MM ZG511-L18

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BITS PilaniPilani Campus

Manufacturing Organization

and Management

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BITS PilaniPilani Campus

Review SessionLecture 18

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BITS Pilani, Pilani Campus

Factor Product

A B C

Expected sales each year 600 900 1200

Unit cost of production $680 $900 $1200

Unit selling price $760 $1000 $1290

Fixed cost incurred before production $200000 $350000 $500000

Expected product life 3 5 8

Problem-1

A company is planning to introduce a new product. It must select one productfrom three available and has estimated the data shown in the table. Whichproduct would you recommend?

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i) The breakeven point for each product are calculated from

N = FC/(UP – UC)

So for each product we have

A : N = 200,000/(760 - 680) = 2500

B : N = 350,000/(1000 – 900) = 3500

C : N = 500,000/(1290 – 1200) = 5556If the company wants the lowest break – even point it would select product A.

ii) Time taken to break even:

Time taken to break even = break-even point/demand

For each product this gives:

A : 2500/600 = 4.2 years

B : 3500/900 = 3.9 years

C : 5556/1200 = 4.6 years

In this case, product B would be least.

Answer-1

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iii) To maximize long term profit

Total profit = revenue – total cost

With :

Revenue = lifetime * annual demand * unit profit

Total cost = lifetime * annual demand * unit cost + fixed cost

So:

Total profit = L * D * (UP - UC) – FCWhere :

L = lifetime

D = Demand

For each product the lifetime profit is:

A : 3 * 600 * ( 760 – 680) – 200,000 = -56,000

B : 5 * 900 * (1000 – 900) – 350,000 = 100,000

C : 8 * 1200 * (1290 – 1200) – 500,000 = 364,000

Product A would make a net loss over its expected life while producer C would give the best profit.

Overall, we can only say that the best decision would depend on the objectives of the company, but product B

seems useful.

Answer-1 cont…

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Activity predecessors duration

A - 7

B A 8C A 10

D A 6

E A 2

F B,C 5

G F,D,E 8

H E 7I F 5

J I,G,H 2

Problem-2

A project has activities with duration and precedence requirement asgiven in Table. Draw the network diagram for this project.

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Answer-2

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The Madras Plumbing Supply Company stocks thousand ofplumbing item sold to regional plumbers, contractors and retailers.Mr. Chelladurai, firm’s general manager, wonders how much money

could be saved annually if EOQ were used instead of the firm’s

present rules of thumb. He instructs Prabhakaran an inventory

analysist to conduct an analysis of one material only (Material #4000a brass valve) to see if significant saving might result from using theEOQ.

Prabhakaran develops the following estimates from accounting

information: Annual demand 200000 valves per year, quantity 8000valves per order, carrying cost $0.60 per valve per year and set upcost $10.50 per order. Find the EOQ and annual savings in stockingcosts.

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The present total annual stocking costs:

TSC1 = (Q/2) + (D/Q)S = = 2400 + 262.5 = 2662.5

EOQ is calculated :

EOQ = = 2645.75

Total annual stocking costs if EOQ were employed:

TSC2 = (Q/2) + (D/Q)S = = 793.725 + 793.725 = 1587.45

The estimated annual savings in stocking

Savings = TSC1 – TSC2 = 2662.5 - 1587.45 = $1075.05

Thus, the savings from EOQ would be significant.

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Discuss the steps required for good purchasing with asuitable example. Draw a chart of the process involvedwhen a person goes to a bank and ask for a personalloan.

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(a) The primary objective of a good purchasing is to contribute towards the profits of the

manufacturing activity. Another important objective is to ensure the availability of materials so thatdelivery schedules can be maintained, thus keeping the customer satisfied.

The complete purchasing cycle consists of the following steps

Receipt and analysis of the purchase requisition

Selection of potential sources of supply

Issuance of requests for quotationsReceipt and analysis of quotations

Selection of the right source

Determination of the right price

Issuance of the purchase order

Follow up to ensure scheduled delivery

Analysis of receiving reports Analysis and approval of vendor’s invoice for payment

For example, when purchasing a standard item from an old and established source, it is oftenassumed that price and terms of purchase are right and the purchase order will be placed uponreceipt of the purchase requisition.

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Process chart : Personal bank loan

Step number Description

O p e r a t i o n

M o v e m e n t

I n s p e c t i o n

D e l a y

S t o r a g e

Time distance

(min) ( meters)

Comment

1

2

3

4

5

6

7

8

9

10

1112

13

14

15

Customer selects banks & visits

Initial screening

Move to loans office

Wait

Discuss with loans officer

Complete application forms

Carry forms to verifier

Forms are checked

Wait as credit analysis verification is done

Supply further information

Move back to loans officeWait

Forms are checked

Complete arrangement

Leave

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

5

2 15

10

15

15

2

2 10

25

5

2 15

205

15

Summary:

Sno : No Time

Operation 5 55

Movements 5 6

Inspections 2 7

Delays 3 55

Storage 0 0

Total : 15 123

Time : 123

min Distance : 40

meters

(b) Process chart:

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Explain the significance of organization planning inmanufacturing environment.

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Explain the factors to be considered for determining thenumber of machine required in a plant.

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Ans: The number of machines required in a plant isdependent upon:

Quantity of parts to be manufactured.

Number of working hours in the plant.

Production rates on the operations to be performed.

Set up time

Operating efficiency of the plant.

Scrap loss

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A manufacturing unit has six departments A, B, C, D, E andF. they are located as shown in figure. The dailyexpected load transaction are: From A to B 20 tons,From B to A 10 tons, From B to C 15 tons, From A to F

25 tons, From C to D 30 tons, From D to C 50 tons, FromE to F 10 tons, From E to A 10 tons. Check whether thegiven arrangement of department is optimal or not. If notsuggest a best layout.

A B C

D E F

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To

From

A B C D E F

A - 20 25

B 10 - 15

C - 30

D 50 -

E 10 - 10

F -

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Differentiate between intermittent and continuousmanufacturing with respect to volume of production,product variety, frequency to change the setup,equipment, labor force, capital cost and unit cost in a

tabular form.

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Intermittent Manufacturing Continuous Manufacturing

Volume of production o Low to medium

Volume of production o Very high

Product variety

o Many, varied

Product variety

o Very few

Frequency to change the setup

o Very easy to change the set up for different

product variety

Frequency to change the setup

o It is fixed and cannot be modified easily and

involves top management commitment based on

demand of the product /market

Equipment

o It uses general purpose equipment

Equipment

o It uses special purpose equipment

Labor force

o Workers are required to have wide range of skills

so as to handles all types of equipment involved

in the layout

o Work force is more

Labor force

o As here most of the process is automated the

workers are expected to serve as a equipment

monitor

o Work force is less as compared to intermittent

process

Capital cost

o Initial cost of the equipment is high

Capital cost

o It involves high investment in plant & equipment

installation as the process is to be highly

automated

Unit cost

o Cost of the unit is very high because of slow

operation speed of the general purpose

equipment used

Unit cost

o Cost of the unit is low as the volume of

production is high but may increase if there is a

dis- economies of scale

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Discuss the advantage of value analysis. Discuss thestrength and weakness of line type organization.

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(a) Value analysis is the application of a set of techniques to an existing

product with a view to improving its value. It is thus a remedial process.Value engineering is the application of exactly the same set of techniques toa new products at the design stage , project concept or preliminary designwhen no hard ware exists to ensure that bad features are not added. Value

engineering is thus a preventive process.

As a value engineering/ value analysis aims at

Simplifying the product

Use cheaper and better materials

Modify and improve the design of productUse of efficient processes

Reduce the product cost

Increase the utility of the product by economical means

Save money & increase the profits

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Value Engineering helps the organization in bringing out the following advantages whenimplemented

Value engineering is a much faster cost reduction technique as it reduces the operating andmaintenance cost

It is less expensive technique

Value engineering reduce production costs and adds value to sales income of the products

Improves quality management

Improves resource efficiency

Simplifies the complex procedures & Increases procedural efficiency

Minimizes paperwork

Helps to compete more successfully in marketplace

Value Engineering helps the individuals you to learn how to

Improve your career skillsSeparate "Symptoms" from "problems"

Solve "root cause" problems and capture opportunities

Become more competitive by improving "benchmarking" process

Take command of a powerful problem solving methodology to use in any situation

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Thank You

MM ZG511-L18

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