OPERATIONS MANAGEMENT

DEMAND FORCASTING

To Forecast is to estimate or calculate in

advance.

• Demand forecasting is predicting the future demand of the product or services of an organization.

To minimize losses associated with

uncontrollable events external to the organization

To offset the actions of competitor organization

As an input to aggregate production

planning and/materials requirement planning

In decision making for facility capacity planning and for capital budgeting

To provide adequate staff to support

production requirements

Reasons for Demand

forecasting

To develop administrative plans and policies internal to an organization

To develop policies that apply to people who are not part of

the organization

To maximize gains from the events external to the organization

FORECASTING METHODS

• SUBJECTIVE METHODS

QUALITATIVE METHODS

• OBJECTIVE METHODS

QUANTITATIVE METHODS

FORECASTING METHODS

QUALITATIVE METHODS

QUANTITATIVE METHODS

CUSTOMER SURVEY SALES FORCE

COMPOSITE

EXECUTIVE OPINION

DELPHI METHOD

PAST ANALOGY

TIME SERIES ANALYSIS

CAUSAL ANALYSIS

SIMPLE MOVING

AVERAGE

SIMPLE EXPONENTIAL SMOOTHING

TREND ANALYSIS

QUALITATIVE METHODS

• Customer surveys:It is the customer who determines the demand for a product or service.

• Customer directly involved in the forcasting process.

• Sampling of customers will be taken here.

• Time consuming and expensive:at the same time,they may provide valuable information about the customers changing preferances,which may not be easily available elsewhere.

SALES FORCE COMPOSITE:• This approach to forcasting is less expensive compared to the customer surveys.• The sales force of a company is in direct contact with the ccustomes,thus they

may be advised to give their estimates about the likely sales of the product in their region.

• They may be required to give three estimates of expected demand:namely

1. PESSIMISTIC ESTIMATE(The lowest expected demand)

2. THE MOST LIKELY ESTIMATE(Having the highest chance of occurance)

3. OPTIMISTIC ESTIMATE(The highest expected demand)• Finally the marketing manager may compile these estimates for different regions

to arrive at the overall estimates of the demand forecast for the product.

EXECUTIVE OPINION:• A Jury of top executives from the company from different functional

areas such as marketing ,finance, human resource, production etc., are bought together to give their opinion about the forecast of a new product to be launched.

• This approach to forecasting is particularly suitable for new products which do not have any past history of sales.

DELPHI METHOD

• In this method a questionnaire email is sent to experts from various diversified streams, seeking their opinion on the forecast of a product.

The experts may be:

Technology forecasters Sales persons with varied experiences in promoting

high tech products.

PAST ANALOGY

For forecasting the sales of a new product, an analogy of the sales growth trends of other existing products may be taken.

These products may be substitute of the new product, complementary products or products related to consumers belonging to income groups similar to that being targeted by the new product.

QUANTITATIVE METHODS

TIME SERIES ANALYSIS:

• As the term time series analysis suggests, we require a time series of historical data with respect to time intervals(periods)in the past to make predictions for future demand.

Classified into two types namely….

• Simple moving average

• Simple exponential smoothing

CAUSAL ANALYSIS:

• Trend analysis:

• Trend analysis is a forecasting method used causal quanatitative analysis.

EXPONENTIAL SMOOTHING

Exponential smoothing is a technique that can be applied to time series data, either to produce smoothed data for presentation, or to make forecasts.

The time series data themselves are a sequence of observations.

This method is suitable for forecasting data with no trend or seasonal pattern.

MODULE-2

• FACILITY LOCATION-COST COMPLETION AND HIDDEN FACTORS-STEPS IN LOCATION SELECTION-TYPES OF MANUFACTURING SYSYTEM AND LAYOUT-FACILITY LAYOUT-LAYOUT BY PRODUCTS AND PROCESS-LIFE BALANCING-DESIGN OF OPERATION SYSYEMS:AGGREGATE PLANNING AND MASTER SCHEDULING,MRP,CRP.MATERIAL HANDLING:PRINCIPLES.EQUIPMENTS FOR MATERIAL HANDLING.

FACILITY LOCATION

FACILITY:

A Factory or plant is the

manufacturing facility of a company.

A Warehouse is the storage facility of a

manufacturing or a distribution

company.

The facility location decision is very important for big business houses as well

as new entrepreneurs.

Wrong location of the facility may lead to failure of the

complete project.

FACTORS AFFECTING FACILITY LOCATION/STEPS IN LOCATION SELECTION.

PROXIMITY TO CUSTOMERS: When customers or markets are located near the plant products can be easily supplied to them. This reduces the cost of the product, as the transportation cost is not added to it.

The product thus competes well with the competitors product.

Eg:Small ancillary units which are located near to the automotive factories.

PROXIMITY TO RAW MATERIALS:

Easily availability of the raw material is an another important factor for facility location selection.

Most textile units are located in Gujrat and maharahtra because these are the largest cotton growing areas in the country.

Iron and steel plants are located in Bihar and Orissa because of the large presence of iron ore mines in these regions.

• Easily availability of raw materials reduces the transportation cost, also it become easier to control its quality.

GOOD TRANSPORTATION FACILITIES:

Region near metro cities have the

advantage of good transportation facilities

as they have good rail,air,water and road

transportation networks.

AVAILABILITY OF POWER SUPPLYUninterrupted power supply is a

basic requirement of most industries. Some factories have to

set up their own captive power plants if located in areas with

power problems.

For e.g.: The factories of HINDALCO(Adithya Birla group)as well as Kanoria chemical Industries Ltd at UP have their own captive

power plants.

BASIC AMENITIES

The area for location of the plant should have water supply lines managed by the local muncipal

corporation

Roads up to the factory premises are always desirable.These basic

amenities are very useful even during the consrtuction period of

the plant.

GOVERNMENT POLICIESThe government of states such as Maharashtra,Gujrat and Karnataka

have been very successful in including big business business houses to set up their plants in

these states.

Local taxation policies and various promotional efforts help

in increasing the industrial activity.

Pondicherry is an examples of no sales tax regions, and therefore we

find that most of the companies have their offices/warehouses

located there.

ENVIRONMENTAL AND COMMUNITY CONSIDERATIONS

• Many state government have strict environmental policies in place which have to be followed by the industries operating there. The people residing in the area should not be against the idea of having a plant in their region as the effluents from a factory spoil the natural environment of the region.

• Opposition from the community regarding the construction of a plant in their region can disrupt the whole project.

PROXIMITY TO SUBCONTRACTORS

• The presence of small ancilliary units manufacturing small components/sub assemblies is important for any new factory

• If a new auto plant is set up in a place where the maruthy suzuki plant is already located,it will get the advantage of the subcontractors existing there.

• The subcontractors can immediately start supplying the components required by the new plant for starting its production process.

EASY AVAILABILITY OF CHEAP LAND

• Land is the basic necessity for the construction of a new land.

LESS CONSTRUCTION COST

• Construction cost of a plant may be low at a particular place due to the cheap labour available there.

• The construction material may also be cheaper at another place, such places are preferred for locating a plant.

AVAILABILITY OF CHEAP SKILLFULL AND EFFICIENT LABOUR

• India and other developing nations appear to have cheap labour,however the reality is that labour turns out to be expensive here because it is not efficient when compared to the labour in developed countries.

• Multinational companies prefer China over India to set up their global sourcing bases because the labour in China has become more skillfull and efficient .

RESIDENTIAL COMPLEXES,SCHOOLS,HOSPITALS,CLUBS

• Usually new factories are given land in remote villages by the state governments. proper facilities such as residentilal complexes,schools,clubs,hospitals etc are not available for the managers of these plants and their families at such places. under such situations company have to create these facilities on their own.

• Eg:The TISCO factory at Jamshedpur is the first example of this kind of in India,where the company have created all such facilities for its employees.

• In UP Indian telephone industries(Mankapur)

STEPS IN FACILITY LOCATION DECISION

• Define location objectives, decision criteria, basic requirements

• Use politicl,social,and economic data to narrow the potential locations to a few alternatives that satisfy the objectives

• Evaluate alternatives against basic requirements, and eliminate unacceptable locations

• Compare alternatives on quantitative basis, using cost volume, linear programming, center of gravity and other appropriate models

• Compare alternatives on qualitative basis using factor rating or other subjective methods

• Select the location the best satisfies the quantitative and qualitative criteria by using a weighted score or group decision process.

ASSIGNMENT-1

• Functions of Operations Management

• Explain the historical development of production and operation management

• Discuss the relation with the operation management and other functions of management