of Fig. 14.1.

To complete the picture of representative breakdown time distributions, curve c Isrepresentative of distributions with the same average breakdown time Ta, but withwider variability. A large proportion of the breakdowns with the distribution such ascurve c occur Just after repair: on the other hand, machines may have a long runninglife after repair. Curve c may be typical of machines that require"ticklish"adjustments. If the adjustments are made just right, the machinery may runfor a long time; if not, readjustment and repair may be necessary almostimmediately.

In models for maintenance, we normally deal with distributions of the percentage ofthe breakdowns that exceed a given run time, as shown In figure 14.2 we see thatalmost 60% of the breakdowns exceeded the average breakdown time Ta, and thatvery few of the breakdowns occurred after 2Ta.

In practice, actual breakdown time distributions often can be approximated bystandard distributions, three of which are shown Fig. 14.2. Curve c Is the negativeexponential distribution.

14.5 PREVENTIVE MAINTENANCE

As the name itself indicates preventive maintenance Is based on the old adage"Prevention is better than cure" or "a stitch in time saves nine". Preventivemaintenance Is a systematic maintenance procedure where-in the condition of theplant is constantly watched through a systematic inspection and preventive action Istaken to reduce the incidence of breakdowns. The necessity for either major or minorrepairs Is determined, to prevent unexpected interruptions to the plant andequipment or any deterioration.

The fundamental activities of preventive maintenance are:

(a) Periodical Inspection of plant and equipment to discover conditions ofdeterioration

(b) Upkeep of equipment to remove or repair such conditions while they are still Ina minor stage.

Thus the essence of the preventive maintenance is a well-planned inspection system.Proper inspection at the right time is the crux of the preventive maintenance system.The results of inspection are used to analyze the problems of upkeep, replacementand modification well in advance and thereby help proper planning and assessmentof the work contents of the jobs. It is of course necessary to determine with great carewhat is to be inspected and when. Meticulous recording of the fact revealed duringsuch inspections is another important point. Analysis ofsuch records indicate the type of maintenance work needed replacementsrequired, planning of maintenance work and inventory of spares. Preventivemaintenance renders more effective use of manpower and material and helps toattain greater efficiency in plant operation. Planning of maintenance work andoptimum inventory of spares and components, become possible. With theintroduction of this system it will be possible to synchronize the maintenanceprogram so that there is least interruption to continuous operation and production.

As against breakdown maintenance where plant equipment gets the attention onlywhen they breakdown, preventive maintenance is a planned and systematicprocedure which takes a continuous care of the equipment, mending and repairing asand when required to minimize breakdowns and unscheduled stoppages, resulting invarious advantages and savings.

However, certain limitations of preventive maintenance are, that during initial stagesof Its introduction, it may appear to be expensive, although in the long run it Ishighly beneficial. The procedure and the frequency of inspection would have to becarefully worked out and improved over a period of time. The data for preventivemaintenance will have to be built up gradually and the system has to be refineddepending on the data collected.

The various elements of a preventive maintenance system in an industry are asfollows:

(1) An Inventory of all the plant and equipment that need to be maintained.

(2)Categorization of equipment to assess the relative importance andthereby determine the equipment requiring preventive maintenance.

(3) A well designed Inspection system.

(4) A good lubrication system.

(5) Maintenance of adequate records and analysis of these records.

(6) Planning of maintenance work.

(7) Control of maintenance stores and spares.

(8) Organization for preventive maintenance work.

Assume a preventive maintenance policy for a single machine that provides for aninspection and perhaps replacement of parts after the machine has been running fora fixed time, called the preventive maintenance period. The maintenance crew takesan average time, Tm, to accomplish the preventive maintenance. This is thepreventive maintenance cycle. A certain proportion of the break-downs will occurbefore the fixed cycle has been completed. For these cases, the maintenance crew willrepair the machine, taking an average time, Ts, for the repair. This is the repair cycle.These two patterns of maintenance are diagrammed in Fig. 14.3. The probability ofoccurrence of the two different cycles depends on the specific breakdown timedistribution of the machine and the length of standard preventive maintenanceperiod. If the distribution has low variability and the standard period is perhapsonly_80% of the average run time without breakdowns, Ta, actual breakdown wouldoccur rather infrequently, and most cycles would be

percentage of time that the machine is working and the ratio of the standardmaintenance period to average run time Ta for the three distributions of breakdowntimes shown In Fig. 14.1. In general, when the standard period is short (say less than50% of Ta) the machine is working only a small fraction of time. This is because themachine is down so often owing to preventive maintenance. As the standard period islengthened, more actual breakdowns that require repair. For curves b & c, thislengthening of the standard period improves the fraction of time during which themachine is running because the combination of preventive maintenance time andrepair time produces a smaller total down time.

Curve a, however, contains an optimum preventive maintenance period, whichmaximizes the percentage of machine working time. What is different about curve a?It's based on the low variability breakdown time distribution from Fig. 14.1. For curvea. lengthening the maintenance period beyond about 70% of Ta reduces the fractionof machine working time because actual machine breakdowns are more likely. Forthe more variable distributions of curves b and c this is not true because break-downs are more likely throughout the distributions of these curves' than they are incurve a. Comparable curves can be constructed showing the percentage of time themachine is in a state of preventive maintenance and the percentage of time that themachine is being repaired because of breakdown.

14.6 PREVENTIVE VERSUS BREAK-DOWN MAINTENANCE

Quality control procedures are designed to track characteristics of quality and to takeaction to maintain quality within limits. In some instances the action called for maybe equipment maintenance. The maintenance function then acts in a supporting roleto equipment operating effectively to maintain quality standards, as well as tomaintain the quantitative and cost standards of output.

There are alternate policies that may be appropriate, depending on the situation andthe relative costs. First, is routine preventive maintenance economical, or will it beless costly to wait for breakdowns to occur and repair the equipment? Are thereguidelines that may indicate when preventive is likely to be economical? Whatservice level is appropriate when breakdowns do occur? How large shouldmaintenance crews be to balance the costs of downtime versus the crew costs? Inaddition there are long range decisions regarding the possible overhaul orreplacement of a machine.

The decision concerning the appropriate level of preventive maintenance rests on'the balance of costs, as indicated in Fig. 14.5. Managers will want to select that policywhich minimizes the sum of preventive maintenance plus repair costs.


Curve 'a' In Fig. 14.5 represents the Increase in costs that results from higher levels ofpreventive maintenance. These costs Increase because Increased level means thatmore often we replace parts before they fail, and/or we replace more componentswhen preventive maintenance is performed. In addition, there may be more frequentlubrication and adjustment schedules for higher levels of preventive maintenance.Curve b of Fig. 14.5 represents the declining cost of breakdown and repair as the levelof preventive maintenance increases. These costs represent the cost of repair plus thedowntime costs that result from a breakdown. With higher levels of preventivemaintenance, we should experience fewer actual breakdowns.

The total incremental cost curve is the sum of curves a and b. The optimal policyregarding the level of preventive maintenance is defined by the minimum of thatcurve.

There is a combination of costs that leads to the decision not to use preventivemaintenance. Suppose that the breakdown and repair costs did not decline as thelevel of preventive maintenance increased or declined more slowly than preventivecosts increased. Then preventive maintenance would not be justified, because theminimum total cost occurs with no preventive maintenance. The optimal policy thenbe simply to repair the machine when breakdowns occurred.

In order to develop a framework for preventive maintenance policy, we need basicdata concerning breakdowns.

14.7 GUIDES TO A PREVENTIVE MAINTENANCE POLICY

First, preventive maintenance generally is applicable to machines with breakdowntime distributions that have low variability, exemplified by curve 'a1 of Fig. 14.1. Ingeneral, distributions with less variability, than the negative exponential, curve b, areIn this category because low variability means that we can predict with fair precisionwhen the majority of breakdowns will occur. A standard preventive maintenanceperiod can then be set that anticipates breakdowns fairly well.

Equally important, however, is the relation of preventive maintenance time to repairtime. If It takes Just a long to perform a preventive maintenance as It does to repairthe machine, there is no advantage in preventive maintenance, because the amountof time that the machine can work is reduced by the amount of time it is shut downfor repairs. In this situation, the machine will spend a minimum amount of timebeing down for maintenance if we simply wait until it breaks down.

The effect of downtime costs can modify these conclusions. Suppose that we aredealing with a machine in a production line. If the machine breakdowns, the entireline may be shut down, and very high idle labor costs will result. In this situation,preventive maintenance is more desirable than repair if the preventive maintenancecan take place during second-or third shifts, vacations, or lunch hours, when the linenormally down anyway. This is true even when Tm > Ts. The determination of thestandard preventive maintenance period would require a different, but similar,analysis in which the percentage of machine working time is expressed as a functionof repair time only, because preventive maintenance takes place outside of normalwork time.

An optimal solution minimizes the total of downtime costs, preventive maintenancecosts, and repair costs. The effect of the downtime costs would be to justify theshorter standard preventive maintenance periods and to justify making repairs morequickly (at higher costs) when they do occur. There are many situations, however inwhich extra personnel on a repair job would not speed it up. In such cases, totaldowntime might be shortened by over time on a multiple shifts and weekends, withhigher costs. Optimal solutions would specify the standard preventive maintenanceperiod, the machine idle time and the repair crew idle time striking a balancebetween downtime costs and maintenance costs.

Overhaul and Replacement:

In maintaining system reliability, sometimes more drastic maintenance actions areeconomical. These decisions renew machines through overhauls or replace themwhen obsolete. Overhaul and replacement decisions can be related to the capital andoperating costs(including maintenance) of the equipment. Fig. 14.6 shows thatalthough the operating costs are temporarily improved through preventivemaintenance, repair, and overhaul, there is a gradual cost increase until replacementis finally justified.

Repair Versus Overhaul:

The decisions concerning the choice between repair and overhaul normally occur atthe time of breakdown. Many organization also have regular schedules for overhaul.For example, trucking companies may schedule major engine overhauls after thegiven number of miles of operation. These preventive maintenance actions are meanto anticipate breakdowns and the occurrence of down time at inconvenient times andperhaps to minimize the down time costs.

Because renewals through overhaul involve future costs, these values must bediscounted. For e.g., suppose that a machine breakdown has just occurred. It willcost Rs. 5000 to repair the equipment, after which the annual operating cost areexpected to be Rs. 20000, Rs. 25000 and Rs. 30000 per year for the next threeyears, at which time replacement is planned. If the major overhaul is performed now,the cost will be Rs. 15000, with operating costs of only Rs. 18000, Rs. 20000 and Rs.30000 in the following three years, with the replacement decisions probablypostponed. Let us first examine just the next three years of cost to see if the overall isjustified in that time frame. The two alternatives are compared in table 14.1 bydiscounting all future costs to present values, using a 10% interest rate. In thisinstance, the present value of overhaul is lower and tentatively would be the moreeconomical.

14.8 Replacement Decisions

If the choice is only between overhaul and repair, the foregoing analysis maybe adequate. However, the replacement alternatives lurk in the background andneed to be considered as a part of the sequential decision strategy. The possiblesequences could include repair, overhaul, perhaps a second overhaul, replacement,repair, overhaul and so on.

14.9 An Example

Suppose that the machine is used in a productive system and that it is usuallyoverhaul after a two years of operation, or replaced. The present machine waspurchased two years ago, and decision must now be made concerning overhaul orpossible replacement. The machine cost Rs.90000 installed, and annual operatingcost (including maintenance) are Rs.20000 the first year and Rs.30000 during thesecond year. The machine can be overhauled for Rs.5000, but operating costs for thenext two years will be Rs.28000 and Rs.40000 for the first overhaul and Rs.35000and Rs.50000 for the second overhaul.

In deciding whether to overhaul or replace at this time, you should consider theavailable alternate sequences of decisions. For e.g., we can overhaul at this time orreplace. For each of these possible decisions, we have the same options 2 years henceand so on. Fig. 14.7 shows the simple decision tree structures.

additional sequences created by the third branching to reduce computations for thisexample:

1. R-R-R

2. R-OH-R

3. OH-R-OH

4. OH-OH-OH

Table 14.3 summarizes the calculations for the third cycle, the present values for thefirst 4 years, and the 6-year present value totals. . Alternative 3 (OH-R-OH) Is nowthe lowest-cost strategy. This change In result demonstrates the importance ofchoosing a horizon that fairly represents all the alternatives. If a fourth 2-year cyclewere added to the evaluation. It might seem that strategies 3 and 4 are the same, butreversed in sequence. But they are not the same because we start from an existingsituation with a 2-year old machine. Strategy 2 places two replacements in sequence,whereas strategy 3 alternates overhauls and replacements.

This example assumes replacement with an identical machine, but it is often truethat alternate machines will have rather different capital and operating costscharacteristics. New machine designs often have improvements (owing tomechanization or automation) that reduce labor and maintenance costs, and thesecost advantages would affect replacement decisions.

MAINTAINING SEVERAL MACHINES

The single-machine situation contains basic elements of general policy which can becarried over into the multi-machine case. However, when several machines must beserviced, our problem more closely resembles the usual waiting line model. If weassume that all machines have the same breakdown time distribution, breakdownsare comparable to arrivals in the waiting line model, and the repair crew is theservice station. As machines breakdown, the repair crew services them In the averagetime, T8- as before. If the crew Is already working on a machine, successive machinesthat breakdown must wait for service and the costs associated with down time growwith delay. We can reduce the chance that this will happen by increasing the size ofthe crew, but the solution also costs money and increases the amount of time that thecrew will be idle, waiting for breakdowns to occur. The problem, then, is one ofstriking a balance between the downtime costs of the machines and the idle-timecosts of the maintenance crew.

14.11 SIMULATION OF ALTERNATE PRACTICES

When maintenance is being performed anyway, it is a fairly common practice toreplace parts that have not yet failed in order to prevent a future breakdown. Theincremental cost of replacing these parts is often small since the machine is already

partially disassembled. For example

If an automobile engine is disassembled to replace piston rings, other parts, such asthe connecting rod bearing, also can be replaced for little more than the cost of theparts. If these parts are not replaced and fall later, the cost to replace them will behigh because the engine must be disassembled again. Whether such practices areeconomical or not for individual cases depends on the distribution of part lives andthe relative magnitude maintenance labor, part costs, and down-time costs. Becauseof the complexity of Interactive probable lives of parts, simulation is often a practicalway of evaluating alternate practices.

Let us take, for example, the case of a company that maintained a bank of machineswhich were exposed to severe service, causing bearing failure to be a commonmaintenance problem. There were three bearings In the machines that causedtrouble. The general practice had been to replace bearings at the time that they

failed. However excessive down-time costs raised the question of whether or not apreventive policy was worthwhile. The Company wished to evaluate 'three alternativepossible practices.

1. The current practice of replacing bearings that fall.

2. When a bearing fails, replace all three.

3. When a bearing falls, replace that bearing plus other bearings that have been Inuse 1700 hours are more.

To simulate operation under the three alternate policies, data on bearing lives wereneeded, together with cost data. Fig. 14.8 shows the cumulative distribution ofbearing lives; table 14.4 summarizes pertinent time and cost data.

curve In relation to crew size for twenty-two machine i service. The cost factorsincluded were maintenance labor cost and machine down-time costs. Fig 14.10 is one

of a number of such curves prepared for various numbers of machines in service. Thesimulation model could-now furnish information quickly regarding the optimalnumber of machines and repair, crew size for a given production level.

14.13 SUMMARY

General concepts of probability, of waiting line theory and of incremental costanalysis have provided a rational basis for designing preventive maintenanceprograms, determining optimal crew sizes and determining capacity requirements sothat the reliability of production systems can be maintained. The continueddevelopment of line production and automatic systems places an emphasis ongeneral maintenance policy and preventive maintenance in particular, because of theheavy down-time costs associated with these systems. However it cannot be assumedthat a preventive maintenance policy should always be used. The utility of such apolicy depends on the structure of the pertinent costs.

14.14 KEY CONCEPTS

· Breakdown time distribution· Preventive maintenance· Preventive maintenance cycle· Replacement Simulation


1. What kind of costs are associated with machine break-down?

2. What is a break-down time distribution?

3. Discuss the types of situations of machine break-downs.

4. If it takes Just as long to perform a preventive maintenance as it does a repair, isthere an advantage to preventive maintenance.

5. How can the techniques of simulation help in evaluating alternate maintenancepractice?


1. Buffa, "Modern production management", 4th edition, John Whieley.

2. Buffa, "Modem production/operations management", 7th edition, John Whieley.

3. Krishna, N.V., "Preventive maintenance", National productivity council, NewDelhi.

- End Of Chapter -

LESSON - 15

QUALITY CONTROL

OBJECTIVE

This unit with the purpose of inspection and quality control, acceptance sampling byvariables and attributes. Apart from that it also deals with control charts, fractiondefectives and defects.

QUALITY CONTROL

The methods of statistical quality control were introduced in 1924 by WalterShewhart in a Bell Laboratories memorandum. In the following years, Shewhart,Dodge, and others did work on the concept of acceptance inspection. Much ofShewhart's thinking on these subjects was published in his book, Economic Controlof Quality of Manufactured Product (1931), in which he introduced the basic conceptsof statistical quality control, including the control chart. These concepts have beenenlarged and refined and are widely accepted and applied throughout the advancedindustrial world, particularly in Japan, where W. Edwards Deming introduced theconcepts. Deming, an octogenarian, is the foremost quality control guru and is widelycredited for placing Japan in its world leadership position in the quality of itsmanufactured products.


PROCESS CONTROL CHARTS

In general, there are two types of variations that occur in a production process:chance variations and variations with assignable causes. Chance variations may havea complex of minor actual causes, none of which can account for a significant part ofthe total variation. The result is that these variations occur in a random manner, andnothing can be done about them, given the process. On the other hand, variationswith assignable causes are relatively large and can be traced. Assignable causes resultdue to the following factors:

1. Differences among workers

2. Differences among machines

3. Differences among materials

4.Differences due to the interaction between any two or among all three of thepreceding causes

A comparable set of assignable causes could be developed for any process. Forexample, assignable causes for variation in absenteeism might be disease epidemics,changes in interpersonal relations at home or in the employee's work situation, andothers.

When a process is in a state of statistical control, variations that occur in the numberof defects, the size of a dimension, the chemical composition, the weight, and so onare due only to normal chance causes. Thus, when variations due to one or more ofthe assignable causes are superimposed, it is possible to find the assignable causesand correct it. These statistical control mechanisms are called control charts.

If we take a set of measurements in sequence, we can arrange the data into adistribution and compute the mean and standard deviation. If we can assume thatthe data come from a normal population distribution, we can make precisestatements about the probability of occurrence associated with the measurements,given in standard deviation units as follows:

68.26 percent of the values normally fall within µ+σ

95.45 percent of the values normally fall within µ+2σ

99.73 percent of the values normally fall within µ+3σ

These percentage values represent the area under the normal curve between thegiven limits; therefore, they state the probability of occurrence for the values thatcome from the normal distribution that generated the measurements. For example,the chances are 99.73 out of 100 that a measurement taken at random will fall withinthe 3% limits and only 0.27 out of 100 that it will fall outside these limits. Thesevalues, as well as decimal values for % come from the table for the normal probabilitydistribution available. The natural tolerance of a process, that is the expected processvariation, is commonly taken, to be 3%. Estimates of the natural tolerance would bebased on sample information. We will use the following notation :

µ = The population mean (parameter)

x = The mean of a sample drawn from the population (statistic)

σ = The population standard deviation (parameter)

S = The standard deviation of a sample drawn from the population (statistic)

Since sample information is used to estimate population means and standarddeviations, the natural tolerance of a process is estimated by substituting in thesample statistics. x 3S

Kinds of control charts

Two basic types of control charts, which are commonly used :

Control charts for variables

Control charts for attributes

Control charts for variables are used when the parameter under control is somemeasurement of a variable, such as the dimension of a part. the time for workperformance, and so forth. Variables charts can be based on individualmeasurements, mean values of small samples, anti-mean values of measures ofvariability.

Control charts for attributes are used when the parameter under control is theproportion or fraction of defectives. There are several variations for attributes controlcharts. Control charts for the number of defects per unit are used when a singledefect may not be of great significance but a large number of defects could add up toa defective product. All of the above types of control charts; are. being discussed inthe following sections:

CONTROL CHARTS FOR VARIABLES

Consider a variables chart constructed for samples of n = 1 and relate the statisticalproperties of this simplest of control charts to the more common X and R controlcharts.

If standards are established for the mean and the standard deviation of a normallydistributed variable resulting from normal conditions, these data can be used toconstruct a control chart. Taking the natural tolerance of the ±3s control limits as astandard deviation from the mean, the individual measurements are plotted andchecked for stray points that lay outside the limits . It is known that if successivesamples are representative of the original population, the probability that a samplewill fall outside the established control limits, is small. On the other hand, if samplemeasurements do fall outside the control limits, then it shows that something in theprocess has changed, the cause for which may be investigated and corrected. Figure 1shows a control chart for samples of n = 1 drawn from the distribution of 200 shaftdiameters with x = 25.000 mm and s = 0.05 mm.

UCL (upper control limit) = 25.150 +3s

the control limits for the control chart in Figure 1

Upper control unit UCL = x+3s = 25.000 + 3 * 0.050

Lower control limit LCL = x-3s = 25.000 - 3 * 0.050

Control Limits

The process form which the sample were drawn in figure 1 appears to be n controlusing the 3s control limit criterion. But had 2s control limit been adopted, the next tolast point would have been outside limits. There is a 4.55 percent chance that thiscould have occurred by randomness in the data. The occurrence would have triggeredan investigation, and if that investigation indicated that the process had not changed,the cost of conducting the investigation would have been wasted. On the other hand,if the control limits were 3s as shown in figure 1 and process had in fact changed, theobservation would have been ignored and more scrap product would have beenproduced in the interim before the change in the process was actually discovered.

Thus the issue in setting control limits is one of balancing two costs - the cost ofinvestigation and inspection against the cost of losses when no investigation is made.Generally, if the investigation cost is large relative to the possible losses if the processcontinues out of control the limits should be fairly broad, perhaps 3s. Conversely, ifthe potential loss is high relative to the cost of investigation, more sensitive controllimits are needed.

Usually control charts are constructed for samples larger than one, but the statisticalrelationship for figure 1 are sample and are of value in understanding the statisticalbasis of other control charts.

Sampling Distributions

For figure 1, the control chart based on sample of n = 1, the normally of thedistribution had already been established. An important reason for taking samplelarger than n = 1 is that the issue of the normally of the population distribution canbe ignored. Although a population distribution may depart radically from normally,the sample distribution of means of random samples will be approximately normal ifthe sample size is large enough. This statement of the central limits theorems of greatimportance, here in this context of the design of control limits. Actually, deviationfrom normally in the population distribution can be fairly substantial, yet samplingdistribution of the means of samples as small as n = 4 or 5 will follow the normaldistribution quite closely. If sample of n = 4 are taken from the shaft diameterdistribution, the means of the samples will form a new distribution with a mean anda standard deviation of its own. This distribution is called a sampling distribution ofmeans of n = 4. To distinguish the statistics from the distribution of individual

Measurements in figure 2 the notation x or the grand means of the samplingdistribution is used and sx for the standard deviation of the sampling distribution. Itis expected that x and x will be very nearly equal and that they will be equal in thelimit as the number of samples increases.

The standard deviation for the sampling distribution will be much smaller than thatfor the individual measurements because the variation is reduced by the averageprocess within each sample. The resulting relationship between the two distributionsfor the shaft data is shown Figure 2 the relationship between s and s and is given by

To construct a chart for means, it is necessary to establish standard values for and xand sx the control limits on the sample means. The means of subsequent samples areplotted, and action would be called for if a sample mean should fall outside the

control limits. Control mechanisms that employ samples means are called x and Rcontrol charts.

- End Of Chapter -

LESSON - 16

CONTROL CHARTS

X-Charts

In constructing x charts, there are several issues that must be confronted. Samplesize, setting standards for process average and control limits, and practicalprocedures for reducing the computations required.

Sample size

In Industry, sample size are, usually, small for good reasons. First, small samplescost less to gather. Inspect, and process, Next large samples must be taken over alonger time span, and changes could occur within that time, so response might not betimely : out-of-control conditions would not be detected as rapidly, and additionalscrap might be produced. Generally, sample sizes of four or five are most common.These sizes anticipate the problems noted, yet they are large enough for the centrallimit theorem to guarantee normality in the sampling distribution. On the otherhand, larger samples have the effect of tightening control limits. Note that samplessize is in the denominator of the formula for s. Thus, a large samples size meansa smallers. Finer variation in process can be detected when samples are larger.

Determine the process average and control limits :

In order to determine the process average x and the control limits that arerepresentative of the process when it is in state of statistical control. Standarddeviation or both a separate s is computed for a preliminary subgroup for each of thesmall samples and then average them. The means of the subgroup samples areplotted on a control chart based on x+ 3 sx to see whether changes in the processaverage have occurred in the period during which the preliminary data weregathered. To achieve the objectives, the size of the subgroup should be relativelysmall, perhaps 20 to 25, and the time period over which the preliminary data aregathered should be long enough for any changes in the process that occur betweenthe sampling intervals to be recognized.

Procedures for determining x - chart control limits

The control limits require an estimate of six, onerous, it does require the input of allthe data on which the statistic is based. Practitioners in field have developed short-cut methods for calculating control limits, using the range instead of the standarddeviation as a measure of variability. Table 1 is small portion of a table of factors usedto convert the average range.R to the 3sx control limits. The procedure is simple.Select the appropriate factor from table 1 for - charts, and compute the controllimits as follows.

Control Limits = x, ± A2 R

As an example, if X = 25.000, R = 0.010 and n = 5, then the factor from Table 1 is A2= 0.577 and the control limits are

UCL = 25.000 + (0.577 * 0.010) = 25.583

LCL = 25.000 - (0.577 * 0.010) = 25.571

The basic calculations for determining the center line and control limits remain thesame, regardless of the variable being measured.

R-Charts-Control Chart for Measures of Variability

In calculating the control limits for the X - chart the statistics used are the smallsample means, and these are the data plotted on the chart. A measure of variabilitySuch as the standard deviation or the range can be used as the basic statistic. Foreach sample, compute a sample standard deviation (or range), such that theseobservations are formed into a distribution that approximates the normaldistribution. This new distribution of measures of variability has a mean, a standarddeviation, and a range that can be used to construct a control chart. This controlchart indicates when the variability of the process is greater or less than standard.

In quality control, the statistic chosen is, usually, the range rather than the standarddeviation because of the ease with which the range can be computed in processingsetting. For each sample, the difference between the highest and lowestmeasurement is plotted on the R-chart. The distribution of ranges has an average, R,and a standard deviation, S. The 3SR limits have the same general significance aswith the X- chart.

Procedures for Determining R-chart Control Units

The computation of the control limits for the R-chart has been simplified by usingthe Rstatistic rather than the standard deviation. Using the data in Table 1 for thesample size n, select the factors D3 and D4 and calculate the 3SR control limits asfollows.

UCLR = D4 R

LCL = D3 R

As an example, if any n = 4 and = 3,000 and from Table 1 D4 = 2.282 and D3 = 0,then the control limits for the Charts are

UCLR = 2.282 × 3.000 = 6.846

LCLR= 0 × 3.000 = 0

Examples of X- Charts and R-Charts

Assume a production process to set up both an X-chart and R-chart. In order toinitialize the charts, 20 Samples of n = 5 measurements are taken at random as theprocess continues. These observations are shown in Table 2 in column 2 through 6,each line representing a sample of n = 5. Each sample average is given in column 7,and the sample range is give in column 8. The grand mean and the average range areshown at the bottom of the last two columns of the table as X= 0.201. and R = 0.043,respectively.

X - Charts

The preliminary center line and control limits for the X-chart, are computed asfollows :

UCL = X+ A2 R

= 0.201 + (0.577 × 0.043) = 0.236

LCL = X- A2 -R

= 0.021 - (0.577 × 0.043) = 0.176

The preliminary control limits and the center line for the grand mean are shown inFigure 3, with the 20 sample means computed in column 7 of Table 2 plotted. Thecontrol chart, generally, indicates that we have a stable data generating system, withthe exception of sample 18, which falls below the LCL. It is entirely possible that thissample mean represents on of the chance occurrences of a mean falling outside the3sx limits. However, it is known that this event occurs with a probability of only0.0027, so an investigation is necessary. The investigation reveals that the operatorhad been following a nonstandard method at the time that resulted in the low valuedobservation an assignable cause. Sample 18 is eliminated from the data and a revisedgrand mean and control limits are computed as X = 0.202 and R = 0.044. Therevised control limits are then

UCL = 0.202 + (0.57 * 0.044) = 0.227

LCL = 0.202- (0.577 * 0.044) = 0.177

The following are guidelines to anticipate troubles by taking investigative action.

A Single point goes out of limits, either above or below

Two consecutive points are near an upper or lower control limit

A run of five points above or below the process average

A five - point trend toward either limit

A sharp change of level

Erratic behavior

R-Charts

The preliminary control limit for an R chart are computed using the D3 = 0 and D4 =2.115 factors from Table 1 as follows :

UCL = D4 = 2.115 × 0.043 = 0.0909

LCL = D2 = 0 × 0.043 = 0

Figure 4 shows the R-chart with the preliminary control limits and the 20 sampleranges plotted. It should be noted that the range for sample 18 does not fall outsidethe control limits on the R-chart. Nevertheless, since it was eliminated from the X-chart. it must also be eliminated from the R-chart; he revised center line and controllimits reflect this procedure. The R-chart indicates that the variability of the processis normal the revised center lines and control limits in Figure 3 and 4 representreasonable standards for comparison of future samples.

Control Charts for Attributes

In control charts for attributes, the populations is divided into two classifications:defective parts and good parts. In every instance where it is needed to construct acontrol chart, this ‘good-not good’ distinction is made.

p-Charts

Control charts for the proportion or fraction of defectives occurring are called p-charts: they are based on the binomial distribution. For the binomial distribution, itis recalled that

The control limits are s et at the process average of defectives plus and minusthree standard deviations, p + 3sp. Table 3 shows a set of data for the number ofdefectives found in daily samples of 200 for 24 consecutive production days. First, itis necessary to determine whether the data exhibit statistical control, and thenwhether it is necessary to set up a control chart. The daily fraction defective iscalculated by dividing each daily figure by the sample size, n = 200. Preliminaryfigures for p, sp, and UCL and LCL are also calculated in table 3. These preliminaryfigures are used to determine whether the process grating the data is in control.

Figure 5 show the resulting plot of the daily proportion defective in relation to thepreliminary control limits. Two points are outside of

limits, and the point for first point, day 7 is nearly outside the upper limit. For thesecond point, day 10, it appears that a logical explanation is that three new workerswere taken on the day. The last point, day 19, is explained by the fact that the die hadworn and finally fractured that day.

To set up standards of normal variation, the data for the days for which assignablecauses (day 10 and 19) have been established are eliminated and p, UCL, and LCL arerecomputed as follows:

P = 244

200 X 21

UCL = 0.058+3 X S QUARE ROOT OF (0.058 X 0.942) / 200 = 0.108

LCL = 0.058-3 X S QUARE ROOT OF (0.058 X 0.942) / 200 = 0.008

These revised values reflect the variation due to chances causes. They are now usedas standards for judging the proportion of defective future samples. If any futuresamples fall outsides these limits, then it is known that it is highly probable thatthere is an assignable cause for the unusual observation of proportion defective. Thecause is then corrected before more scrap has been produced.

p- Charts for variable sample size

In the previous example, the sample size was constant. Often, however, sample sizesvary, as is true then 100 percent inspection is used and output volumes vary from dayto day. If samples sizes vary only slightly, control limits may be based on the averagesample size. However when sample sizes vary widely, new control limits can becomputed for each sample. These control limit computations can be simplified. Forexample, if p= 0.099, then

3 = (SQUARE ROOT OF P (1-P)) / n = 0.896/ (SQUARE ROOTOF n)

For each sample then, the square root of the sample size is divided into 0.896 toobtain the 3sp value that must be added to and subtracted from p to obtain theindividual control limits. Of course, a different p- requires a new computation of theconstant.

Another way to handle this problem of variable sample sizes to construct a stabilizedp=chart by converting the deviations from the process average into standarddeviation units. An sp is computed for each sample using the short-cut method justdiscussed t(the factor for the example would simply be 0.896/3 = 0.299) and it isdivided into the sample variation from p, p - p. If the sample proportion defectivewere p = 0.84 p- = 0.099 as before and n = 95, then sp = 0.299/95 = 0.0306. Then(p-p) / sp = -0.015 / 0.036 = -0.49 standard deviation units. The control limits areplotted in terms of standard deviation units and this sample is 0.49 standarddeviations below the mean.

c- Charts = Control charts for defects per Units

Sometimes the parameter to be controlled cannot be expressed as with the p-charts.In weaving, for example, the number of defects per 10 square yards of material mightbe the parameter to be controlled. In such instances, a defect itself might be minor,but a large number of defects per units area might be objectionable. The Poissondistribution, the standard decision Sc is equal to the square root of the mean, c.computation of control limits is then extremely simple, for example, if the meannumber of defects per unit were c = 25, then

_

UCL = c + 3sc = 25+(3 x 5) = 40

_

LCL = c-+ 3sc = 25 - (3 x 5) = 10


- End Of Chapter -

LESSON-17

ACCEPTANCE SAMPLING

When production has already taken place, it is often necessary to know the qualitylevel of the lot. Acceptance sampling is the statistical quality control technique ofmaking decisions.

ACCEPTANCE SAMPLING BY ATTRIBUTES

Operating Characteristic (OC) Curves

To specify a particular sampling plan, the sample size n, and the number ofdefectives in the sample permitted c (acceptance number), are indicated before theentire lot from which the sample is drawn is to be rejected. The OC curve for aparticular combination of n and c shows how well the plan discriminates betweengood and bad lots. The given Fig 6 is an OC curve for a sampling plan with thesample size n = 100

and acceptance number c = 2. In this plan, if c = 0, 1 or 2 defectives are found in thesample of n = 100, the lot would be considered acceptable. If the actual quality is 1%defectives, the plan in Fig 6 would accept the lot about 91.5 percent of the time andreject it about 8.5 percent of the time. However, that if the actual lot quality is good issomewhat worse than 1 percent defectives then the probability of accepting the lotfalls to about 13 percent. Therefore, if the actual quality is good, the plan provides fora high probability acceptance, but if the actual quality is poor, the probability ofacceptance is low. Thus, the OC curve shows how well a given plan discriminatesbetween good and poor quality.

The discriminating power of the sampling plan depends on the size of the sample. Fig7 shows the OC curves for sample sizes of 100, 200 and 300. with the acceptancenumber remaining in proportion to the sample size. It is to be noted that the OCcurve becomes more steeper as the sample size goes up. If the discriminating powerof the three plans represented in Fig. 7 are compared then it is seen that all threeaccept lots of about 0.7 percent defectives about 83 percent of the time. However, ifthe actual quality falls to 3.0 percent defectives, the plan with n = 100 accepts lotsabout 20 percent of the time n = 200 accepts lots about 6 percent of the time; and n= 300, less than 1 percent of the time. Plans with larger sample sizes are definitelymore effective.

Change In Acceptance number

Figure 8 shows OC curves for a sample of n = 50 and acceptance numbers of c = 0,1,2and 3. It should be noted that the effect is mainly to change the level of the OC curve,so lower acceptance numbers make

the plan "tighter"; that is, they hold outgoing quality to lower percentages. As ageneralization there is some interaction between sample size and acceptance numberin determining the discriminating power of OC curves.

A sampling plan that discriminates perfectly between good and bad lots would have avertical OC curve; that is, it would follow the dashed line in Fig 7. For all lots havingpercent defectives to the right of the line, the probability of acceptance is zero.Unfortunately, the only plan that could achieve this discrimination is one requiring100 percent inspection. Therefore, the justification of acceptance sampling turns on abalance between inspection costs and the probable costs of passing bad parts.

By making sampling plans more discriminating (increasing sample sizes) or tighter(decreasing acceptance numbers), any desired level of outgoing quality can beapproached, but at increasing inspection costs. This increasing inspection effortwould result in lower probable costs of passing defective parts. At some point thecombination of this incremental costs is minimum, this minimum point defines themost economical sampling plan for a given situation. Obviously, if the cost of passingdefective products is high, a great deal of inspection is economically justified.

To justify 100 percent inspection of a sample, the probable losses due to the passingof bad products would have to be large in relation to inspection costs, perhapsresulting in the loss of contracts and customers. It is on this basis that the Japaneseobjective of "zero defects" can be justified. On the other hand, to justify no inspectionat all, inspection costs would have to be very large in relation to the probable lossesdue to passing bad parts. The most usual situation is between these extremes, wherethere is a risk of not accepting lots that are actually good and a risk of accepting lotsthat are bad.


DETERMINING OC CURVES

OC curves can be constructed from data obtained from normal or Poissondistributions. If lots are large, perhaps greater than 10 times the sample size,probabilities for the OC curve can be obtained from the binomial distribution.

However, if samples are large, the normal or Poisson approximations are also verygood, and they are much more convenient to use. Rules of thumb are as follows:

* If p n > 5, the probabilities can be determined from the normal distribution with amean p and standard deviation of (p(l-p)/n)1/'2.

* If p n ≤ 5, use the Poisson distribution.

Usually, the lot percent defective is small and the lots are relatively large, so thePoisson distribution is used to calculate values for the Percentage probability ofacceptance, pa, for OC curves. The Thorndike chart (Fig 9) provides cumulativeposition probability distribution curves for different values of the acceptance numberc. The chart gives the probability of c or fewer defectives in samples of n selectedfrom an infinite universe in which the percent defective is PD.

Table 4

CALCULATION OF THE VALUES OF P X100 IN FIGURE 9 FROM THETHORNDIKE CHART

(SAMPLING PLAN n=100 and c= 2)

The Thorndike chart is used to calculate the values for pa used to plot the OC curvesof Fig 9 or any of the other OC curves used as examples. The sampling plan for fig 6is to be referred where n = 100 and c = 2. The values of pa for 9 points on the OCcurve are calculated in Table 4, reading the values of Pa from the Thorndike chart.For example, For PD = 2 percent, PD * n/100 = 2 *100/100 = 2.0. From the

horizontal scale of the Thorndike chart the value read is pa = 68 percent for c= 2 onthe vertical scale.

PRODUCER'S RISK AND CONSUMER’S RISK

The definition of these risks can be made more specific by referring to a typical OCcurve. Fig 10 shows graphically the following four definitions:

AQL = Acceptable quality level-lots of this level of quality are regarded as good, andit is wished to have a high probability for their acceptance.

α = Producer's risk - the probability that lots of quality level AQL will not beaccepted. Usually α = 5 percent in practice.

LTPD =Lot tolerance percent defective-the dividing line selected between good andbad lots.

Lots of this level of quality is regarded as poor, and it is wished to have a low probability for their acceptance.

β= Consumer's risk - the probability that lots of the quality level LTPD will beaccepted. Usually = 10 percent in practice.

When the levels are set for each of these four values, two critical points on the OCcurve are determined, points a and a and b shown in Figure 10.

SPECIFICATION OF A SAMPLING PLAN

To specify a plan that meets the requirements of rail, LTPD, and a combination mustbe found with n and c with an OC curve that passes through points a and b, as shownin the figure 10. the mechanics of actually finding specific plans that fit can beaccomplished by using standard tables, charts, or formulas that result in thespecification of a combination of n and c that closely approximates the requirementsset for AQL,α , LTPD,.β

Specifications of n and c for single sampling plans

To specify a plan, it is necessary to determine the single sample size n and theacceptance number c that will produce and OC curve approximating that specified bythe four values AQL, α,LTPD,β. This can be done referring to tables or by referring tothe Thorndike chart.

An Example

Assume that the characteristics of the OC curve desired have been already specifiedas

AQL = 2 percent

α = 5 percent

LTPD = 8 percent

β= 10 percent

Step 1. Tabulate values of PD * n/100 for pa = (1-α ) = 95 percent and pa = β = 10percent for each value of c from the Thorndike chart. For example, for pa = 95percent and c = 1, read PD* n/100 = 0.36, and for pa = 10 percent and c = 1, readPD* n/100 = 3.9. Do this for various values of C. as in columns 1, 2, and 3 of Table 5.Note that in column 2, the PD we are referring to is AQL. Whereas in column3, It isLTPD.

Step 2. Compute the ratio of column 3 to column 2 for each of the values of c, as incolumn 4 of Table 5. This ratio is LTPD/PD. For the plan we seek, we scan column 4for the ratio 8/2 = 4, since of our desired plan LTPD = 8 and PD = 2 percent. Thisratio of 4 falls between 4.06 at c = 4 and 3.58 at and PD = 2 percent. The ratio of 4falls between 4.06 at c= 4 and 3.58 at c = 5.

Step 3. Compute sample sizes as in Table 3, deciding whether to hold fixed and letfloat, or vice versa. If, for example, we set c = 4 and hold at 5% then PD* n/100 =AQL* n/100 = 1.97, and we can solve for the sample size n:

n = (1.97* 100)/2 = 99

The sampling plan would then be n = 99 and c = 4.

Step 4. Check the resulting value of the risk floated. Using the Thorndike chart, froplan 1, enter with the values of c = 4 and PD* n/100 = LTPD* n/100 = 8* 99/100 =7.92, and read the actual value of β= 10.5 percent. Table 6 also shows the actualfloating values of α and β for each of the four plans. For plan 1, the probability ofaccepting lots of 8 percent quality increases slightly while holding the otherspecification. For plan 2, the probability of rejecting lots of good quality increasesslightly while holding the other rejecting lots of good quality increases slightly while

holding the other specification for and so on. Plans 1 and come closest to meetingthe original specifications and the choice between them depends on the emphasisdesired.

Other values of α and β

Table 5 was constructed for the common values of and , 5 and 10 percent,respectively. But obviously a comparable table could be constructed from theThorndike chart for any values of and , so the methods described are general.

AVERAGE OUTGOING QUALITY (AOQ) CURVES

Fig 11 shows the flow of good and rejected parts in a typical sampling plan andprovides the structural basis for calculating the average outgoing quality (AOQ). Therandom sample of size n is inspected, and any defects found in the sample arereplaced with good

parts. Based on the number of defectives, c, found in the sample, the entire lot inaccepted if c < c and is rejected if c >c.

If the lot is rejected, it is subjected to 100 percent inspection, and all defectives foundare replaced by good parts. Then, the entire lot of N parts is free of defectives. If,

however, the lot is accepted by the sample, we run the risk that some defectives partshave passed. The average number of defective parts can be calculated.

If the average incoming quality is PD, acceptance occurs with the probabilitypa(taken directly from the OC curve for the PD). The average number of defectives isthen the product of the fraction defectives received times the number remaining inthe lot weighted by the probability that acceptance occurs or (pa/100)* (PD/100)*(N-n). The average outgoing quality AOQ in percent is then:

From the foregoing relationship, a curve can be developed for any given samplingplan showing the AOQ for any level of incoming quality. Data to plot the curve aregenerated by assuming different values for incoming quality. Determining from theOC curve the pa, and substituting these values in the formula to compute AOQ, asindicated in the Fig 12. This AOQ curve is based on the OC curve of Fig 6 for asampling plan of n = 100, c = 2, and N = 1000.

The interesting characteristics of the AOQ curve should be noted. first there is amaximum or limiting number of average defectives that can be passed. This peak inthe curve is called the average outgoing quality limit (AOQL). There is an AOQL forevery sampling plan, which depends on the characteristics of the plan. When goodquality is presented to the plan for example, 0 to 2 percent pa is relatively high. somost of the defectives that will exist will pass. As we go beyond 2 percent incomingquality, of 100 percent inspection increases. so more defectives are screened out -outgoing quality improves automatically as incoming quality worsens. Specifically,AOQ never exceeds 1.25 percent regardless of incoming quality for the plan.

If the defectives are not replaced, then the formula for AOQ becomes

As with single sampling. Dodge - Rooming provides both tables and charts to aid inplan design. These aids are constructed both for the situation where one wishes tospecify LTPD or AOQL. with β = 10 percent, and for minimum total inspection.

SEQUENTIAL SAMPLING PLANS

In sequential sampling, samples are drawn at random, as before. But after eachsample is inspected, the cumulated results are analyzed and a decision made to (1)accept the lot, (2) reject the lot, or (3) take another sample. Sequential sample sizescan be small as n = 1. Fig 13 shows the graphical structure of a sequential samplingplan. The main advantage of sequential sampling is a reduction in the total amountof inspection required to maintain a given level of protection. In the plan shown inFig 13, a minimum of 15 items must be inspected in order to accept a lot. If the

number of rejects on the graph rises such that the point falls on or above the upperline, the lot is rejected. If the point

falls on or below the lower line, the lot is accepted. Until one of these events occurs,sampling is continued. As before, the sequential sampling plan is specified by thefour requirements: AQL, LTPD,α andβ. In turn, these requirements determine theOC curves of the sequential plans that meet the requirements. The disadvantage ofsequential sampling is that the inspection loads vary considerably. Detailedprocedures for the construction of sequential sampling plans are given in Duncan(1974).

BASES FOR SELECTING SAMPLING PLANS

The relative advantages and disadvantages of alternative sampling plans do not reston the protection from poor quality that can be achieved. The risks involved dependon the OC curve of the plan and can be preset, and specific objectives of LTPD orAOQL protection can be implemented in all the three. Table 7 provides thecomparison of several factors that influence the choice among the types of plans.

ACCEPTANCE SAMPLING BY VARIABLES

In acceptance sampling by variables, actual measurements are recorded instead ofsimply classifying items as good or bad as in attribute sampling. This difference inprocedure changes the details of determining the plan that meets our specificationsof AQL.α . LTPD andβ because the appropriated statistical distribution is now thenormal distribution instead of distributions for proportions. Conceptually, however,the basic ideas on which the control of outgoing quality is maintained remain thesame. The discriminating power of plan is represented by an OC curve, which showsthe probability of acceptance for different levels of actual quality presented to theplan. To specify a plan that gives the desired protection requires basically the sameprocedure as for sampling by attributes.

KINDS OF VARIABLES SAMPLING PLANS

There are two main categories, which depend on our knowledge of the populationsstandard deviation: σx : where σx is known and constant and where x is unknownand may be a variable. Furthermore, the classification may be extended to the natureof the decision criterion: that is, where the criterion is average of measurements andwhere the criterion is percent defectives (PD). To summarize, the classification is asfollows:

1. σ x is known and constant

a. The decision criterion is expressed as the average of measurements, xa

b. The decision criterion is expressed as PD in the lot.

2.σ x is unknown and may be variable

a. The decision criterion is expressed as the average of measurements, xa

b. The decision criterion is expressed as PD in the lot.

VARIABLE SAMPLING PLANS WHERE σ x IS KNOWN AND CONSTANT

These procedures will be discussed in the context of an example in which steel bar isreceived in batches from a vendor. It has been determined that a tensile strengthof 90,000 Newton per sq. mm is average tensile strength. Lots with an averagetensile strength of 95,000 Nsm are regarded as good quality, and it is specified thatpa = 95 percent for lots of this average tensile strength. σx is known to be 6000 Nsm,and the measurements are normally distributed. To summarize, the planspecifications are

AQL = 95,000 N/sq.mm

Xt = 90,000 N/sq. mm (equivalent to LTPD in attributes sampling)

α = 5 percent

ß = 10 percent

The objective is to determine a sampling plan that will indicate an acceptanceaverage for sample tests, xa, and a sample size n that will accept lots to ourspecification. The acceptance average for sample test xa is equivalent to acceptancenumber, c, in attributes sampling plans. In other words, when xa is less than thecritical value, the lot from which sample was drawn will be rejected and returned tothe supplier. Lots for which the sample average tensile strength is equal to or greaterthan xa will be accepted.

The standard deviation of the sampling distribution of means for samples of size nwill be 6000/√n . To be accepted 95 percent of the time, AQL = 95 percent of thetime, AQL = 95000 N/sq. mm must be 1,645 units above the grand mean, x = xa,since 5 percent of the area under a normal curve is beyond µ+ 1,645 σ. Therefore,xa - 95000 is 1,645 x units. Then.

xa - 95000 = -1.645* (6000/√n)

Also, to ensure that lots of average tensile strength xt = 90000 have only a 10 percentchance of acceptance, when ensures that samples with x1 = 90000 N/sq. mm mustbe 1.28σ units below the grand mean.

xa - 90000 = +1.28* (6000/√n)

Now there are two independent equations with two unknowns, xa and n. They maybe solved simultaneously to yield the following values:

xa = 92,200 N/sq.mm

n = 12

Figure 14 shows the relationships of the various elements of the problem that answerthe question. “What is the grand mean, X, and the sample size, n, of a normaldistribution with σ= 6000 N/sq. mm and x = σ 6000/√n?”

The OC curve for the plan just described is determined by cumulating the areasunder the normal curve for the sampling distribution of sample size n.

UPPER AND LOWER TOLERANCE LEVELS

There are often upper and lower tolerance levels specified for measurements of partdimensions, chemical content, and so forth. When a measured characteristic may betoo small or too large to be useful, these two-sided tolerance levels can be reflected inthe specifications of variables sampling plans. a sampling plan would then specify asample size, with upper lower average acceptance levels. Two equations must then bewritten for each limit and solved for xa (upper) and xa (lower) and the integer valueof the sample size n that most nearly satisfies the stated risks α and β.

FIELD OF APPLICATION OF VARIABLES SAMPLING PLANS

Obiviously, inspection, recording and computing costs will normally be higher withvariables sampling plans than with attributes sampling plans. The most importantreason for using variable plans is that, for a given level of protection, variable planswill require smaller sample sizes and less total inspection. Table 8 demonstrates thecontrasting sample sizes, but if a plan requires a sample size of 750 for attributessampling, comparable protection could be obtained with a sample of only 125 forvariables sampling. These small simple sizes can be very important when theinspection process destroys the part. From an economic point of view, then, variablessampling should be used when the smaller sample size tips the balance of the cost ofinspection, scrap, recording, and computing in addition to the possible costadvantages, the data generated by variables sampling (x and s) provide additionalvaluable diagnostic for controlling production processes.

References

Duncan, A.J. Quality Control and Industrial Statistic (4th ed.). Irwin. HomewoodIII. 1974.

Elwood S. Buffa and Rakesh K. Sari, Modern Production (Operations Management(8th ed.) John whey & Sons, Inc. Singapore...1987.

Grand. EL., and R.S. Leaventworth, Statistical Quality Control (5th ed.) McGraw -Hill, New York, 1980.

Shewhart, W.A. Economic Control of Quality for Managers and Engineers, VanNostrand, Princeton, N.J. 1931.

Model Questions :

1. Why is acceptance sampling not considered an attempt to control the quality of aprocess?

2. Why is it necessary to control both and variations for control of variables?

3. Distinguish between the types of inspection required for a p-chart and a c-chart

4. Discuss the considerations involved in selecting the inspection points within aprocess.

- End Of Chapter -

LESSON-18

METHODS ANALYSIS & WORK MEASUREMENT

INTRODUCTION

Resource required to produce goods and services would be from the following:

(a) Man

(b) Materials

(c) Machines

(d) Money

(e) Technology and

(f) Time.

They are to be deployed in the most effective and efficient manner. This process ofdeployment is a continuous one since the best available combination of the resourcesat some point would not necessarily coincide with the best available combination atsome later point of time. This emphasises that there is a need for analysing existingworking methods to develop more efficient working methods for the future.

DEFINITION OF METHOD STUDY

Method Study is the systematic recording and critical examination of existing andproposed ways of doing work, as a means of developing and applying easier andmore effective methods and reducing costs.

OBJECTIVES OF METHOD STUDY

The objectives of method Study are:

1. Improvement of processes and procedures,

2. Improvement in the design of plant and equipment,

3. Improvement of plant layout,

4. Improvement in the use of men, materials and machines,

5. Efficient materials handling,

6. Improvement in the flow of production and processes,

7. Economy in human effort and the reduction of unnecessary fatigue,

8. Method standardisation,

9. Improvement in safety standards,

10. Development of a better physical working environment.

THE METHOD STUDY PROCEDURE.-

The solution of any problem follows the following sequence of phases in that order:

1. DEFINE the problem

2. RECORD all the facts critically but impartially.

3. EXAMINE the facts critically but impartially.

4. CONSIDER the courses of actions (possible solutions) and decide which to follow.

5. IMPLEMENT the solution.

6. FOLLOW UP the development. The basic procedure for method study is asfollows:

a) SELECT the work to be studied.

b) RECORD all the relevant facts about the present method by directobservation.

c) EXAMINE those facts critically and in an ordered sequence, using thetechniques best suited to the purpose.

d) DEVELOP the most practical, economic and effective method, having dueregard to all contingent circumstances.

e) DEFINE the new method so that it can always be identified.

f) INSTALL that methods as standard practice.

g) MAINTAIN that standard practice by regular routine checks.

These are the seven essential stages in the application of method study; none can beexcluded. Strict adherence to their sequence, as well as to their content, is essentialfor the success of an investigation. They are shown diagrammatically on the chart inFigure.

1. SELECTION OF JOB: When a study team is considering whether a methodstudy investigation of a particular job should be carried out, certain factors should bekept in mind. These are:

i. Economic considerationsii. Technical considerations

iii. Human relations

i) Economic considerations: The cost of the study, the loss of time due to theinvestigation, the cost both short-term and long term associated with the prospectivechanges in the recommended working method of the job should be carefullyestimated and examined. If the accumulated estimated benefits from therecommended method outweigh the estimated total cost, for any job then we shouldtake up the job under study.

Under preliminary considerations the early job choices are: Bottlenecks which areholding up other production operation. Movement of materials over long distancesbetween shops or operations involving a great deal of man-power or where there isrepeated handling of material. Operations involving repetitive work using a greatdeal of labour liable to run for a long time.

A machine tool constituting a bottleneck in production is known to be running at aspeed below that at which the high-speed or ceramic cutting tools will operateeffectively.

iii) Human relations: Trade union official workers' representatives and theoperators themselves should be educated in the general principles and objectives ofmethod study. Participative management may facilitate overcoming the negativehuman reactions to Investigation and "changes of method. If the study of a particularjob appears to be leading to unrest or ill feeling leave it alone, however, promising itmay be from the economic point of view. If other jobs are tackled successfully andcan be seen by all to benefit the people working on them, opinions will change and itwill be possible in time to go back to the original choice.

2. RECORD, EXAMINE, DEVELOP: After selecting the work to be studiedsystematic recording of all the facts of the existing method and critical examinationof these are carried out to eliminate every unnecessary element or operation and todevelop the quickest and best method by having an improved sequence of doing thework, omitting the redundant elements, selecting more appropriate person and moresuitable place for doing the work.

The most commonly used method study charts are Outline process chart. Flowprocess chart- man type, Flow process chart- material type, Flow process chart-equipment type and two handed process chart. Charts indicating process sequenceprovide a systematic description of a process or work-cycle with details for theanalyst to develop method improvements.


PROCESS CHART SYMBOLS

OPERATION - indicates the main steps in a process, method or procedure. Usuallythe part, material or product concerned is modified or changed during the operation.

INSPECTION - indicates an inspection for quality and/or check for quantity.

TRANSPORT - indicates the movement of workers, materials or equipment fromplace to place.

TEMPORARY STORAGE or DELAY - indicates a delay in the sequence ofevents: for example, work waiting between consecutive operations or any object laidaside temporarily without record until required.

PERMANENT STORAGE - indicates a controlled 'storage in which material isreceived into or issued from a store under some form of authorisation; or an item isretained for reference purposes.

FLOW PROCESS CHART (an example)

A flow process chart is a process chart setting out the sequence of the flow of aproduct or a procedure by recording all events under review using the appropriateprocess chart symbols. An example of a material type flow process chart constructedto study what happened when a bus engine was stripped a degreased and cleaned forinspection is given in Figure 2. When flow process charts are being made regularly, itis convenient to use printed or stenciled sheets similar to that shown in Figure 3.Some points must be remembered in the preparation of process charts.

1. Charting is used for recording because it gives a complete picture of what is beingdone and helps the mind to understand the facts and their relationships to oneanother.

2. The details which appear on a chart must be obtained from direct observation.Once they have been recorded on the chart the mind is freed from the task ofcarrying them but they remain available for reference and for explaining the situationto others. Charts must not be based on memory but must be prepared as the work isobserved.

3. A high standard of neatness and accuracy should be maintained in preparing faircopies of charts constructed from direct observation.

4. To maintain their value for future reference and to provide as completeinformation as possible, all charts should carry a heading and giving the followinginformation, (see figure 3.)

a) The name of the product, material or equipment charted, withdrawingnumbers or code numbers.

b) The job or process being carried out, clearly stating the starting point andthe end point, and whether the method is the present or the proposed one.

c) The location in which the operation is taking place.

d) The chart reference number, sheet number and the total number of sheets.

e) The observers name and, if desired, that of the person approving the chart.

f) The date of the study.

g) A key to the symbols used.

h) A summary of distance, time and, if desired, cost of labour and material, forcomparison of old and new methods.

5. Before leaving the chart, check the following points:

a) Have the facts been correctly recorded?

b) Have any over-simplifying assumptions been made?

c) Have all the factor contributing to the process been recorded?

EXAMINE CRITICALLY

The questioning technique is the means by which the critical examination isconducted, each activity been subjected in turn to a systematic and progressive seriesof questions.

The five sets of activities recorded on the flow process charts fall naturally into twomain categories, namely-

· Those in which something is actually happening to the material or the workpiece under consideration, ie. it is being worked upon, moved or examined;and

· Those in which it is not being touched, being either in storage or at a standstillowing to the delay.

Activities in the first category may be subdivided into three groups.

· MAKE READY activities required to prepare the material or work piece andset it in position ready to be worked on.

· DO operations in which a change is made in the shape, chemical compositionor physical condition of the product.

· PUT AWAY activities during which the work is moved aside from the machineor work place.

Detailed examination of the chart leads to a number of questions. For example, it willbe seen that an engine been transported from old-engine stores has to change cranesin the middle of the journey. Let us apply the questioning technique to these firsttransports:

Q. What is done?

A. The engine is carried part of the way through the stores by one electric crane, isplaced on the ground and is then picked up by another which, transports it to thestripping bay.

Q. Why Is this done?

A. Because the engines are stores in such a way that they cannot be directly picked upby the monorail crane which runs through the stores and degreasing shop.

Q. What else might be done?

A. The engines could be stored so that they are immediately accessible to themonorail crane, which could then pick them up and run directly to the stripping bay.

Q. What should be done?

A. The above suggestion should be adopted.

DEVELOP THE IMPROVED METHOD

From the very brief example of the use of the questioning sequence given above, itwill be seen that once the questions have been asked most of them almost answerthemselves.

The first step in doing so is to make a record of the proposed method on a flowprocess chart, so that it can be compared with the original method and can bechecked to make sure that no point has been overlooked.

This will also enable a record to be made in the summary of the total numbers ofactivities taking place under both methods, the savings in distance and time whichmay be expected to accrue from the change and the possible savings in money whichwill result. The Improved method for the example discussed ss shown In Figure 4.

- End Of Chapter -

LESSON - 19

TIME STUDY

DEFINITION AND PURPOSE OF TIME STUDY

Time study is defined as a work measurement technique for recording the times andrates of working for the elements of a specified job carried out under specifiedconditions, and for analysing the data so as to obtain the time necessary for carryingout the job at a defined level of performance.

BASIC STEPS IN TIME STUDY

The following eight steps constitute the time study process excluding the selections ofthe job for the worker which have to be done before the steps in the list are taken up:

a) Obtaining and recording all the available information about the job, operator andthe surrounding conditions likely to affect the execution of work.

b) Recording the complete description of the method, breaking down the operationinto 'elements'.

c) Examining the detailed breakdown to ensure the most effective method andmotions are being used and determining sample size.

d) Measuring with a timing device (stop-watch), and recording the time taken by theoperator to perform each element of the operation.

e) At the same time, assessing the effective speed of working the operator relative tothe observers concept of the rate corresponding to standard rating.

f) Extending observed time to "basic times".

g) Determining the allowances to be made over and above the basic time for theoperation.

h) Determining the "standard time" for the operation.


THE STOP WATCH

Usually, three types of stop watches are used for performing time study:

i) Flyback type,

ii) Non-flyback type, and

iii) The split hand stop-watch type.

However the first two types are used for a large majority of cases.

TIMING ELEMENTS BY STOP-WATCH:

There are two principal methods of timing with the stop-watch:

a) Cumulative timing and

b) Flyback timing.

In cumulative method the watch runs continuously throughout the study. It is startedat the beginning of the first element of the first cycle to be timed and is stopped onlyafter the study is completed. The purpose of this procedure is to ensure that all thetime during which the job is observed is recorded in the study.

In flyback method the stop-watch is reset to zero reading, by returning the hands ofthe watch to zero, at the end of each element and the hands of the watching areallowed to start immediately at the beginning of the next element, the time for eachelement

In case of flyback timing, the study man reaches the clock at an exact minute,preferably at the next major division such as the hour or one of the five minutepoints, and sets his stop-watch running, noting the exact time in the "time on" space.He reaches the location where the study is to be made water running and allows it todo so till he is ready to start timing. At the beginning of the first element of the firstwork cycle, as the hands are snapped back there is nothing in the first entry to showfor the time that has elapsed. At the end of the study, the hand is snapped back tozero on completion of the last element of the last cycle and thereafter allowed to runcontinuously until he can again reach the clock and note the time of finishing whenthe watch is finally stopped. The final clock time is entered in the "time off" space onthe form. The two times recorded before and after the study are known as "checktimes". The clock reading at the beginning of the study is subtracted from the clockreading at the end of the study yielding the elapsed time, to be entered in itsappropriate location.

The recorded time is obtained as the aggregate of time of all the elements, ie., otheractivities noted in the study and ineffective time and check time are also noted. Thisaggregate should ideally equal the elapsed time but in practice is found-to bedifferent from the elapsed time. The difference may be attributed to the cumulativeloss of very small fractions of time at the return of the hand to zero and to badreading of missed elements. The difference observed in case of cumulative timing isless since there is no loss due to snapback effects.

Cumulative timing has the significant advantage that even in the event of missingelement or non-recording of some occasional element it does not have any effect onthe overall time. However, cumulative timing calls for spending of more time indetermining individual element timing which can be only obtained after performinga subtraction operation.

PERFORMANCE RATING

Rating and allowances are the two most controversial aspects of time study. Mosttime study in industry are used to determine times for setting workloads and as abasis for incentive plans. The procedures employed have a bearing on the earnings ofthe workers as well as on the productivity and possibly, the profits of the enterprise.Time study is not an exact science, although much research has been and continuesto be undertaken to attempt to establish a scientific basis for it. Rating (theassessment of a worker's rate of working) and the allowances to be given for recoveryfrom fatigue and other purposes are still largely matters of judgement and thereforeof bargaining between management and labour.

It has, already, been said that time studies should be made, as far as possible, on anumber of qualified workers; and that very fast or very slow workers should beavoided, at least while making the first few studies of an operation. What is a"qualified worker"? A QUALIFIED WORKER is one who is accepted as having thenecessary physical attributes, who possesses the required intelligence and education,

and who has acquired the necessary skill and knowledge to carry out the work inhand to satisfactory standards of safety, quantity and quality.

The acquisition of skill is a complicated process. It has been observed that among theattributes which differentiate the experienced worker from the inexperienced are thefollowing:

a) Achieves smooth and consistent movements; ,

b) Acquires rhythm;

c) Responds more rapidly to signals;

d) Anticipates difficulties and is more ready to overcome them;

e) Carries out the task without giving the appearance of conscious attention and istherefore more relaxed.

RATING is the assessment of the worker's rate of working relative to the observer'sconcept of the rate corresponding to standard pace. And STANDARDPERFORMANCE is the rate of output which qualified workers will naturally achievewithout over-exertion as an average over the working day or shift, provided that theyknow and adhere to the specified method and provided that they are motivated toapply themselves to their work. This performance is denoted as 100 on the standardrating and performance scales.

RATING OF EFFORT

The purpose of rating is to determine, from the time actually taken by the operativebeing observed, the standard time which can be maintained by the average qualifiedworker and which can be .used as a realistic basis for planning, control and incentiveschemes. What the study man is concerned within therefore the speed with which theoperative carries out the work, in relation to the study man's concept of a normalspeed.

Speed of what? Certainly not merely speed of movement, because an unskilledoperative may move extremely fast and yet take longer to perform an operation thana skilled operative who appears to be working quite slowly. The unskilled operativeputs in a lot of unnecessary movements which the experienced operative has longsince eliminated. The only thing that counts is the effective speed of the operation.Judgement of effective speed can only be acquired, through experience andknowledge of the operations being observed. It is very easy for an inexperiencedstudy man either to be fooled by a large number of rapid movements into believingthat an operative is working apparently slow movements are very economical ofmotion. The amount of effort which has to be exerted and the difficulty encounteredby the operative is a matter for the study man to judge in the light of his experiencewith the type of job. Operations involving mental activities (judgement of finish, forexample, in inspection of work) are most difficult to assess. Experience of the type ofwork is required before satisfactory assessments can be made. Inexperienced study

men can be made to look very foolish in such cases, and moreover can be unjust toabove-average and conscientious workers.

In any job the speed of accomplishment must be related to an idea of a normal speedfor the same type of work. This is an important reason for doing a proper methodstudy on a job before attempting to set a time standard. It enables the study man togain a clear understanding of the nature of the work and often enables him toeliminate excessive effort or judgement and so bring his rating process nearer to asimple assessment of speed.

FACTORS AFFECTING THE RATE OF WORKING

Variations in actual times for a particular element may be due to Factors outside orwithin the control of the worker. Those outside his control may be

1. Variations in the quality or other characteristics of the material used, although theymay be within the prescribed tolerance limits.

2. Changes in the operating efficiency of tools or equipment within their useful life.

3. Minor or unavoidable changes in methods or conditions of operation.

4. Variations in the mental attention necessary for the performance of certain of theelements.

5. Changes in climatic and other surrounding conditions such

These can, generally, be accounted for by taking a sufficient number of studies toensure that a representative sample of times is obtained.

Factors within his control may be-

a) Acceptable variations in the quality of the product,

b) Variations due to his ability.

c) Variations due to his attitude of mind, especially his attitude to the organisationfor which he works.

The optimum pace at which the worker will work depends on-

1) The physical effort demanded by the work.

2) The care required on the part of the worker.

3) His training and experience.

Greater physical effort will tend to slow up the pace. The ease with which the effort ismade will also influence the pace. For example, an effort made in conditions wherethe operative cannot exert his strength in the most convenient way will be made

much more slowly than one of the same magnitude In which he can exert hisstrength in a straightforward manner (for Instance, pushing a car with one handthrough the window on the steering wheel, as opposed to pushing It from behind).Care must be taken to distinguish between slowing up due to effort and slowing updue to fatigue.

An increased need for care in carrying out an element will reduce the pace. Anexample is placing a peg with parallel sides In a hole, which requires more care thanIf the peg is tapered.

The study man should be careful not to rate too highly when-

a) The worker is worried or looks hurried.

b) The worker Is obviously being over-careful.

c) The job looks difficult to the study man.

d) The study man himself is working very fast, as when recording a short-elementstudy.

Conversely, there Is a danger of rating too low when-

a) The worker makes the job look easy.

b) The worker Is using smooth, rhythmic movements.

c) The worker does not pause to think when the study man expects him to do so.

d) The worker is performing heavy manual work,

e) The study man himself is tired.

Scale of Rating

There are several scales of rating in use, the most common of which are thosedesignated the 100-133 scale, the 60-60, the 75-100, and the British Standard scalewhich is the 0-100 scale. The newer 0-100 scale has, however, certain importantadvantages which have led to the adoption as the British Standard. In the 0-100scale. 0 represents zero activity and 100 the normal rate of working of the motivatedqualified worker - that is, the standard rate.

Determination of Basic Time

The number 100 represents standard performance. If the study mean decides thatthe operation he is observing is being performed with less effective speed that hisconcept of standard, he will use a factor of less than 100, say 90 or 75 or whatever heconsiders represents a proper assessment. If, on the other had he decides that theeffective rate of working is above standard, he gives it a factor greater than 100 - say110, 115 or 120.

It is usual practice to round of ratings to the nearest multiple of five on the scale; thatis to say, if the rate is judged to be 13% above standard. It would be put down at 115.During the first weeks of their training, study men are unlikely to be able to ratemore closely than the nearest ten.

If the study man's ratings were always impeccable, then, however, many times herates and times an element the result should be that -

Observed Time * Rating= A Constant

An example expressed numerically, might read as follows.

Cycle Observed time Rating Constant

1. 0.20 * 100 = 202. 0.16 * 125 = 203. 0.25 * 80 = 204.

and so on

It is always a comparison with the standard rating. So, if the standard rating a takento be 100, then dividing the constant by the standard rating (100) will yield theconstant known as the “basic time” for the element.

Observation Time * Rating = Basic Time

Standard Rating

For example:

0.16 * 125/100= 0.20 min.

RECORDING THE RATING: In general, each element of activity must be ratedduring its performance before the time is recorded, without regard to previous orsucceeding elements.

It is important that the rating should be made while the element is in progress andthat it should be noted before the time is taken, as otherwise there is a very great riskthat previous times and ratings for the same element will influence the assessment.Since the rating of an element represents the assessment of the average rate ofperformance for that element, the longer the element the more difficult it is for thestudy man to adjust his judgment to that average. Long elements, though timed as awhole up to the break points, should be rated every half minute.

Ratings to the nearest five are found to give sufficient accuracy in the final result.Greater accuracy than this can be attained only after very long training and practice.

- End Of Chapter -

LESSON - 20

ALLOWANCE FACTORS

The determination of allowances is the most controversial part of work study. Thefact that the calculation of allowances cannot be altogether accurate under allcircumstances Is no excuse for using them as a dumping ground for any factors thathave been missed or neglected in making the time study. The difficulty experiencedIn preparing a universally accepted set of precise allowances that can be applied toevery working situation is due to various reasons. The most important among themare-

1) Factors related to the Individual : If every worker In a particular workingarea was to be considered individually it might well be found that a thin, active, alertworker at the peak of physical condition required a smaller allowance to recover fromfatigue than an obese, inept worker. Similarly, every worker has a unique learningcurve which can affect the manner in which he conducts his work. There is also somereason to believe that there may be ethnic variations In the response to the degree offatigue experienced by workers, particularly when engaged on heavy manual work.

2) Factors related to the nature of work itself : Many of the tables developedfor the calculation of allowances give figures which may be acceptable for light andmedium work in Industry but which are inadequate when applied to operationsinvolving very heavy and strenuous work such as work beside furnaces in steel mills.Moreover every working situation has Its own particular attributes which may affectthe degree of fatigue experienced by the worker or may lead to unavoidable delay Inthe execution of a job. Other factors inherent in the job can also contribute to theneed for allowances, although in a different way- for example, when protectiveclothing or gloves have to be worn, or when there is constant danger or when there isa risk of spoiling or damaging the product.

3) Factors related to the environment : Allowances in particular relaxationallowances, have to be determined with due regard to various environmental factorssuch as heat, humidity, noise, dirt, vibration, light intensity, dust, wet conditions andso on.- Each of these will affect the amount of relaxation allowances needed.Environmental factors may also be seasonal in nature. This is particularly so for

those who work in the open air, such as workers in the construction industry or inshipyards.

CALCULATION OF ALLOWANCES

The basic model for the calculation of allowances is shown In Figure 5. It will be seenfrom this model that relaxation allowances are

the only essential part of the time added to the basic time. Other allowances such ascontingency, policy and special allowances are applied under certain conditions only.

Relaxation allowances : Relaxation allowance is an addition to the basic timeIntended to, provide the worker with the opportunity to recover from thephysiological and psychological effects of carrying out specified work under specifiedconditions and to allow attention to personal needs. The amount of allowance willdepend on the nature of the job.

Relaxation allowances are calculated so as to allow the worker to recover fromfatigue. Fatigue may be defined as physical and/or mental weariness, real orimagined, existing in a person and adversely affecting his ability to perform work.The effects of fatigue can be lessened by rest pauses, during which the body recoversfrom its exertion, or by slowing down the rate of working and thus reducing theexpenditure of energy.

Allowances for fatigue are normally added element by element to the basic times, sothat a work value for each element Is built up separately, the element standard timesbeing combined to yield the standard time for the whole job or operation. In this wayit is possible to deal with any extra allowance which may be required to compensatefor severe climatic conditions, since the element may sometimes be performed incool weather and sometimes when it is very hot. Allowances for climatic conditionshave to be applied to the working shift or working day rather than to the element orjob, in such a way that the amount of work which the worker is expected to produceover the day or the shift is reduced. The standard time for the job remains, the same,

whether the job is performed in summer or winter, since it is intended to be ameasure of the work that the job contains.

Relaxation allowances have two major components; fixed allowances and variableallowances.

Fixed allowances are composed of:

1. Allowances for personal needs. This allowance provides for the necessity to leavethe workplace to attend to personal needs such as washing, going to the lavatory andgetting a drink. Common figures applied by many enterprises range from 5 to 7%.

2. Allowances for basic fatigue. This allowance always a constant is given to takeaccount of the energy expended while carrying out work and to alleviate monotony. Acommon figure is 4% of basic time. This is considered to be adequate for a workerwho carried out the Job while seated who is engaged on light work in good workingconditions and who is called upon to make only normal use of hands; legs andsenses.


Variable allowances are added to fixed allowances when working conditions differmarkedly from those stated above, for instance because of poor environmentalconditions that cannot be improved, added stress, and strain in performing the job inquestion and so on.

Rest pauses: Relaxation allowances can be taken in the form of rest pauses. Whilethere is no hard and fast rule governing rest pauses, a common practice is to allow a10 to 15 minutes break at mid-morning and mid-afternoon often coupled withfacilities for tea, coffee or cool drinks or snacks and to permit the remainder of therelaxation allowance to be 'taken at the discretion of the worker.

Rest pauses are important for the following reasons:

1) They decrease the variation in the worker's performance throughout the day andtend to maintain the level nearer the optimum.

2) They break up the monotony of the day.

3) They give the workers the chance to recover from fatigue and to attend to personalneeds.

4) They reduce the amount of time off taken by workers during working hours.

Contingency Allowances : A contingency allowance is a small allowance of timewhich may be included in a standard time to meet legitimate and expected items ofwork or delays, the precise measurement of which 'is uneconomical because of theirinfrequent or irregular occurrence.

The allowance provides for small unavoidable delays as well as for occasional andminor extra work and so it would be proper to split the allowance into thesecomponents, the contingency allowance for work being allowed to attract fatigueallowance Just as any other items of work does, and the delay part of the allowancebeing given with only a personal needs increment. In practice this is a distinctionwhich is often ignored. Contingency allowances are always small and it is usual toexpress them as a percentage of the total repetitive basic minutes in the job, addingthem to the rest .of the work in the job and adding a relaxation percentage to thewhole contingency allowance. Contingency allowance should not be more than 5%and should only be given in cases where the study man is absolutely satisfied that thecontingencies cannot be eliminated and that they are justified.

Policy allowances : A policy allowance is an increment, other than bonusincrement, applied to standard time (or to some constituent part of it, eg. workcontent) to provide a satisfactory level of earnings for a specified level ofperformance under exceptional circumstances.

Policy allowances are not a genuine part of time study and should be used with theutmost caution and only in clearly defined circumstances. They should always bedealt with quite separately from basic times, and if used at all, should preferably bearranged as an addition to standard times, so as not to interfere with the timestandards set by time study.

The usual reason for making a policy allowance is to line up standard times with therequirements of wage agreements between employers and trade unions. In severalenterprises in the United Kingdom, for example, the incentive performance isgenerally set at such a level that the average qualified worker as defined, can earn abonus of 33.5% of his basic time rate if he achieves standard performance. There isno need to apply a policy allowance to achieve this state of affairs; it is simplynecessary to arrange for the rate paid per standard minute of work produced to be133.5% of the basic time rate per minute, and in general it is better to accommodateany special wage requirements in this way, by adjusting the rate paid per unit of workrather than the standard time.

Special Allowances : Special allowances may be given for any activities which arenot normally part of the operation cycle but which are essential to the satisfactoryperformance of the work. Such allowances may be permanent or temporary.Wherever possible, these allowances should be determined by time study.

When time standards are sued as the basic for a payment of results scheme. It maybe necessary to make a start-up to allowance to compensate for time taken by anywork and any enforced waiting time which necessarily occurs at the start of a shift orwork period before production can begin. A shut down allowance may similarly be

given for work or waiting time occurring at the end of the day. A cleaning allowanceis of much the same character. It is given when the worker has to give attention fromtime to time to cleaning this machine or workplace. Tool allowance is an allowance oftime to cover the adjustment and maintenance of tools.

A small batch allowance is required to enable a worker working on small batches todecide what to do and how to go about it and the work up to a standard performanceby practice and repetition. The calculation of this allowance will depend on whetherit is a one of a type batch or not, on the length and batch size or run length and on thefrequency of similar work and its degree of complexity.

The Standard Time : It is now possible to obtain a complete picture of thestandard time for a straightforward manual job or operation, one which is consideredto attract only the two allowance which have so far been discussed in detail;contingency allowance and relaxation allowance. The standard time for the job willbe the sum of the standard times for all the elements of which it is made up, dueregard being paid to the frequencies with which the elements recur, plus thecontingency allowance (with its relaxation allowance increment) In otherwords, Standard Time is the total time in which is job should be completed atstandard performance. The standard time may be represented graphically as shownin Figure 6

In a case where the observed time is rated at less than standard pace, the ratingfactor will, of course, be shown inside the observed.

The contingencies and relaxation allowances, however, are still percentages of thebaisc time. The standard time is expressed in standard minutes or standard hours.

Example:

The observed time is recorded to be 15 minutes for a job done by a worker whoserating is 80. Following allowance are recommended by the management.

i) Personal needs allowance - 5% of basic time

ii) Basic fatigue allowance - 2% of basic time

iii) Contingency work allowance - 1% of basic time

iv) Contingency delay allowance - 2% of basic time

Determine basic time, work content and standard time for the job.

From the relationship,

Basic Time = Observed Time * Rating

Standard Rating

basic time for the job in the above example is calculated as,

Basic Time = 15* 80/100 = 12 minutes

So, recommended allowance can be determined as follows

i) Personal needs allowance = (5/100)*12 = 3/5 minutes = 36 seconds

ii) Basic fatigue allowance = (2/100)*12=6/25 minutes = 14.4 seconds

iii) Contingency work allowance = (1/100)*12 = 3/25 minutes = 7.2 seconds

iv) Contingency delay allowance = (2/100)*12= 6/25 minutes = 14.4 seconds

Work content = Basic time + Relaxation allowance + Contingency work allowance

= Basic time + Personal needs allowance + Basic fatigue allowance +Contingency work allowance

= 12 minutes + 36 seconds + 14.4 seconds + 7.2 seconds

= 12 minutes, 57.6 seconds

Standard Time = Work content + Contingency delay allowance

= 12 minutes 57.6 second + 14.4 seconds

= 13 minutes 12 seconds

Work Sampling Technique

Basic Concepts and Definition

Work sampling is a work measurement technique in which a large number ofinstantaneous observations are made at random intervals over a specified period oftime of a group of worker, machines and process. Each observation of observationsrecorded for a particular activity or delay over the specified period is a measure of thepercentage of time during which that activity or delay occurs. This estimateresembles to the actual situation if the specified time interval is taken to be very long.Work sampling is defined as - “Work Sampling is a method of finding the percentageoccurrence of a certain activity by statistical sampling and random observations.

PROCEDURE

The work sampling procedure can be divided into the following three phases.

a) Prepare for work sampling.

i) Statement of the main objective of the study.

ii) Obtain the approval of the supervisor of the department in which worksampling is to be performed.

iii) Establish quantitative measure of activity.

iv) Selection of training of personnel.

v) Making a detail plan for taking observations.

b) Performing work sampling.

i) Describing and classifying the elements to be studied in details.

ii) Design the observation form.

iii) Determine the number of days or shifts required for the study.

iv) Develop properly randomized times of observations.

v) Observing activity and recording data.

vi) Summarizing the data at the end of each day.

c) Evaluating and presenting results of work sampling.

i) Evaluate the validity and reliability of data.

ii) Presenting and analysing data.

iii) Planning for future studies.

CONDUCTING THE WORK SAMPLING STUDY

It is important in the outset that we decide on the objective of work sampling. Thesimplest objective is that of determining whether a given machine is idle or working,our observations then aim at detecting one of two possibilities only:

observations

Machine working machine idle

We can, however, extend this simple model to try and find out the cause of thestoppage of the machine.

Observations

Machine working Machine idle

waiting waiting Personnel Idle

for for needs of

repairs supplies workers

percentage of time spent on each activity while the machine is working.

We may also be interested in the percentage time spent by a worker or groups ofworkers on a given element of work. If a certain job consists of ten differentelements, by observing a worker at the defined points in time we can record on which

element he is working and therefore arrive at a percentage distribution of the time hehas been spending on each element.

The objective to be reached by the study will therefore determine the design of therecording sheet used in work sampling, as can be seen from Figure 7, 8, and 9.

MAKING THE OBSERVATIONS

In making the observations it is essential from the outset that the work study man isclear in his own mind about what he wants to achieve and why. He should avoidambiguity when classifying activities.

The observation itself should be made at the same point relative to each machine.The work study man should not note what is happening at the machines ahead ofhim, as this tends to falsify the study.

The recording itself as can be seen consists simply of making a stroke in front of theappropriate activity on the record sheet at the proper and predetermined time. Nostop watches are used.

The analysis of the results can be calculated readily on the record sheet. It is possibleto find out the percentage of effective time compared with that of delays, to analysethe reasons for ineffective time and to ascertain the percentage time spent by aworker, groups of workers or a machine on a given work element. These provideuseful information in a simple and reasonably quick way.

USES OF WORK SAMPLING

It is a relatively simple technique that can be used advantageously in a wide varietyof situations, such as manufacturing, servicing and office operations. It is a relativelylow cost method and one that is less controversial than stop watch time study. Theinformation derived from work sampling can be used to compare the efficiency oftwo departments; to provide for a more equitable distribution of work in a group andto provide the management with an appreciation of the percentage of and reasonsbehind ineffective time. Some of the uses of work sampling can be stated as follows:

1. To aid in determination of time standards and delay allowances.2. To aim in the measurement of overall performances.3. To determine the nature and extend of cycles and peak load variations in

observable activity.4. To study the time utilisation by supervisors and establishing goals for

supervision.5. To aid in job evaluation.6. To assist in engineering economy studies.7. To aid in man power planning.8. For appraisal of safety performance.9. For appraisal of organisational efficiency.

MODEL QUESTIONS

1. What factors affect a decision to make a macro motion (or) micromotion analysis?

2. Why is it so difficult for all industries to agree on a universal conception of normalperformance?

3. How does the practice of including allowances as part of the standard time for anoperation promote "effective motivation"?

4. What measures can be taken to assure representative work samples?

- End Of Chapter -

LESSON -21

DYNAMIC PURCHASING

OBJECTIVE

This unit is dealing with dynamic purchasing: purchasing function, selection ofmaterials and vendors, purchasing organisation, concept of value analysis, storekeeping and ware housing management, cost control and cost reductionprogrammes.

INTRODUCTION

Purchasing is the function which controls the buying of materials, finished parts andsupplies in a factory. The function of purchase department in any organization is tofind sources of supply, obtaining quotations and placing purchase orders. Issuingdelivery schedules to suppliers and progressing the supply of goods etc. The qualitystandards required are laid down as part of the function of product specification.

PURCHASING FUNCTION

For an organization, purchasing is a window to the outside world. The primefunction of purchasing, is that of being sensitive to the external supply marketsituation and also of feeding back this information to the other functions of theorganization. However, it is usually, understood to be to get the right quantity ofmaterial of the right quality at the right time, at the right place, from the right sourceand at the right cost. Quite often it is not understood, by even top management, thata considerable profit potential exists in the purchasing activity. In fact, it has beenquoted that 20-30% of a company's profits can come from savings generated in thepurchasing department. There is more potential in reducing the purchasing cost ascompared to increasing the sales turnover.

Moreover, the increased savings in purchasing require only one or two purchasingexecutives doing a proper study and analysis of the external market. Whereas anincrease in sales volume, usually, means an increased capital outlay on equipment anincreased sales and marketing expense through increased advertising and

promotional expenses, and much more leg work by the salesmen. All this meansmore efforts, expenses and risks. Compare this with the efforts required ingenerating equal profit contribution from the purchasing department and one willrealise that the latter does not require such enhanced management effort and risk. Apoint to be noted is that the cost of materials in the production cost of an item, on anaverage, in the Indian industry takes a lion’s share of almost 65%. for someindustries this component could be still high.

Purchasing has important links with most of the organizational functions. Theproduction planning and control or materials department might have a say in theinventory of raw materials and bought out parts.

But the purchasing executive has a firsthand knowledge of the market situation forthe supply of these items. For instance:

(a) is there going to be any shortage of materials in the near future?

(b) How will the shortage escalate the prices?

(c) Are there any good substitutes available?

(d) Will there be an industrial relations problem in the important supplier’s companyand how will this affect the company’s production?

(e) Which supplier can supply better quality material and better quality componentparts at the same or less price?

All such information regarding the outside market is of much importance to theproduction, marketing, finance and other departments. If a company buyscomponent parts which are incorporated into its own produces, the purchasingmanager will have to play a role which can perhaps, be described as externalmanufacturing manager.

Increasing the sales does not always result in increasing profit. Sometimes increasein sales may mean a decrease in profits because with an increase in volume, the costof input material may also rise. This is where the purchasing department’s feedbackinformation is useful. It can apprise the management of what an increase in salesactivity will entail. The marketing/sales and purchasing departments have to workhand-in-hand in order to take care of such situations. Purchasing is as much incontact with the external market, whereas the purchase department may be lookingat the supply market. But essentially, both are looking at the external environmentand therefore, exchanging of notes between the two departments is important to theplanning and control departments set certain inventory levels for raw materials,these norms for stocking levels are for average situations. When external market isother than usual, the purchasing executive’s feel of the supply market should providevaluable input to PPC or inventory control. The normal stocking levels and servicelevels do not mean much in such situations. Purchasing can also provide valuableinformation regarding substitutes which may be cheaper and functionally better or atleast as good. The purchasing department may also spot certain extraordinaryopportunities to get the raw material at a low cost.

The point that is being made is that an organization can make use of the valuablemarket information provided by the purchasing department, and use the purchasingdepartment not merely as a department processing purchase requisitions but as avital link between the external environment and the organization. A purchasingmanager should provide this link consistently.

Some of the important objectives of purchase department are:

- To ensure that proper quantities of proper materials are made available for asmooth functioning of the production department.

- To procure the materials at reasonably low costs to the company

- To ensure that the desired quality of materials are supplied.

- To select the proper sources of supply in order to ensure price, quality etc.

- To keep abreast of the various substitute materials available in the supply market,their prices and utility to the organization and to pass such information or discusssuch formation with the various other departments of the company such as design,production, sales, finance etc.

- To do a study or research on the possible substitutes for the raw materialsand bought-out component parts, for this, the technique of value analysis will beuseful.

- In order to ensure the continuity of the quantity and quality of the supply of rawmaterials, to develop new vendors and develop good relations with existing vendors.Vendor relations, vendor monitoring or vendor evaluation and development of newvendors is an integral part of the purchase department job.

- To develop good procedures and systems for the purchasing department, so thatthe various purchasing objectives do not remain personalized but becomeinstitutionalized.

- To co-ordinate with other functional departments of the organization and achieveas much continuity of Information flow and integration between differentdepartments as possible. For this purpose, it becomes essential for the purchasingexecutives to keep in touch with the various functions of the company such as design,production, sales, finance etc.

A Purchasing executive should be one of the most knowledgeable managers in thecompany who should understand design, engineering, production, marketing andother related functions in sufficient detail. Purchasing executive's role is notrestricted to procuring the requisitioned goods at a low price and at proper time, butis also to be knowledgeable and informed about not only what Is being bought, butalso about why it is being bought, so the role of a purchasing manager is that of beingwell informed about the internal operations of the company as also about theexternal supply market and to combine these two in procuring materials at the right

quantity, quality, time and cost so that the organization as a whole benefits on asustained basis.

However, the purchasing manager is not always the final decision-making authorityregarding the quality, quantity, time or cost of the materials. It may be so in someorganisations, and not so in many others. The integrated approach towards themanagement of supply of materials by being sensitive to the internal} and externalenvironment and being one of a team of decision-makers for the input materials. Thepurchasing manager should serve as a link for the various departments and externalenvironment. He should be an advisor, informer to the various departments in theorganisation and a consolidator of objectives inside and outside the organization.Often this is misunderstood to mean that the purchasing executive should have anauthority over all the segments of the function of procuring the input materials. Suchauthority may not exist in most of the cases. A purchasing executive has to produceresults by advising and coordinating his activities with that of various other internaldepartments and external market.


SELECTION OF MATERIALS AND VENDORS

In order to reduce the cost of the product, materials of lower or different qualitywhich will not affect the utility of the product are selected. Common examples ofsuch substitution of materials are- use of steel or window frames instead of timberframes, use of aluminum instead of copper in electric transmission lines. Thisprocess of substitution is based on the principle that, if a cheaper material can worksatisfactorily then there is no use in using costly material. Sometimes anotheralternative is desired to be found e.g. in the radio valve industry many parts madefrom expensive nickel can be manufactured with nickel-plated mild steel, similarlycopper plated mild steel can be used in place of pure copper.

The most important job of purchasing department is to give suggestions about, thesource of various materials availability and its specifications to the extent possible spas to select suitable material by the design and production departments. In thisprocess one can use his best knowledge about various materials that are available inthe market considering the scarcity of those materials etc. The purchasing executivecan go for market forecast, value analysis etc. in selecting the material for purchasekeeping design and production requirements in mind.

While selecting suitable material one has to consider the type of production facilitiesthat the organization is having and the level of skill required by the human force andthe process capabilities (Technology knowhow) etc., are the major factors that one

should take into account while purchasing the required materials i.e., it is anintegrated approach of the requirement of the whole organization.

An important objective in purchasing is that of maintaining good relations withvendors. A good vendor is an asset to the company, and therefore, just as customergood-will is considered important, a good relationship with the vendor should also betreated likewise. A vendor who supplies the proper quality material in properamounts in proper time is not very easy to find. Moreover, there are many situationswhere materials are required in a hurry. There are few situations wherematerials are in shortage in the supply market. In all such situations, goodrelationships with the vendors pay dividends. This may entail, personal relationship,professional relationship: by helping the vendor in times of stress and strain withfinancial aid, technical aid, by providing management skills if necessary andmaintaining a healthy professional relationship by fair negotiations, fair evaluationsand fair compensation. A continuous programme of developing new vendors and ofselecting new vendors should be in existence in any organisation. When selectingvendors the following are the some of the important aspects the buyer should lookfor:

a) The Production capabilities of the vendor:

- Capacity to manufacture the required product in desired quantities.

- Possibility of future expansion in capacity

- The understanding or the knowledge of the vendor regarding the buyingcompany and its needs.

b) The financial soundness of the company:

- The vendor company's capital structure

- Whether it belongs to a larger group of companies, private of public company

- The profitability record of the company in the past

- Expansion plans of the company in the future

c) Technical capabilities, regarding quality:

- Whether the available machines are capable of the required quality ofmaterials? What are the future plans of vendor?

- Whether there are enough technical skills (skilled manpower) available withthe vendor?

- Whether there is proper research, design and development facility availablewith the vendor?

- What is the record of the vendor in filling the orders of other buying companiesin the same business?

- What has been the consistency in the quality produced by the vendor?

- Whether the vendor has appropriate storage and warehouse facilities to retainthe quality of the produced product?

- Whether proper quality control procedures are being followed in the vendorcompany?

d) Other considerations:

- What are the working conditions in the vendor company?

- How are the industrial relations in the vendor company?

- Whether there is any possibility of disruptions of the supply of materials interms of materials in terms of quantity due to human relations problem in the vendorcompany?

The next job of purchasing department is to buy the company’s requirement from thesuppliers (From the vendors list of the company), for this purpose the followingprocedure may be followed:

1. Select a short list of suitable firms

2. Send enquiries to each asking for prices and confirmation that deliveryrequirements can be met.

3. Compare the quotations received in reply and choose a supplier.

4. Send a purchase order to the chosen supplier.

Selection of possible suppliers

The job of selecting the short list of possible is one which in most companies is left tothe experience of the buyer. A better method is to maintain a register of approvedsuppliers, all or whom are visited and assessed for technical ability, capacity,financial strength and so on. If this is kept up to date by regular visits andperformance records a great.

deal can be done to eliminate the costly delays which arise when an inefficientsupplier is chosen for an order. Figure 6.1 shows a typical form used to assess thesuppliers. It includes financial checks, a record of visits, brief details of any disputesand particulars of failure to deliver to schedule etc. Once a year all cards areexamined and the suppliers are rated at a special meeting for the purpose. Allsuppliers given a Crating or lower are then either replaced or given a special visit bythe chief buyer and re-checked at frequent intervals.

The enquiry

Having chosen a number of suitable suppliers, an enquiry form is prepared andcopies are sent to each of the possible. Great care has to be taken in framing theenquiry to ensure that there is no ambiguity and that all are quoting for the same job,for example:

How and when deliveries will be accepted?

If any special finishing processes are required?

What acceptance test will be used?

What special packing is required and how the goods are to be delivered(standard boxes, pallets etc)

Who is responsible for delivery to the factory and for payment for transport?

Who is responsible for providing tooling, who will own it when it is made andwhether it is to be charged separately or included in unit price?

The terms of shipment (FOB: FOR) etc.

Some of these points can be covered by the drawings and by general conditions oforder which can be printed on the back of the enquiry form but others with particularreference to individual items will have to be individually recorded on the face of theenquiry form. Slightly different information will be required for each of type ofbuying and the forms should be specially designed to meet the particular needs of thecompany using them.

Comparison of quotations

Provided that the enquiry form is sent only to approved suppliers-suppliers who areknown to be capable of doing the work satisfactorily and providing that theconditions governing the order are carefully and exactly stated so that there is noquestion of differences in standard then the choice between quotations must rest onprice. It is usual to compare the different quotations on a comparison sheet and isshown in figure 6.2. This illustrates one difficulty in comparison, which arises whenthe supplier is asked to quote separate prices for tooling and for parts. When thisoccurs, it is often difficult to decide whether to accept a low tooling cost and high unitcost, or vice versa.

The best way of making the decision in these cases is to specify a write-off quantityfor the tooling, find tooling cost per piece by dividing the tolling cost in each case bythe write-off quantity and then add this additional cost to the quoted cost per piece.In practice there may be wide spread between the prices quoted by differentsuppliers. Apart from occasional mistakes and misunderstandings, there are twoprincipal reasons for this:

1. A supplier who is already employed will normally quote high rather than riskoffending a customer by refusing to quote.

2. A supplier whose load is light or unbalanced win often find it more profitableto take on work at a little over marginal cost rather than dismiss labour and closedown part of the plant.

To overcome the problem of loose price, some companies estimate target prices orprice limits for all items before sending out enquiries and query any prices which arewidely out in comparison with the targets.

The purchase order

Having chosen a supplier, the next operation is to send a purchase order. A typicalorder form is illustrated in figure 6.3 and it will be seen that the order is set of fiveforms. The remaining four are two copy orders-one for the buying office and anotherfor the goods receiving department-a purchase delivery record card and anacknowledgment of order form. The acknowledgment of order is sent with thepurchase order and carries a request that it should be signed and returnedimmediately. The significance of the acknowledgment of order is that it completes acontract in which the conditions of order with certain reservations are those listed onthe buyer’s purchase order. A purchase contract is in being when there has been anoffer and an acceptance in broadly the same terms. If no acknowledgment of order isreceived then the only offer is the supplier’s quotation and the acceptance is thepurchase order. If as often happens the conditions on these two forms are widelydifferent, then it may be more difficult later to enforce the contract. Some companiesmake it a condition of order that the acknowledgment of order be returned within aset period.

- End Of Chapter -

LESSON - 22

PURCHASING ORGANIZATION

Purchase organisations or follow-up is the function of seeing that deliveries are madeby the required dates. In a small number of companies this follow-up work iscontrolled by the production control progress section, independently of the buyingoffice. It is doubtful, however, if this divided responsibility ever gives the best resultsand here it will be considered as a buying function. Purchase organisation can theconsidered in two parts:

(i) Pre-delivery follow-up and

(ii) Shortage chasing.

1. Pre-delivery follow-up is concerned with ensuring that the supplier does notforget the due-date and the ample warning is obtained of any likely delay. Typicalmethods used are:

· A reminder card, letter of phone call at a set period before due-date.· Regular visits-particularly to new suppliers-to review progress· Delivery confirmation cards to be returned by the supplier with confirmation

that delivery will be made by the promised date.

Some companies do very little of this pre-delivery follow-up on the grounds that it isthe supplier’s responsibility to deliver on time and bad psychology to give theimpression that you expect him t fall and are taking the responsibility for remindinghim when orders are due.

2. Shortage chasing, on the other hand, is universally accepted as a necessary andvital art of purchase organisation. Methods vary but the purpose should always bethe same i.e.., to obtain the shortage material as soon as possible and to create afeeling at the supplier’s works that it is less trouble to deliver on time to thisparticular company that to have them progressing shortage. In the long run thesecond of these purposes is the most important and in some successful companiesthe follow-up, after the immediate shortage has been cleared is considered as themost important part of the exercise. The failure to deliver on time is not forgottenuntil undertakings have been made by the supplier that he will take steps to prevent are-occurrence.


3. Goods receiving: Goods receiving at the factory is another function which is notalways controlled by the purchasing division. There are, however, advantages incombining the two , and in making the one authority responsible for the wholeoperation of getting the supplies cleared into the factory and passed to production.Here goods receiving will be considered as against a purchasing function. The firststep in receiving is to take delivery from the carrier. Normally, this entails signingthe carrier note/consignment note and care should be taken to see that the signaturegiven does not accept the goods without question. In some

companies it is the practice to stamp all carrier notes with some such imprint assubject to inspection and then sign under the impression. The next step is to enterfull details of each consignment on a goods received note which is shown in figure,6.4 to give a record of all goods received in the factory and provide a method of

checking the supplier's Invoice. The goods received note is first checked against theadvice note or consignment note from the supplier and the supplier is notified of anydiscrepancies. Next the goods are inspected and the supplier is notified of any rejects.Customs vary in different industries but in the engineering industry, for example, therejects are normally held for n period and the supplier is given the option of viewingthem at the customer’s works or of having them returned for examination. Details ofany rejects are entered on the goods received note, which is sent to the accountsdepartment.

Finally the accepted material is passed into stock. A copy of the goods received notecan be used as a stores inward note to advise the stores of the quantity they arereceiving. The final check of the supplier’s invoices against the goods received not isgenerally carried out by the accounts department as a guard against over changing bythe supplier and against fraud inside the factory.

SPECULATIVE BUYING

The purchasing function can be summarized as

1. Production control department decides what is required, in what quantitiesdeliveries are to be made, and when.

2. Higher management fix a sanction quantity which is the largest quantity for whichthe buyer may commit the company.

3. Working inside these limitations, the buyer makes the best bargain possible.

This is not, however, the only system used in practice and systems must, now, beconsidered in which the buyer is allowed to choose how much to buy and when hewill buy it, provide only that he keeps the company supplied.

This type of buying is often used in industries such as the woolen where the value ofthe raw material varies considerably from one period of the year to the next. Manybuyers in this type of situation, carefully record the variations in price and attempt toforecast future price changes, so that they can buy large quantities when price arelow and small consignments when they are high. Apart from being hazardousbecause the forecasts can never be exact, the results achieved are very difficult toassess. Even the rare spectacular successes are often found on analysis to give aworse result than could have been obtained by regular purchases at the currentruling prices and some other investment for the capital released from stock.

There may be occasions when it is possible to use speculative buying with success,but as a general rule speculative buying has much the same value, as a system ofinvesting capital, as has the backing of horses. It is sometimes argued that widelyspread speculative buying serves a useful purpose in stabilising prices. It is moreprobable, however, that the speculation itself is largely responsible for the variationsin price.

CONCEPT OF VALUE ANALYSIS

Value analysis is an approach to cost reduction developed by General Electric in the1940s. It incorporates other cost reduction techniques, but the distinguishing thefeature of value analysis is that it focuses on providing a function at minimum cost.For example, one part in a product may be a screw fastening two other partstogether. Traditional cost reduction techniques applied to the screw would onlyconsider ways of making the screw at lower cost. However, value analysis would alsoconsider alternate ways of performing the function of holding the two parts together.Perhaps the two parts could be made as one part, or perhaps they could be designedto fit together without the need of a fastener. Could a standard fastener besubstituted for the custom-designed screw at lower cost?

Value analysis/Value Engineering is very useful tool in purchase management. It is asystematic method of thinking about substitutes. It basically consists of studying indetail the value of the material. The value could be due to the functionalcharacteristics (performance) of the product or due to other considerations of valuesuch as the esteem value. In purchasing we largely do not encounter the latter kind ofvalue. The idea behind value analysis is to find a substitute giving the samefunctional value. yet costing the same or less. In general the value analysis/valueengineering can be divided into the following phases:

Information phase: Here all the relevant information regarding raw material andthe finished product in which it is incorporated, such as the cost, the manufacturingmethod, the performance characteristics etc., is gathered. The more detailed theinformation gathered in this initial phase, the better will be the value analysis. Hereone may ask questions in detail, such as what, where, when, how and why (for eachof them).

Functional phase: At this phase, the functions that the material performs arelisted in terms of basic function and secondary functions. It is advised that thefunctions be described in two words a verb and a noun- as far as possible. This is toavoid long winding descriptions of the functions. After having listed the functions,each of these functions is given the value points or the weight ages in terms of itsimportance or desirability. If the value or worth, is expressed in terms of 0-100points, then the total for all the functions of a material should add to 100 points.Alongside, we also mention the cost incurred or price paid for each of the functions.Placing the cost and the value points side by side immediately reveals those areas ofthe material where much money is spent for little value. These high cost-to-worthfunctions are the focus of our attention in suggesting a substitute design of a bough-out part or a substitute material. If the value of a function is small, then that functioncan be dropped altogether in the substitute product.

Brain Storming Phase: Having done the analysis of the functions and costs of thematerial, now it is ready to think of various alternative possibilities for the material.The main idea, here, is to encourage creativity. Many of the suggestions may seemlike wild guesses. Still, these are recorded even if all suggestions are not feasible. Theidea is to break away from rigid thinking and encourage creativity. Some systems ofbrain-storming start idea-generation from such widely differing triggers as politicsand geography and develop them further so as to apply to the problem athand(alternate design). For such idea-generation, a heterogeneous group ispreferred.

Evaluation phase: Each of the idea is evaluated again in terms of a functionalanalysis, i.e., by finding the various functions that the substitute can perform-to whatextent and at what cost for each of those functions. Such an analysis will indicate afew of the alternatives which might offer similar functional value as the earliermaterial, but at a reduced cost. We may even find some substitutes with enhancedimportant functional values.

Implementation phase: In this phase, the selected substitutes, or new ideas arediscussed with the appropriate departments for their implement ability. It is possiblethat some will be screened out and only one or two ideas might be implementable.Such a systematic analysis of the functional values of input material along with theircost structure will help the purchasing executive in finding alternative materials ofequal functional value or better value while reducing the procurement costs. Valueanalysis, of course, should be done as team work since it involves a lot of creative andinterdisciplinary thinking.

The term value analysis has been used when the activity is centered in purchasingand value engineering when centered in engineering. Today this is, usually, acooperative activity with purchasing, working with design engineeringmanufacturing engineering and quality control. The main reason purchasing isinvolved is that it is in a position to tap the expertise existing in the suppliercompanies. suppliers may have recommendations regarding new materials orproduction processes that would not otherwise come to the attention of the engineersin the buying company, Getting vendors to contribute their expertise is most effectiveduring the design phase for new products.

- End Of Chapter -

LESSON - 23

STORE-KEEPING AND WAREHOUSE MANAGEMENT

Apart from inventory control production etc., a good system of storekeeping isimportant in any system. It has to be realized that only materials that are on handcan be put to use. And it is assumed that inventory records agree with the physicalstocks of materials in the stores. If, however, it is found that they do not agree,records must be adjusted after periodical physical verification of stores. Needless tomention that no amount of inventory control will work successfully if accuraterecords are not maintained and much of its value will be lost if stores are badly keptand handled. Therefore, certain amount of care is always necessary to ensure goodstorekeeping. The essential facilities should be responsible for all stores under theircharge. Proper classification and codification of stores based on standard

nomenclature are essential prerequisites for the smooth operation of stores. Themethods of classification should correspond, with those used for purpose ofinventory control, although actual arrangement of the stocks needs not follow thismethod, which will largely depend upon the nature of the item, Its accessibility andfrequency of issue.

All issues from stores should be priced. There are several methods, choice of whichlies with the top-management. One method is to charge average unit price. A secondmethod is to value the stock at standard cost, supplied generally by cost-accountingsection. The third method is First-in, First-out (FIFO) method. Fourth one is Last-in,Last-out (LILO). Still another method is ‘Cost or market price’ method, whichever islower. However, their choice has little bearing on the actual storeroom operation. Assuch, evaluation of their merits or demerits is thought a digression for our purpose.Suffice it to say that control of physical materials is as much a part of materialsmanagement, as any system of stock or inventory control.


The principal functions of warehousing are:

- Receiving: Material is accepted from manufacturing from vendors, or fromcustomers. This is matched against receiving papers, counted, and possibly inspectedfor quality. Items may be marked or tagged to facilitate later identification.

- Put away: Items are sorted by storage area, transported to those areas, and putaway in racks or other storage equipment.

- Storage: Items are held and protected in storage until they are needed.

- Order picking: Items listed on orders received from manufacturing or customersare withdrawn from their storage locations.

- Marshaling: The items constituting an order are assembled and checked. Whereseveral orders are to be transported together on one truck or wagon, these orders aregrouped.

- Shipping: Manufacturing orders are transported by fork-lift truck of otherconveyance to the gateway production department for the order. For customerorders, they are packaged, moved to the appropriate dock and loaded on a waitingvehicle. In some cases, orders are staged awaiting availability of a truck or wagon.

- Physical inventory: Items held in storage must be counted to verify the accuracyof the Inventory records. This may be done periodically such as annually orcontinuously called cycle counting.

- Reporting All receipts, issues and adjustments due to physical inventories must bereported so that the inventory records are kept current.

- Processing : In some warehouse, particularly distribution warehouses remotefrom the manufacturing plant, some processing such as painting or adding optionsmay be performed. The objective is to delay that final product differentiation as longas possible.

Stores management, looking after the items and controlling their flow. This is thecomponent of the stores management with which the production department relatesdirectly on a day-to-day or perhaps hour-to-hour basis. The important functions ofthis is on the

(i) incoming and

(ii) outgoing and

(iii) remaining items of materials.

A good MIS is the heart of stores management. The various operations related tostores management are : Receiving and inspection, issue and dispatch. Stock-records, Stores accounting, Stock-taking and checking, Stores preservation andStores arrangement.

The success of purchase department largely depends on the effective execution inwarehousing. Warehousing must provide timely put away stocks and picking oforders, secure storage and accurate inventories and all at minimum cost.

In the industrial sector, service by stores boils down to in optimization exercise.wherein limited available resources have to be disbursed equitably. The problemarises from the materials that are held in stock in an expenditure in the form ofcapital cost, storage loses, pilferage, obsolescence, insurance, handling,documentation etc. This calls form striking a balance between the storage costs andthe level of service that can be maintained and hence the concept, stores in money,should be understood by everyone in the organization.

Location and Layout : The normal practice is to locate the stores near the userdepartment, in order to minimize the handling. The material manager or the storespersonal are rarely consulted in location or layout of stores. The following are thesome of the important issues concerned with the location of stores :

· Should be located nearest to the user with the central store keeping high valueand items common to more than one department.

· Should be easy to identify the material.· Easy storage and retrival.

· Proper preservation to protect from rain, sun, humidity, natural deteriorationetc.

· Easy accessibility to different modes of transportation.· Flexibility· For future expansion.· Clear and adequate lighting, better working environment.· Safe working condition and better provision for fighting facilities to minimize

accidents.· Provision be made for toilets, smoking area, routine maintenance of stores

equipments, safe electrical wiring etc.· Balancing should be done in the cost of investment, cost of supplying imputs,

cost of manufacturing, cost of handling and cost of transporting to customerin locating the stores.

· Suitable division of available area for various purposes.· Items handled frequently must be located to minimize the distance travelled.· Regulation of factory act and other regulatory measures should be followed by

keeping the premises clean by using disinfectants and by providing adequatedrainage facility with proper ventilation

· Sufficient care should be taken to utilize the stores area as cubic space and notby calculating square area.

The aisle widths have to designed on the basic of handling equipments, like fork-liftand clearly marked. Utilization of heights has to be decided on the basis of ease ofstorage, retrieval, type of package, load characteristics, flooring roofing, handling,pressures on beams and columns, provision of moving ladders, exhaustarrangements and installation of fire prevention systems.

· In block stacking method, the units loads are stacked one over the other andthe stack heights will have to reduced. If random access is needed, thismethod can not to be applied. If strictly first-in first-out method has to beused for issue.

· The use of racks, bins, shelves and pigeon holes, is a common method ofstorage, where wooden or metallic structures are method of storage, wherewooden or metallic structures are divided into compartments, in order to keepitems individually.

· The racks are usually arranged either along the walls or back to-back and canreach up to roof top and the opening can be suitably arranged of keeping thesizes of the item. Sometimes revolving racks with castor wheels are also used.

· Normally bins are used to hold loose items and the compartments can bemulti-tier or single tier to suit the needs. For small items, compartment/trayscan be used.

· Small, but costly items are kept locked to present theft and pilferage.· Cap storage cover and plinth is adopted by food corporations, where the food

grains are kept in the open wooden orates under polythene cover. Thisprotects the grain sun and rain and is made rodent proof.

· To facilitate loading and unloading, truck and wagons are parked against thewalls, most of the transport companies use an iron framework and a woodenplank at an inclined plane but care should be taken for sufficientmaneuvering.

· The normal loading condition for a warehouse should be maintained :

· Doors should be built as large as possible, in order to facilitate handling.Columns in the stores must be at least 30 ft. apart. Storage of bulkcommodities can create plenty of wastage of space.

· The access to storage issue areas must be restricted and confined only toauthorized stores personnel, in order to prevent pilferage, theft, accident, etc.,and all workers must be trained in using fire-fighting equipments.

Receiving and inspection :

The important duties are :

- Checking supplies for quantity and quality.

- Preparing documents : for posting to stock-records and stores accountsaccordingly, and for providing evidence of receipt.

In order to help the stores personnel in the checking function in ,the stores may beadvised about the items requisitioned. A copy of the purchase order would generallysuffice. The supplier may also, for non-routine and high value items, send in advancean advice note giving details of goods being shipped, quantity, mode of transport,date of dispatch etc. The items, when they arrive, may also be accompanied by thesupplier’s packing information and the carrier’s consignment note. On the basis ofthe checking of the consignment, a good received note (GRN) is made by the store-keeper. Since this document will be used for setting bills, it should contain all thedetails, such as : supplier, his advice note number, purchase order number, date andtime received, mode of transport, vehicle number, description of the item, codenumber, number and type of packages, shortage discovered if any, damage to thegoods if any, excess items if any, and inspected by who,. A separate damage/shortagereport or a rejection report also needs to be prepared.

Since receiving and inspection operations control the entry point, proper informationto and documentation by the stores person is important.

Issues : Since has is the outflow point, the authorization for issue should be proper,carrying details such as code number, description, job number or cost code numberfor which required, quantity required, quantity issued, person authorizing, date ofissue and value of items issued. For all items such individual document is not alwaysnecessary, e.g. issues for assemblies or a production batch-where only the number ofassemblies or the particular production programme may be sufficient for the storesto supply all the necessary materials.

Stock Records : The purpose of record-keeping is to facilitate materials control bybringing information on actual stocks position, consumption rates and order andsupply position up to date along with the proper pricing and evaluation of the usageand of the balance of stock. Whether the system is manual or mechanized orcombination of both, the important managerial control information should beprovided by this stock-record system. The management should get informationregarding.

· Daily operations of the stores, issues, receipts, direct deliveries etc.

· Stock at each location· Allocation of stocks for certain project or job· Review and provisioning of stock· Order, performance giving the details on quantity ordered, supplier, delivery

promised, progress, when delivery received etc.· Stocks consumption history and change in consumption rates and· Money value of the movement / consumption of stocks and balances on hand.

Stores Accounting : This information system is necessary in order to :

- Know and show the value of stock in the balance - sheet and to help in productioncost control. The alternative methods of costing the issues are-cost price, averageprice, market price and standard price.

Cost pricing uses actual purchase price paid (up to the delivery point) of the itemswhen accounting for receipt and issue of these items. Whereas, average pricingaverage the price of the item and uses this average price figure while computing theissues and stock balances. Market pricing involves pricing all material issues forstocks) at the prevailing market price at the time of issues. It is not very easy to getinformation on current market prices. Moreover, in a fluctuating price situation, themethod of market pricing for issues results in faulty accounting of the stock balances.Standard pricing avoids the latter problem by having a pre-determined price fixed onthe basis of the knowledge of market prices and trends. For balance sheet purpose,the stock balance needs to be shown at either the market price or the cost pricewhichever is lower. However, for internal costing purpose, any method may be used.Due to its obvious advantages, standard pricing is widely used with the variationaccount to take care of the difference between the actual purchase price and thestandard price.

Store accounting is an important feedback information, for the production and othermaterials-using departments to assess their own efficiency in material usage. It isalso important from the view point of the valuation of the stock-balance andmovement at any point of time. From management control angle this has a numberof uses.

Stores arrangement: Proper arrangement and documentation of the storagespace and storage facilities is helpful in getting materials for production on time asrequisitioned from the stores. The arrangement of the racks, shelves, bins and spacesfor movement of material-handling equipment should facilitate quick location,drawal and transporting of the desired materials. The important features of a goodstores arrangement are :

- Correct knowledge of which particular items exist where.

- Easy accessibility of the items.

- Easy movement of the materials-handling equipment and men.

- Proper utilization of the available stores space etc.

The store should be so arranged that different types of materials such as tubularsheet, heavy materials, bulky materials, small size materials, breakable materials etc.,can be stored in distinct areas. Bars, tubes and lengthy items may be stored inspecially designed antler racks. The bundle of tubes is held horizontally on theprojection or antler. In order to save floor space and use the vertical space in somecases these long items are stacked vertically. However, the latter type of stacking isnot amenable to handling by machines. For plates and sheets of metal the best formof keep them on the floor itself. While making the arrangement for gangways, also,doors, inlets and exits, ceilings and floors, care should be taken that the materialhandling equipment used for this purpose is kept in mind. The main aisle should bewide enough to allow two people with hand-trucks. Fork lift operation, differentdimensions may have to be used for the space between two rows of racks. Thelocation of the material should be appropriately numbered so that locating a locationwould be easy. Care should be taken to store the same material at the same locationand to document the material location.

Stock-taking :

This is essential in order to verify the stock-records with the actual count. Lacunae instock record-keeping and control are thus brought out as also any frauds or otherlosses. Stock-taking is either continuous or periodic. The latter is done once in a year,generally, and the stores then have to be closed for the days of stock-taking. Theformer is done throughout the field at least once in a year. Advantages of continuousstock-taking are that :

- the normal business of the stores can go on as usual, and

- more importantly, the discrepancies do not come out al at once as in the annualstock-taking, so there is time to investigate discrepancies thoroughly. However,continuous stock-taking can be done only if complete detailed stock records are keptshowing receipts, issues and balances. Stores management is the vital and direct linkbetween the production and materials functions.

Therefore it is necessary that adequate attention is paid to the management of stores.

Over the past three decades, there has been a revolutionary change inwarehousing based on the use of computer-based information systems andautomated storage and handling equipment paralleling similar developments inproduction. Today there is a wide variety of automated equipment and systems forwarehouse management to choose from where automated systems have beencarefully planned and implemented, there have been large gains in productivity andspace utilization, improvements in inventory accuracy and reductions in damage togoods and in operating costs.

- End Of Chapter -

LESSON - 24

COST CONTROL AND COST REDUCTION PROGRAMMES

Cost control means the procedures and measures by which the cost of carrying out anactivity is kept under check. The aim of cost control is two-fold

· To see that cost do not exceeds beyond a certain level.· Thereafter, as a further step, it must adopt such measures and procedures by

which the cost is further reduced.

The important elements of cost are material, labour and expenses. If we makecomplete check on each and every element of cost then it can be kept in control. If abusinessman does not have any check and a scientific way of calculating the total costof the products produced then he may not earn exact profits, and even he may runinto losses. Therefore, to earn good profits, it is essential to keep control over eachand every element of cost , such as:

· Control on prime cost· Control on overheads and· Control on indirect materials and tools.

Control on prime cost: This cost has got a great role in the total cost of a product.It consists of direct material and direct labour cost. Direct material cost is the mostimportant item of expenditure and it needs careful and correct recording. To keepcontrol on it, the following factors must be considered:

· An efficient system of store-keeping is needed.· To see that always right quantities of materials are consumed with less

wastage.· Over-stocking should be avoided.· As far as possible there should be minimum handling and steps must be taken

to reduce handling charges.· It should be predetermined, if waste and scrap materials can be used for some

other work (by products).· It is necessary to express labour charges in terms of time.· Labour rates should be fixed accurately with the help of time and motion

study.· A right system of time recording can be introduced can be introduced to

calculate the time taken by each worker.· Suitable inspection and supervision methods should be introduced.· A suitable method of wage payment should be selected and introduced.

Control on overheads: For efficient run. It is very essential to have strict controlon the overheads. Prime cost of product does not vary much from industry toindustry for the same product. It is the overhead charges which are much

responsible. If these are minimised, cost can be controlled to a large extent. For thispurpose following steps could be followed:

· A set procedure for determining the total overhead charges of differentdepartments should be followed and charges of each department should becompared whether they are in excess or not.

· Keep control on the indirect labour force.· Simplification and set procedure for accounts and all administrative work is

required to be done.· As far as possible less work should be got done during extra hours.

Control on indirect materials and tools: This can be kept under control byallowing a fixed amount for each shop and should be revised at regular intervalsaccording to the needs.

As standard cost is a tool to keep control over the total cost, therefore, total costshould always be compared with it and short-coming and defects are to be found cut.

As the cost of the product consists of material. Labour and overheads, it is necessaryto bring down the expenditure on these elements.

There is a growing trend to linking buying companies with suppliers throughelectronic data systems. The advantages include faster communications, reducedpaper work and greater accuracy etc. Value analysis seeks to find lower-cost ways ofperforming the functions of purchased items. Purchasing contributes to this processby tapping the expertise of the personnel in supplier companies regarding newmaterials, processes and design concepts.

The amount of wasted materials and supplies in any industry is of utmost concern inmodern production system. For instance. If cost materials and supplies is only 20%of sales, saving a quarter of this may double the profits. This can be achieved bycarefully observing the under mentioned steps:

· Analyse cost and usage· Check purchasing practices· Use value analysis· Standardize material· Update old ideas

Analyse cost and usage: Look at the total use of material and supplies in theorganization. An itemwise value list of a particular month's usage will highlight themost significant items that have the greatest sving potential when you spot whatseems like excessive use of material or supplies in a given operation, watch theoperation and find out the causes. You may ask yourself such questions as:

· Where is the material used and for what?· Is the use reasonable? If not now can it be reduced?· Is the job worth the amount of material? Why is one person using more raw

materials for a product than another? and why is a tool wearing out too fast?

Example: In making a study one concern found that its plant spraying shop used700 to 800 litres of paint per day but on Mondays 1000 litres. It turned out thatpaints was normally sprayed on what hot agitator and heater were turned off onSundays and turned on again on Monday morning, But the heater get cold over theweek end and took about 5 hours to get up the proper temperature. In that time, thepainters has to use extra paint to get it to cover. The company has found that thesavings of 15000 litres of paint in a year is more than the cost ofhaving the heater goon earlier.

In the same way use of machinery and tools can be first analysed in one plant, forinstance, a machine tool was changed every four hours. When the foreman foundthat most of these tools has to be changed every two hours, he looked around for thereason and found that tools that were wearing out had not been properly ground andhence did not hold up as well. Then the situation was improved. When you havemade as many savings as possible from your list of major expenses item, giveattention to smaller items.

Check purchasing practices: The purchasing department is one of the main sourcesof ideas for saving materials and supplies. They are in constant touch witht thesupply market, where they hear and read about new developments. If the departmentkeep them informed of interests and needs, they may come up with good suggestions.The following may be used in purchase procedure:

· Before you contact to buy a specially designed component, make certain areadily available unit is not on the market. For example, a savings of 40% wererealized when a standard one is substituted for a more expensive oneoriginally specified.

· Make sure you know what you want. Much of the price the supplier charges ishidden in your specification to determine, if you have over specified.

· Check items you buy to spot too stringent specifications. Relaxing itemrequirements may expand supply sources and cut procurement costs.

· Buy and store liquids in bulks to cut costs and handling. Make use of quantitydiscounts, Economic purchase quantity concept (inventory control policy) etc.

· Cash in a consolidated purchasing. It saves a lot of money and time purchasesshould be grouped by size, types and gauge of material.

· Cut inventories of little used supplies. So that free spaces, cut record keepingcosts etc.

· Group buying often reduces paper works.· Before ordering any new supplies, stores should be checked to confirm that

particular one is needed.· Review purchases of often ordered items with grouping requirements in mind.

Suppliers should be asked to submit rates on the basis of a six month or oneyear usage figure, supplies to be delivered as required. It will allow theadvantage like reduction in stirage floor space, simplified records, lesspurchasing time, discounted qualities, simpler receiving and inspectionprocedure.

· Before purchasing new items, screen the existing stocks to see if availableitems can be modified for less cost to meet the needs.

Use value analysis: This is a technique that analyze the users wants from aproduct. The aim is to have most qualified technicians in the business to solve the

problems systematically, to suggest alternate materials, newer processes and moresimplified design.

Value analysis is a methodical approach to each product that uncovers and removesexisting manufacturing expenses by changing the nature of product instead of thenature of the system.

Example: A baking company formerly used 50 kg bags to store flour. Substitution of100kg bags made a savings of Rs 2 lakks per annum. It should be noted that a valueanalysis programme must becarefully introduced to prevent danger of downgradingquality and to prevent changes for the sake of changes.

Standardise materials : Standardisation although is a value analysis techniquebut it is so important that it is separately listed. The basic idea of standardisation isto find items that can be substituted for higher cost items: yet still do a good job. Bystandardising, purchasing can be done in lumpsum at a discounted rate. By keeping alarge stock of the goods, shortages can be prevented. We can also avoid overstockingof goods, which are not used very much. When considering standardization getadvice from various sections of the organization, such as engineering, design,production, purchasing, inventory control etc., so that standardization could beplant-wide.

Update old Ideas : Good ideas dormant in most companies, pigeonholed in deskdrawers and file cabinets. A manger may be too busy to consider the idea whenpresented: the ideas timing may be off : or the financial climate is not in favour.Shelved ideas add up to lost opportunities, frustrated suggestions and think timedown the drain. Many concerns make a regular practice of reviving old ideas andmaking them pay off.

Negotiation : Negotiation is a part of the buyer’s routine task. Although much ofthis belongs to the behavioural sciences, a great deal of the success of negotiation,hinges, upon a good preparation by the purchasing executive before starting anynegotiation. Whether the negotiation is for cost, quality, or quantity, muchhomework needs to have detailed cost data and technical data regarding hisorganisation and regarding the supplier companies. He should have informationregarding the economic trends in the region or in the country as also thetechnological and other trends. Backed by such detailed data the purchaser in orderto not only argue effectively for the buying company, but also to understand thesupplying company’s difficulties and problems so that during the negotiations thebuyer does not rub the vendor the wrong way and thus spoil an establishedrelationship. Many effective buyers backed by purchasing research, are in a positionto suggest ways of reducing costs, improving quality, delivery or other performanceto the vendor company and this is appreciated by the supplying company.

Learning curve concept : The 'Learning Curve' concept can be of some help innegotiations. When a task is done more and more number of times, the time tocomplete the task also gradually reduces with increased attempt at it. Similarly, whenthe number of units produced increases, the direct labour hours required per unitdecrease, for a variety of reasons.

Price forecasting : Cost aspect are useful when dealing with the supplier on one-to-one basis. However, there are very many situations, particularly regarding rawmaterials, where the material is subject to a multitude of economic factors whichinfluence the price of the material. It becomes necessary on the part of thepurchasing executive to take cognizance of and understand the price movements.Price forecasting, based upon the time-series methods of computing trends, businesscycles and seasonalities, or based upon the understanding of the influence of variouseconomic/business parameters should be of some interest to the purchasingexecutive who would like to keep the costs low. The objective is to keep the costs ofpurchases reasonably low, and if the prices of the materials do run away, then toensure the availability of supply of the material of the current and near futurerequirements.

Make or Buy : The purchase function would be incomplete if we did not make amention of make/buy analysis. To put it briefly, a company should buy a componentinstead of making it :

· If it costs less to buy rather than to manufacture the component internally.· If the return on the necessary investment to be made to manufacture the

component is not attractive enough.· If the company does not have the requisite skilled manpower to make the

component.· If it feels that manufacturing internally will mean additional labour problem.· If adequate managerial manpower is not available to take charge of this extra

work of manufacture.· If the component to be manufactured shows much seasonal demand or

upswings and downswings of demand resulting in a considerable risk ofmaintaining inventories of it; also if the raw material for the component facesmuch seasonal fluctuations. Which makes the manufacture of the productmore risky for the buying company.

· If there is no difficulty in transporting the component from the supplier to thebuying company.

· If the process of making the product is confidential or is patented.· If the same component is not needed year in and year-out and there is much

risk of technological obsolescence discouraging investment in capitalequipment to manufacture the component internally.

Make or Buy is a strategic decision, and therefore, much short - term as well as long -term thinking about various cost and other aspects needs to be done. Thus, the roleof the purchasing executive is as challenging as it is demanding because it requiresan understanding of various functions within the company, a sensitivity to feel themarket, the rigor to do a detailed analysis of the market forces now and later, thecapacity to be a tough yet humane bargainer and negotiator, and excellentinterpersonal skills to integrate conflicting viewpoints of a number of people withdifferent objectives.


References

1. Burbidge, J.L : ‘Introduction to Production planning and control’ 1967.

2. Chary, S.N : ‘Production and operations management : TMH New Delhi, 1988.

3. Corje, D.K : ‘Production control in engineering’, Edward Arnold, 19677.

4. Smith, S.B : ‘Company based production and inventory control’ Prentice Hall,N.J. 1989.

5. Banga, T.R. & Sharma, S.C : ‘Mechanical estimating and costing, KhannaPublishers, New Delhi, 1986.

6. Banga, T.R. & Sharma,S.C : ‘Industrial organisation and engineering economics’,Khanna Publishers, New Delhi, 1986.

7. Datta, A.K. : ‘Material management procedures, text and cases’, PHI, 1992.

8. Gopalakrishnan, P.: ‘Purchasing and materials management’, TMH, NewDelhi, 1990.

Model Questions

1. Discuss the advantages and disadvantages of centralized versus decentralizedpurchasing.

2. Explain the concept of value analysis

3. Briefly explain the store systems and procedure.

4. What are the different cost reduction programmes?

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