OPERATIONS

MANAGEMENT
UNIT III

SYLLABUS
Unit I
Introduction to Operations Management, Nature & Scope of Operations Management,
Historical Evolution of Operations Management, Systems Perspectives of Operations
Management, and Relationship of Operations Management with Other Functional Areas,
Operations Strategy, Recent Trends in the Field of Operations Management (12 hours)
Unit II
Product Development: Product Development Process, Concurrent Engineering, Tools and
Approaches in Product Development viz: Quality Function Deployment, Design for
Manufacturability, Design for Assembly, Design for Quality, Mass Customization; Process
Selection and Facilities Layout: Determinant of Process Selection, Process-Product Matrix,
Types of Layouts, Line Balancing; Facilities Location; Work Measurement and Job Design.
(14 hours)
Unit III
Demand Forecasting; Capacity Planning; Resources Planning: Aggregate Production Planning
Materials Requirement Planning, Scheduling; Theory of constraints and Synchronous
Manufacturing; Lean Management and Just in Time Production; Supply Chain Management;
Inventory Planning and Control. (16 hours)
Unit IV
Quality Management, Quality: Definition, Dimension, Cost of Quality, Continuous
Improvement (Kaizen), ISO (9000&14000 Series), Quality Awards, Statistical Quality Control:
Variable & Attribute, Process Control, Control Chart (X , R , p , np and C chart ) Acceptance
Sampling Operating Characteristic Curve (AQL , LTPD, a & b risk ) Total Quality
Management (TQM) (14 hours)

DEMAND FORECASTING

Demand forecastingis the activity of estimating the quantity of a

product or service that consumers will purchase. Demand forecasting
involves techniques including both informal methods, such as
educated guesses, and quantitative methods, such as the use of
historical sales data or current data fromtest markets.

Demand forecasting may be used in makingpricingdecisions, in

assessing future capacity requirements, or in making decisions on
whether to enter anew market.

Forecasting helps managers and businesses develop meaningful plans

and reduce uncertainty of events in the future. Managers want to
match supply with demand; therefore, it is essential for them to
forecast how much space they need for supply to each demand.

Two important aspects associated with forecasting are theexpected

level of demandand the forecast's degree of accuracy.

DEMAND FORECASTING

There are three types of forecasting techniques:

Judgmental forecasts,

Time-series forecasts, and

Associative models

Judgmental forecastsrely on subjective inputs from various sources.

Useful when forecasts must by done in a short period of time, when
data is out dated, unavailable, or there's limited time to collect it.

Time-Series forecastsprojects patterns identified in recent timeseries observations. A time-series is a time-ordered sequence of
observations taken at regular time intervals. Most Common, are used
to identify specific patterns in data and use them to project future
forecasts

Associative modelsare based on the development of an equation that

summarizes the effects of predictor variables. Predictor variables are
used to predict values of the variable of our interest. identify related
variables in order to predict necessary forecasts.

CAPACITY PLANNING

Capacity planningis the process of determining the productioncapacityneeded

by an organization to meet changingdemandsfor itsproducts.

In the context of capacity planning, design capacity is the maximum amount of

work that an organization is capable of completing in a given period.

Effective capacity is the maximum amount of work that an organization is

capable of completing in a given period due to constraints such as quality
problems, delays, material handling, etc.

A discrepancy between the capacity of an organization and the demands of its

customers results in inefficiency, either in under-utilized resources or unfulfilled
customers. The goal of capacity planning is to minimize this discrepancy.

Better utilization of existing capacity can be accomplished through

improvements inoverall equipment effectiveness (OEE). Capacity can be
increased through introducing new techniques, equipment and materials,
increasing the number of workers or machines, increasing the number of shifts,
or acquiring additional production facilities.

The broad classes of capacity planning are lead strategy, lag strategy, match
strategy, and adjustment strategy.

Lead strategyis adding capacity in anticipation of an increase in demand.

CAPACITY PLANNING

Lead strategy is anaggressive strategywith the goal of luring customers away from
the company's competitors by improving theservice leveland reducing lead time. It
is also a strategy aimed at reducingstockoutcosts.

A large capacity does not necessarily imply high inventorylevels, but it can imply in
highercycle stockcosts. Excess capacity can also be rented to other companies.

It ensures that the organization has adequate capacity to meet all demand, even
during periods of high growth.

Lag strategyrefers to adding capacity only after the organization is running at full
capacity or beyond due to increase in demand . This is a more conservative strategy
and opposite of a lead capacity strategy.

It decreases the risk of waste, but it may result in the loss of possible customers
either by stock out or low service levels. Three clear advantage of this strategy are
a reduced risk of overbuilding, greater productivity due to higher utilization
levels ,and the ability to put off large investments as long as possible. Organization
that follow this strategy often provide mature, cost-sensitive products or services.

Match strategyis adding capacity in small amounts in response to changing demand

in the market. This is a more moderate strategy.

Adjustment strategyis adding or reducing capacity in small or large amounts due to

consumer's demand, or, due to major changes to product or system architecture.

RESOURCES PLANNING: AGGREGATE

PRODUCTION PLANNING

Aggregate planningis anoperationalactivity that does an aggregate plan for

theproductionprocess, in advance of 2 to 18 months, to give an idea
tomanagementas to what quantity of materials and otherresources are to be
procured and when, so that the totalcost of operationsof the organization is
kept to the minimum over that period.

The quantity ofoutsourcing,subcontractingof items,overtimeof labour,

numbers to be hired and fired in each period and the amount ofinventoryto be
held in stock and to be backlogged for each period are decided. All of these
activities are done within the framework of the companyethics, policies, and
long term commitment to the society, community and the country of operation.

Aggregate planning has certain pre-required inputs which are inevitable. They
include:

Information about the resources and the facilities available.

Demandforecast for the period for which the planning has to be done.

Cost of various alternatives and resources. This includes cost of holding

inventory, ordering cost, cost of production through various production
alternatives like subcontracting,backorderingand overtime.

Organizational policies regarding the usage of above alternatives.

RESOURCES PLANNING: AGGREGATE

PRODUCTION PLANNING

Aggregate Planning Strategies:

Level plans

Use a constant workforce & produce similar quantities each time period

Use inventories and backorders to absorb demand peaks & valleys

Use inventories in better way to absorb the peak of demand and valleys

Chase plans

Minimize finished good inventories by trying to keep pace with demand

fluctuations

Matches demand varying either work force level or output rate

Hybrid Strategies

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

extreme peaks

Layofforfurloughworkers during lulls

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

Reassign workers to preventive maintenance during lulls

RESOURCES PLANNING: MATERIALS

REQUIREMENT PLANNING

Material requirements planning(MRP) is aproduction planning, scheduling,

andinventorycontrol system used tomanagemanufacturingprocesses. Most
MRP systems are software-based, while it is possible to conduct MRP by hand
as well.

An MRP system is intended to simultaneously meet three objectives:

Ensure materials are available forproductionandproductsare available

fordeliveryto customers.

Maintain the lowest possible material and product levels in store

Plan manufacturing activities, delivery schedules and purchasing activities.

The basic functions of an MRP system include:inventory control,bill of

materialprocessing, and elementary scheduling. MRP helps organizations to
maintain low inventory levels. It is used to plan manufacturing, purchasing
and delivering activities.

Material requirements planning (MRP) is a production planning and inventory

control system. An MRP integrates data from production schedules with that
from inventory and the bill of materials (BOM) to calculate purchasing and
shipping schedules for the parts or components required to build a product.

RESOURCES PLANNING: MATERIALS

REQUIREMENT PLANNING

This is the most comprehensive approach to manufacturing inventory and

other dependents which demand an efficient inventory management system.

An MRP system is intended to simultaneously meet three objectives:

Ensure materials and products are available for production and delivery to
customers.

Maintain the lowest possible level of inventory.

Plan manufacturing activities, delivery schedules and purchasing activities

MRP Functions:

Forecasting

Order, Planning and Control

Priority Planning and Control

Planning Capacity Requirement and Development of Broad Business Plans

RESOURCES PLANNING: MATERIALS

REQUIREMENT PLANNING

Advantages of MRP:

Improved Business Results

Improved Manufacturing Results

More Accurate And Timely Information

Less Inventory

Less Materials Obsolescence

Time Phased Ordering Of Materials

Higher Reliability

More Responsiveness To Market Demand

Reduced Production Cost

Disadvantages:

Increase In Material Acquisition Cost

Higher Transportation Costs And Higher Unit Cost

Potential Hazard Of A Production Slowdown Or Shutdown

Use Of Standardized Software Packages

Does not Take Into Account Plant Capacity And Distribution Capacity

High Stock-Out Costs.

SCHEDULING

Schedulingis the process of arranging, controlling and optimizing work and

workloads in a production process or manufacturing process. Scheduling is
used to allocate plant and machinery resources, plan human resources, plan
production processes and purchase materials.

Production scheduling aims to maximize the efficiency of the operation and

reduce costs.

Companies use backward and forward scheduling to allocate plant and

machinery resources, plan human resources, plan production processes and
purchase materials.

Forward scheduling is planning the tasks from the date resources become
available to determine the shipping date or the due date.

Backward scheduling is planning the tasks from the due date or required-by
date to determine the start date and/or any changes in capacity required.

The benefits of production scheduling include:

Process change-over reduction

Inventory reduction, levelling

Reduced scheduling effort

SCHEDULING

The benefits of production scheduling include:

Increased production efficiency

Labor load levelling

Accurate delivery date quotes

Real time information

A key character of scheduling is the productivity, the relation between

quantity of inputs and quantity of output. Key concepts here are:

Inputs: Inputs are plant, labor, materials, tooling, energy and a clean
environment.

Outputs: Outputs are the products produced in factories either for other
factories or for the end buyer. The extent to which any one product is
produced within any one factory is governed bytransaction cost.

Output within the factory: The output of any one work area within the
factory is an input to the next work area in that factory according to the
manufacturing process. For example the output of cutting is an input to the
bending room.

SCHEDULING

Output for the next factory: By way of example, the output of a paper mill is
an input to a print factory. The output of a petrochemicals plant is an input to
an asphalt plant, a cosmetics factory and a plastics factory.

Output for the end buyer: Factory output goes to the consumer via a service
business such as a retailer or an asphalt paving company.

Resource allocation: Resource allocation is assigning inputs to produce

output. The aim is to maximize output with given inputs or to minimize
quantity of inputs to produce required output.

Routing, loading, and dispatching are the important activities in the

scheduling of an operation. Routing describes the sequence of operations and
the work centers that perform the work. Loading assigns jobs to various work
centers. Dispatching is the release of an order to start the production
operation.

THEORY OF CONSTRAINTS AND

SYNCHRONOUS MANUFACTURING

According to Dr. Goldratt, synchronous manufacturing refers to the entire

production process working together in harmony to achieve the goals of the
firm. Synchronous manufacturing logic attempts to coordinate all resources so
that they work together and are in harmony or are "synchronized." The goal is
on total system performance, not on localized measures such as labor or
machine utilization.

The primary goal of the firm is to make money. Firms have three measures of
the firm's ability to make money: net profit, return on investment, and cash
flow. Financial measurements work well at the higher level but need to be
used with other measures of throughput, inventory and operating expenses.
The goal of the firm from an operations standpoint is to increase throughput
while simultaneously reducing inventory and reducing operating expenses.
Productivity is all the actions that bring a company closer to its goals.

Unbalanced capacity is preferable to an attempt to match capacity with

market demand. Capacity constrained resources can become bottlenecks if
their utilization is not scheduled carefully. Because each step in a process
sequence is a dependent event, the ability to do the next process is
dependent on the preceding one. Statistical fluctuations are the normal
variations about a mean or average. Rather than balancing capacities, the
flow of product through the system should be balanced.

THEORY OF CONSTRAINTS AND

SYNCHRONOUS MANUFACTURING

A bottleneck is any resource whose capacity is less than the demand placed
upon it. It limits the throughput. Non-bottleneck resources have capacity
greater than demand. A capacity-constrained resource (CCR) is one whose
utilization must be scheduled carefully so it does not become a bottleneck
operation.

Production cycle time is made up of setup time, process time, queue time,
wait time, and idle time. Queue time is the greatest for parts waiting to go
through a bottleneck. An hour saved at the bottleneck adds an extra hour to
the entire production system but an hour saved at a nonbottleneck is a
mirage and only adds an hour to its idle time.

Batch size determination is important in synchronous manufacturing. For

bottleneck resources, larger batch sizes are desirable. For nonbottleneck
resources, smaller process batch sizes are desirable and reduce work-inprocess inventory.

MRP and JIT are often compared to synchronous manufacturing. MRP uses
backward scheduling after being given a master production schedule while
synchronous manufacturing uses forward scheduling because it focuses on the
critical resources.

THEORY OF CONSTRAINTS AND

SYNCHRONOUS MANUFACTURING

JIT like synchronous manufacturing does an excellent job in reducing lead times
and work in process but is limited to repetitive manufacturing and requires a
stable production level.

The production system must work closely with the other functional areas to
achieve the best operating system. Cost accounting, for example, is changing to
support production performance measures. Marketing communicates and
conducts activities in close harmony with production for better operations too.

The firm should operate as a synchronized system with all parts in harmony and
supporting each other. The key to competitive advantage through operations is
for the firm to operate as a synchronized system, with all parts working in
concert. Companies that do this well are well on their way to achieving the
fundamental goal of the firm -- profitability.

Theory of constraints says:

Identify the system constraints
Decide how to exploit the system constraints
Subordinate everything else to that decision
Elevate the system constraints

If, in the previous steps, the constraints have been broken, go back to Step 1,
but do not let inertia become the system constraint

LEAN MANAGEMENT AND JUST IN

TIME PRODUCTION

Lean manufacturing is so named because it purports to use much less of certain

resources (space, inventory, workers, etc.) than is used by normal massproduction systems to produce comparable output.

The main benefits of lean operations systems are:

1. Reduced cost through reduced inventory levels
2. Higher quality
3. Reduced lead time
4. Increased productivity
5. Reduced amounts of waste

Lean operations began as lean manufacturing in the 1900's, and was developed
by the Japanese automobile manufacturer, Toyota. The Japanese were sensitive
to waste and inefficiency issues. The goal was to eliminate all waste from the
process. Waste was identified by them as anything that interfered with the
process or simply did not add value.

Companies began adopting the lean approach and to do so realized that they
had to do major changes in their organization and with their culture in the
organization. Lean methods have demand-based operations, flexible operations
with rapid changeover capability, effective worker behaviors, and continuous
improvement efforts.

LEAN MANAGEMENT AND JUST IN

TIME PRODUCTION

JIT systemstands for a Just-In-Time system. It represents the philosophy that

includes every aspect of the process from the design to after the sale. JIT is a
highly coordinated processing system in which goods move through the system,
and services are performed just as they are needed.

First, management should decide if JIT is a compatible method for the

company. JIT is best used with companies that have repetitive operations and a
stable demand. The first step is planning the conversion to JIT.

Managers need to be involved in the process and understand the commitment

needed. The next step is to begin working only with suppliers who support the
JIT system. The biggest obstacles faced are management, worker or supplier
disapproval, and also changing the culture of the company.

Just in time(JIT) is a production strategy that strives to improve a

business'return on investmentby reducing in-processinventoryand
associatedcarrying costs.

The philosophy of JIT is simple: storage of unused inventory is a waste of

resources. JIT inventory systems expose hidden cost of keeping inventory, and
are therefore not a simple solution for a company to adopt.. The JIT inventory
philosophy defines how inventory is viewed and how it relates to management.

SUPPLY CHAIN MANAGEMENT

Supply Chain Management(SCM) is the management of the flow of goods. It

includes the movement and storage ofraw materials, work-in-process
inventory, and finished goods from point of origin to point of consumption.

Interconnected or interlinked networks, channels and nodebusinessesare

involved in the provision ofproductsandservicesrequired by end customers in
asupply chain.

Supply chain management has been defined as the "design, planning,

execution, control, and monitoring of supply chain activities with the objective
of creating net value, building a competitive infrastructure, leveraging
worldwide logistics, synchronizing supply with demand and measuring
performance globally.

Supply chain management is a cross-functional approach that includes

managing the movement of raw materials into an organization, certain aspects
of the internal processing of materials into finished goods, and the movement
of finished goods out of the organization and toward the end consumer.

As organizations strive to focus on core competencies and becoming more

flexible, they reduce their ownership of raw materials sources and distribution
channels. These functions are increasingly being outsourced to other firms that
can perform the activities better or more cost effectively.

SUPPLY CHAIN MANAGEMENT

The effect is to increase the number of organizations involved in satisfying

customer demand, while reducing managerial control of daily logistics
operations. Less control and more supply chain partners led to the creation of
the concept of supply chain management.

The purpose of supply chain management is to improve trust and collaboration

among supply chain partners, thus improving inventory visibility and the
velocity of inventory movement.

Successful SCM requires a change from managing individual functions to

integrating activities into key supply chain processes.

In an example scenario, a purchasing department places orders as its

requirements become known. The marketing department, responding to
customer demand, communicates with several distributors and retailers as it
attempts to determine ways to satisfy this demand. Information shared
between supply chain partners can only be fully leveraged throughprocess
integration.

INVENTORY PLANNING AND

CONTROL

Inventories are necessary for a firm to operate efficiently and almost all
business transactions involve the delivery of a product or service in exchange
for currency. For this reason, inventory management is a very important part of
core operations activities.

Most retail businesses and wholesale organizations acquire most of their

revenue through the sale of merchandise (inventory).

In order for business and supply chains to run effectively, and efficiently they
must meet all the listed requirements for effective inventory management.

Some of the main concerns are the level of customer service and the cost of
ordering, storing, and carrying inventory. Therefore, in order to be a successful
and profitable company, inventory management must be managed wisely.

Some importantFunctionsof inventories include 1. to meet anticipated customer demand (to meet theanticipation stocks,
average demand)
2. to smooth production requirements (createseasonal inventoriesto meet
seasonal demand)
3. to decouple operations (eliminate sources of disruptions)
4. to protect against stock-outs (holdsafety stocksto prevent the risk of
shortages)

INVENTORY PLANNING AND

CONTROL

Some importantFunctionsof inventories include 5. to take advantage of order cycles (buys more quantities than immediate
requirements - cycle stock, periodic orders, or order cycles)
6. to hedge against price increases (purchase large order to hedge future price
increase or implement volume discount)
7. to permit operations (Little's Law: the average amount of inventory in a
system is equal to the product of the average demand rate and the average
time a unit is in the system)
8. to take advantage of quantity discounts (supplies may give discount on large
orders)

There are two types of inventory control used-PerpetualandPeriodic.

In a perpetual inventory system (usually used in supermarkets or department

stores), acontinuous flow of inventory count is tracked using a point of sale
(POS) check out system.

This system is perfect for companies to manage what is sold and reorder when a
reorder point is reached. Another advantage of this system is its ability to
account for shrinkage (theft) and inventory turnover.

INVENTORY PLANNING AND

CONTROL

The periodic system (used in smaller retailers) is used to take a physical count
of inventory at periodic intervals to replenish the inventory.

This system would be most beneficial for companies that do not have products
with UPC or bar codes, such as nuts and bolts and are purchased in large
quantities at a time. In this case, someone on a line would monitor the level of
the bin and notify a manager when an order would need to be placed.