Operations Management Notes for Major Topics

8/18/2019 Operations Management Notes for Major Topics

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Q.1. Define operations management? Bring out the historical development of operations management and give the role of operationsmanagement in enhancing the productivity.

The design , execution , and control of operations that convert resources into desired goods and services , and implement a company's businessstrategy .Joseph G .Monks defines Operations Management as the process whereby resources, flowing within a defined system, are combined andtransformed by a controlled manner to add value in accordance with policies communicated by management.

The traditional view of manufacturing management began in eighteenth century when dam !mith recognised the economic benefits of specialization of labour. He recommended breaking of jobs down into subtasks and recognises workers to specialized tasks in which theywould become highly skilled and efficient. n the early twentieth century, !.". Taylor implemented #mith$s theories and developed scientificmanagement. !rom then till %& (, many techni)ues were developed prevailing the traditional view. *rief information about thecontributions to manufacturing management is shown in the Table.

"roduction Management becomes the acceptable term from %& (s to %&+(s. s !.". Taylor$s works become more widely known,managers developed techni)ues that focused on economic efficiency in manufacturing. "orkers were studied in great detail to eliminatewasteful efforts and achieve greater efficiency. t the same time, psychologists, socialists and other social scientists began to study peopleand human behaviour in the working environment. n addition, economists, mathematicians, and computer socialists contributed newer,more sophisticated analytical approaches.

"ith the %&-(s emerge two distinct changes in our views. The most obvious of these, reflected in the new name Operations Management

was a shift in the service and manufacturing sectors of the economy. s service sector became more prominent, the change fromproduction$ to operations$ emphasized the broadening of our field to service organizations. The second, more suitable change was the

beginning of an emphasis on synthesis, rather than just analysis, in management practices.

/perations management practices focus on systems management and include nformation and 0ommunicationTechnology 1 0T2, 3ust in Time 13 T2, Total 4uality 5anagement 1T452, and lean production, amongst othersand operations management primarily focuses on transformation and value adding activities which will enhance

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productivity by reducing the utilization of resources and effectively optimizing the process to give maximumoutput with minimum input.

#chematic model of operations management transforming input to output effectively

2. Defne productivity and explain the actors a ecting productivity and also listthe techniques to improve productivity.

6roductivity is defined in terms of utilization of resources, like material and labour. n simple terms, productivity is the ratio of output to input. !or example, productivity of labour can be measured asunits produced per labour hour worked. 6roductivity is closely linked with )uality, technology and

profitability. Hence, there is a strong stress on productivity improvement in competitive businessenvironment. 6roductivity can be improved by 1 a2 controlling inputs, 1 b2 improving process so thatthe same input yields higher output, and 1 c2 by improvement of technology.

Factors a ecting productivity can be classifed as (a) xternal actors and (b)!nternal actors


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"echniques to improve productivity

#.$. %ive the environment o operations &ith a neat schematic bloc' diagram.

ne o the most encompassing in uences on productivity is the environmentin &hich organi*ation operates. "he social impact o an organi*ation is are ection o the values held by top management. !t evolves rom the religiousand cultural norms o society+ rom childhood training+ education+ andre ection on the purpose o li e and the value o one,s sel and o others. "hepre erred values o the society re ect purpose+ integrity and a respect or theli e and humanity o others. very acet o our economic and socialenvironment regulated and controlled by la& designed to protect generalpublic. "he fgure illustrates some o the la&s impact on the productivity o the frms.

/perations 5anagement concern with the conversion of inputs into outputs, using physical resources,#o as to provide the desired utilities to the customer while meeting the other organizational objectivesof effectiveness, efficiency and adoptability. t distinguishes itself from other functions such as

personnel, marketing, finance, etc. by its primary concern for conversion by using physicalresources$.!ollowing are the activities, which are listed under 6roduction and /perations 5anagement functions7%. 8ocation of facilities.9. 6lant layouts and 5aterial Handling.

. 6roduct :esign.;. 6rocess :esign.+. 6roduction and 6lanning 0ontrol.


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Environment of operations

4.;. %ive the characteristics o Decisions and give the rame&or' or decisionma'ing.

/perations decision range from simple judgments to complex analyses, which also involves judgment.

3udgment typically incorporates basic knowledge, experience, and common sense. They enable to blend objectives and sub>objective data to arrive at a choice.The appropriateness of a given type of analysis depends onThe significant or long lasting decisions,The time availability and the cost of analysis, andThe degree of complexity of the decision.The significant or long lasting decisions deserve more considerations than routine ones.6lant investment, which is a long>range decision, may deserve more thorough analysis. The timeavailability and the cost of analysis also influence the amount of analysis. The degree of complexityof the decision increases when many variables are involved, variables are highly independent and thedata describing the variables are uncertain.*usiness decision>makers have always had to work with incomplete and uncertain data.!igure below depicts the information environment of decisions. n some situations a decision maker has complete information about the decision variables? at the other extremes, no information isavailable. /perations management decisions are made all along this continuum.0omplete certainty in decision>making re)uires data on all elements in the population. f such data arenot available, large samples lend more certainty than do small ones. *eyond this, subjectiveinformation is likely to be better than no data at all.


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#rame$ork for decision makingn analytical and scientific framework for decision implies the following systematic steps

• :efining the problem.• @stablish the decision criteria.• !ormulation of a model.• Aenerating alternatives.• @valuation of the alternatives.• mplementation and monitoring.

D%#&'&'G ()% " *OB+%M:efining the problem enables to identify the relevant variables and the cause of the problem. 0arefuldefinition of the problem is crucial. !inding the root cause of a problem needs some )uestioning anddetective work. f a problem defined is too narrow, relevant variable may be omitted. f it is broader,many tangible aspects may be included which leads to the complex relationships.%!( B+&!) ()% D%,&!&O' , *&(%*&@stablish the decision criterion is important because the criterion reflects the goals and purpose of thework efforts. !or many years profits served as a convenient and accepted goal for many organisations

based on economic theory. Bowadays organisation will have multiple goals such as employee welfare,high productivity, stability, market share, growth, industrial leadership and other social objectives.# O*M-+ (&O' O# M OD%+!ormulation of a model lies at the heart of the scientific decision>making process. 5odel describes theessence of a problem or relationship by abstracting relevant variables from the real world situation.5odels are used to simplify or approximate reality, so the relationships can be expressed in tangibleform and studied in isolation.5odeling a decision situation usually re)uires both formulating a model and collecting the relevantdata to use in the model. 5athematical and statistical models are most useful models for understanding the complex business of the problem. 5athematical models can incorporate factor thatcannot readily be visualized. "ith the aid of computers and simulation techni)ues, these )uantitativemodels reflexible.

G %'%* (&'G +(%*' (& %!lternatives are generated by varying the values of the parameters. 5athematical and statisticalmodels are particularly suitable for generating alternatives because they can be easily modified. Themodel builder can experiment with a model by substituting different values for controllable anduncontrollable variable.% +- (&O' O# ()% +(%*' (& %!@valuation of the alternatives is relatively objective in an analytical decision process because thecriteria for evaluating the alternatives have been precisely defined. The best alternative is the one thatmost closely satisfies the criteria. #ome models like 866 model automatically seek out a maximisingor minimising solution. n problems various heuristic and statistical techni)ues can be used to suggestthe best course of action.&M"+%M%'( (&O' 'D M O'&(O*&'G

mplementation and monitoring are essential for completing the managerial action. The best course of action or the solution to a problem determined through a model is implemented in the business world.


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/ther managers have to be convinced of the merit of the solution. Then the follow>up procedures arere)uired to ensure about appropriate action taken. This includes an analysis and evaluation of thesolution along with the recommendations for changes or adjustments.

Q./. @xplain decision methodology and list variables for same.

The kind and amount of information available helps to determine which analytical methods are mostappropriate for modelling a given decision. !igure illustrates some useful )uantitative methods thatare classified according to the amount of certainty that exists with respect to the decision variablesand possible outcomes. These analytical techni)ues often serve as the basis for formulating models,which help to reach operational decisions.

Complete Certainty MethodsCnder complete certainty conditions, all relevant information about the decision variables andoutcomes is known or assumed to be known. !ollowing are some of the methods used7

Algebra 0 This basic mathematical logic is very useful for both certainty and uncertainty analysis."ith valid assumptions, algebra provides deterministic solutions such as break>even analysis and

benefit cost analysis. Calculus 0 The branch of mathematics provides a useful tool for determining optimal value wherefunctions such as inventory costs, are to be maximised or minimised. Mathematical programming 0 6rogramming techni)ues have found extensive applications in makinga product mix decisions? minimising transportation costs, planning and scheduling production and

other areas.Risk and Uncertainty Methodsn risk and uncertainty situations, information about the decision variables or the outcomes is

probabilistic. !ollowing are some of the useful approaches7!tatistical analysis0 /bjective and subjective probabilities with the use of probability and probabilitydistribution, @stimation and tests of hypothesis, *ayesian statistics, :ecision theory, 0orrelation andregression techni)ue for forecasting demand and nalysis of variance are some of the techni)ues usedfor decision>making.Queuing theory0 The analysis of )ueues in terms of waiting>time length and mean waiting time isuseful in analysing service systems, maintenance activities, and shop floor control activities.!imulation0 #imulation duplicates the essence of an activity. 0omputer simulations are valuable toolsfor the analysis of investment outcomes, production processes, scheduling and maintenance activities.

)euristic methods0 Heuristic methods involve set of rules, which facilitate solutions of scheduling,layout and distribution problems when applied in a consistent manner.


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'et$ork analysis techni ues0 Betwork approaches include decision trees, 065 and 6@DT methods.They are helpful in identifying alternative course of action and controlling the project activities.-tility theory0 Ctility theory or preference theory allows decision>makers to incorporate their ownexperience and values into a relatively formalized decision structure.Extreme Uncertainty MethodsCnder extreme uncertainty, no information is available to assess the likelihood of alternativeoutcomes. !ollowing are some of strategies to solve this7Game theory0 Aame theory helps decision>makers to choose course of action when there is noinformation about what conditions will prevail.,oin flip0 !lipping a coin is sometimes used in situation where the decision>makers are whollyindifferent.Decision-Making under Uncertainty

Bo information is available on how likely the various states of nature are under those conditions.!our possible decision criteria are 5aximin, 5aximax, 8aplace, and 5inimax regret. Theseapproaches can be defined as follows7Ma2imin0 :etermine the worst possible pay>off for each alternative, and choose the alternative thathas the Ebest worst.F The 5aximin approach is essentially a pessimistic one because it takes into

account only the worst possible outcome for each alternative. The actual outcome may not be as badas that, but this approach establishes a Eguaranteed minimum.FMa2ima20 :etermine the best possible pay>off, and choose the alternative with that pay>off. The5aximax approach is an optimistic, Ego for itF strategy? it does not take into account any pay>offother than the best.+aplace0 :etermine the average pay>off for each alternative, and choose the alternative with the bestaverage. The 8aplace approach treats the states of nature as e)ually likely.Minima2 regret0 :etermine the worst regret for each alternative, and choose the alternative with theEbest worst.F This approach seeks to minimize the difference between the pay>off that is realized andthe best pay>off for each state of nature.

4.< *ring out various aspects involved in production systems design and systems capacity 6lanning.

6roduction systems design involves planning for the inputs, transformation activities, and outputs of a production operation. :esign plays a major role because they entail significant investment of fundsand establish cost and productivity patterns that continue in future.The capacity of the manufacturing unit can be expressed in number of units of output per period. nsome situations measuring capacity is more complicated when they manufacture multiple products. nsuch situations, the capacity is expressed as man>hours or machine hours. The relationship betweencapacity and output is shown in the !igure below.


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:esigned capacity of a facility is the planned or engineered rate of output of goods or services under normal or full scale operating conditions. !or example, the designed capacity of the cement plant is%(( T6: 1Tonnes per day2. 0apacity of the sugar factory is %+( tonnes of sugarcane crushing per day.The uncertainty of future demand is one of the most perplexing problems faced by new facility

planners./rganisation does not plan for enough regular capacity to satisfy all their immediate demands.:esign for a minimum demand would result in high utilisation of facilities but results in inferior service and dissatisfaction of customers because of inade)uate capacity. The design capacity shouldreflect management$s strategy for meeting the demand. The best approach is to plan for some in>

between level of capacity.

!ystem3effective capacity0 #ystem capacity is the maximum output of the specific product or productmix the system of workers and machines is capable of producing as an integrated whole.#ystem capacity is less than design capacity or at the most e)ual it because of the limitation of

product mix, )uality specification, and breakdowns. The actual is even less because of many factorsaffecting the output such as actual demand, downtime due to machineGe)uipment failure, unauthorizedabsenteeism.The system capacity is less than design capacity because of long>range uncontrollable factors.The actual output is still reduced because of short>term effects such as breakdown of e)uipment,inefficiency of labour. The system efficiency is expressed as ratio of actual measured output to thesystem capacity.These different measures of capacity are useful in defining two measures of system effectiveness7efficiency and utilization. Efficiency is the ratio of actual output to effective capacity.

Utilization is the ratio of actual output to design capacity.

0apacity planning7

:esign of the production system involves planning for the inputs, conversion process and outputs of production operation. The effective management of capacity is the most important responsibility of production management. The objective of capacity management (i.e. planning and control of capacity2is to match the level of operations to the level of demand.0apacity planning is to be carried out keeping in mind future growth and expansion plans, markettrends, sales forecasting, etc. t is a simple task to plan the capacity in case of stable demand. *ut in

practice the demand will be seldom stable. The fluctuation of demand creates problems regarding the procurement of resources to meet the customer demand. 0apacity decisions are strategic in nature.0apacity is the rate of productive capability of a facility. 0apacity is usually expressed as volume of output per period of time.


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6roduction managers are more concerned about the capacity for the following reasons7 #ufficient capacity is re)uired to meet the customers demand in time. 0apacity affects the cost efficiency of operations. 0apacity affects the scheduling system.0apacity creation re)uires an investment.0apacity planning is the first step when an organisation decides to produce more or new products.

4.-. :istinguish between 8ong term capacity strategies and short term capacity strategies by givingan overview of various aspects involved in them.

%.+ong4term capacity strategies0 8ong>term capacity re)uirements are more difficult to determine because the future demand and technology are uncertain. !orecasting for five or ten years into thefuture is more risky and difficult. @ven sometimes company$s today$s products may not be existing inthe future. 8ong>range capacity re)uirements are dependent on marketing plans, product developmentand life>cycle of the product. 8ong>term capacity planning is concerned with accommodating majorchanges that affect overall level of the output in long>term. 5arketing environmental assessment andimplementing the long>term capacity plans in a systematic manner are the major responsibilities of

management. !ollowing parameters will affect long>range capacity decisions.Multiple products 7 0ompany$s produce more than one product using the same facilities in order toincrease the profit. The manufacturing of multiple products will reduce the risk of failure. Havingmore than on product helps the capacity planners to do a better job.*ecause products are in different stages of their life cycles, it is easy to schedule them to getmaximum capacity utilisation."hasing in capacity0 n high technology industries, and in industries where technology developmentsare very fast, the rate of obsolescence is high. The products should be brought into the market )uickly.The time to construct the facilities will be long and there is no much time, as the products should beintroduced into the market )uickly. Here the solution is phase in capacity on modular basis. #omecommitment is made for building funds and men towards facilities over a period of >+ years. This isan effective way of capitalizing on technological breakthrough.

"hasing out capacity0 The outdated manufacturing facilities cause excessive plant closures and downtime. The impact of closures is not limited to only fixed costs of plant and machinery. Thus, the

phasing out here is done with humanistic way without affecting the community. The phasing outoptions makes alternative arrangements for men like shifting them to other jobs or to other locations,compensating the employees, etc.

9. !hort4term capacity strategies0 5anagers often use forecasts of product demand to estimate theshort>term workload the facility must handle. 5anagers looking ahead up to %9 months, anticipateoutput re)uirements for different products, and services. 5anagers then compare re)uirements withexisting capacity and then take decisions as to when the capacity adjustments are needed.!or short>term periods of up to one year, fundamental capacity is fixed. 5ajor facilities will not bechanged. 5any short>term adjustments for increasing or decreasing capacity are possible. Theadjustments to be re)uired depend upon the conversion process like whether it is capital intensive orlabour intensive or whether product can be stored as inventory.0apital>intensive processes depend on physical facilities, plant and e)uipment. #hort>term capacitycan be modified by operating these facilities more or less intensively than normal. n labour intensive

processes short>term capacity can be changed by laying off or hiring people or by giving overtime toworkers. The strategies for changing capacity also depend upon how long the product can be stored asinventory.The short>term capacity strategies are7

%. &nventories0 #tock finished goods during slack periods to meet the demand during peak period.

9. Backlog0 :uring peak periods, the willing customers are re)uested to wait and their ordersare fulfilled after a peak demand period.

. %mployment level 5hiring or firing60 Hire additional employees during peak demand periodand layoff employees as demand decreases.


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;. %mployee training0 :evelop multi skilled employees through training so that they can berotated among different jobs. The multi skilling helps as an alternative to hiring employees.

+. !u7contracting0 :uring peak periods, hire the capacity of other firms temporarily to makethe component parts or products.


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Hence, at the time of starting any industry, one should generate several alternate sites for locating the plant. fter a critical analysis, the best site is to be selected for commissioning the plant.8ocation of warehouses and other facilities are also having direct bearing on the operational

performance of organizations.The existing firms will seek new locations in order to expand the capacity or to place the existingfacilities. "hen the demand for product increases, it will give rise to following decisions7

• "hether to expand the existing capacity and facilities.• "hether to look for new locations for additional facilities.• "hether to close down existing facilities to take advantage of some new locations.

&&. &n ,ase of +ocation ,hoice for %2isting Organisationn this case a manufacturing plant has to fit into a multi>plant operations strategy. That is, additional

plant location in the same premises and elsewere under following circumstances7%. 6lant manufacturing distinct products.9. 5anufacturing plant supplying to specific market area.

. 6lant divided on the basis of the process or stages in manufacturing.;. 6lants emphasizing flexibility.The different operations strategies under the above circumstances could be7%."lants manufacturing distinct products0 @ach plant services the entire market area for theorganization. This strategy is necessary where the needs of technological and resource inputs arespecialized or distinctively different for the different product>lines.!or example, a high )uality precision product>line should not be located along with other product>linere)uiring little emphasis on precision. t may not be proper to have too many contradictions such assophisticated and old e)uipment, highly skilled and semi>skilled personnel, delicates processes andthose that could permit rough handlings, all under one roof and one set of managers. #uch a settingleads to much confusion regarding the re)uired emphasis and the management policies.6roduct specialization may be necessary in a highly competitive market. t may be necessary toexploit the special resources of a particular geographical area. The more decentralized these pairs arein terms of the management and in terms of their physical location, the better would be the planningand control and the utilization of the resources.9. Manufacturing plants supplying to a specific market area0 Here, each plant manufacturesalmost all of the company$s products. This type of strategy is useful where market proximityconsideration dominates the resources and technology considerations. This strategy re)uires great dealof coordination from the corporate office. n extreme example of this strategy is that of soft drinks

bottling plants.. "lants divided on the 7asis of the process or stages in manufacturing0 @ach production process

or stage of manufacturing may re)uire distinctively different e)uipment capabilities, labour skills,technologies, and managerial policies and emphasis. #ince the products of one plant feed into theother plant, this strategy re)uires much centralized coordination of the manufacturing activities fromthe corporate office that are expected to understand the various technological aspects of all the plants.;. "lants emphasi8ing fle2i7ility0 This re)uires much coordination between plants to meet the

changing needs and at the same time ensure efficient use of the facilities and resources.!re)uent changes in the long>term strategy in order to improve be efficiently temporarily, are nothealthy for the organization. n any facility location problem the central )uestion is7 s this a locationat which the company can remain competitive for a long time $!or an established organization in order to add on to the capacity, following are the ways71a2 Expansion of the facilities at the existing site: This is acceptable when it does not violate the basic

business and managerial outlines, i.e ., philosophies, purposes, strategies and capabilities. !orexample, expansion should not compromise )uality, delivery, or customer service.1b2 Relocation of the facilities (closing down the existing ones): This is a drastic step which can becalled as Cprooting and Transplanting$. Cnless there are very compelling reasons, relocation is notdone. The reasons will be either bringing radical changes in technology, resource availability or otherdestabilization.

ll these factors are applicable to service organizations, whose objectives, priorities and strategiesmay differ from those of hardcore manufacturing organizations.


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&&&. &n ,ase of Glo7al +ocation*ecause of globalisation, multinational corporations are setting up their organizations in ndia and

ndian companies are extending their operations in other countries. n case of global locations there isscope for virtual proximity and virtual factory.

&*(- + " *O9&M&(:

"ith the advance in telecommunications technology, a firm can be in virtual proximity to itscustomers. !or a software services firm much of its logistics is through the informationGcommunication pathway. 5any firms use the communications highway for conducting a large portionof their business transactions. 8ogistics is certainly an important factor in deciding on a locationI whether in the home country or abroad. 5arkets have to be reached. 0ustomers have to be contacted.Hence, a market presence in the country of the customers is )uite necessary.

&*(- + # ,(O*:5any firms based in C# and CJ in the service sector and in the manufacturing sector often outsources part of their business processes to foreign locations such as ndia. Thus, instead of one$s ownoperations, a firm could use its business associates$ operations facilities. The ndian *6/ firm is aforeign>based company$s virtual service factory$. #o a location could be one$s own or one$s businessassociates. The location decision need not always necessarily pertain to own operations.

4.=. Aive an overview of factors influencing plant location.

!acility location is the process of determining a geographic site for a firm$s operations. 5anagers of both service and manufacturing organizations must weigh many factors when assessing thedesirability of a particular site, including proximity to customers and suppliers, labour costs, andtransportation costs.8ocation conditions are complex and each comprises a different 0haracteristic of a tangible 1i.e.!reight rates, production costs2 and non>tangible 1i.e. reliability, !re)uency security, )uality2 nature.8ocation conditions are hard to measure. Tangible cost based factors such as wages and products costscan be )uantified precisely into what makes locations better to compare. /n the other hand non>tangible features, which refer to such characteristics as reliability, availability and security, can only

be measured along an ordinal or even nominal scale. /ther non>tangible features like the percentageof employees that are unionized can be measured as well. To sum this up non>tangible features arevery important for business location decisions.

t is appropriate to divide the factors, which influence the plant location or facility location on the basis of the nature of the organisation as7%.General locational factors , which include controllable and uncontrollable factors for all type oforganisations.9. !pecific locational factors specifically re)uired for manufacturing and service organisations.8ocation factors can be further divided into two categories7:ominant factors are those derived from competitive priorities 1cost, )uality, time, and flexibility2 andhave a particularly strong impact on sales or costs. #econdary factors also are important, butmanagement may downplay or even ignore some of them if other factors are more important.

General Locational Factors!ollowing are the general factors re)uired for location of plant in case of all types of organisations., O'(*O++ B+% # ,(O*!%. 6roximity to markets9. #upply of materials

. Transportation facilities;. nfrastructure availability+. 8abour and wages


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- ',O'(*O++ B+% # ,(O*!=. Aovernment policy&. 0limate conditions%(. #upporting industries and services%%. 0ommunity and labour attitudes%9. 0ommunity nfrastructure.

4.&. Defne orecasting. -hat are ob ectives o orecasting also list the varioustypes o orecasting methods!orecasts are estimates of the occurrence, timing, or magnitude of uncertain future events. !orecastsare essential for the smooth operations of business organizations. They provide information that canassist managers in guiding future activities toward organizational goals.The very objective of forecasting is to be accurate as possible, so that planning of resources can bedone in a very economical manner and therefore, propagate optimum utilization of resources.!orecasting helps in establishing relationship among many variables, which go into manufacturing of the product. @ach forecast situation must be analyzed independently along with forecasting method./perations managers are primarily concerned with forecasts of demandIwhich are often made by 1or in conjunction with2 marketing. However, managers also use forecasts to estimate raw material prices,

plan for appropriate levels of personnel, help decide how much inventory to carry, and a host of other activities. This results in better use of capacity, more responsive service to customers, and improved

profitability.There are numerous methods to forecasting depending on the need of the decision>maker. These can

be categorized in two ways7%. /pinion and 3udgmental 5ethods or 4ualitative 5ethods.a. /pinion #urvey

b. 5arket researchc. :elphi Techni)ue9. Time #eries or 4uantitative !orecasting 5ethods.

• 5oving average• "eighted moving average•

Jalman filtering• @xponential smoothing

http://en.wikipedia.org/wiki/Moving_averagehttp://en.wikipedia.org/wiki/Weighted_moving_averagehttp://en.wikipedia.org/wiki/Kalman_filteringhttp://en.wikipedia.org/wiki/Exponential_smoothinghttp://en.wikipedia.org/wiki/Moving_averagehttp://en.wikipedia.org/wiki/Weighted_moving_averagehttp://en.wikipedia.org/wiki/Kalman_filteringhttp://en.wikipedia.org/wiki/Exponential_smoothing


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• utoregressive moving average 1 D5 2• utoregressive integrated moving average 1 D 5 2• @xtrapolation• 8inear prediction• Trend estimation•

Arowth curve 1statistics2

4.%(. Aive an overview of forecasting variables.

!orecasting activities are a function of 1%2 the type of forecast 1 e.g ., demand, technological2, 192 thetime horizon 1short, medium, or long range2, 1 2 the database available, and 1;2 the methodologyemployed 1)ualitative or )uantitative2. !orecasts of demand are based primarily on non>random trendsand relationships, with an allowance for random components. !orecasts for groups of products tend to

be more accurate than those for single products, and short>term forecasts are more accurate than long>term forecasts 1greater than five years2. 4uantification also enhances the objectivity and precision of aforecast.

4.%%. "hat is aggregate planning and 5aster #cheduling :escribe in brief about the variables usedin aggregate planning.

Aggregate planning is the process of planning the quantity and ti ing of output over the intermediaterange 1often to %= months2 by adjusting the production rate, employment, inventory, and othercontrollable variables. ggregate planning links long>range and short>range planning activities. t isEaggregateF in the sense that the planning activities at this early stage are concerned withhomogeneous categories 1families2 such as gross volumes of products or number of customers served.

!aster scheduling follows aggregate planning and expresses the overall plan in terms of the amountsof specific end items to produce and dates to produce them. t uses information from both forecastsand orders on hand, and it is the major control 1driver2 of all production activities. !igure illustrates asimplified aggregate plan and master schedule.

ggregate planning is a complex problem largely because of the need to coordinate interactingvariables in order for the firm to respond to the 1uncertain2 demand in an effective way. Tableidentifies some of the key variables available to planners and the costs associated with them.

4.%9 @xplain the strategies of ggregate 6lanning with an illustration.

#everal different strategies have been employed to assist in aggregate planning. Three EpureFstrategies are recognized. The pure strategies stem from early models that depicted production resultswhen only one of the decision variables was permitted to vary all others being held constant.Three focussed strategies are7%. ary production to match demand 7y changes in employment 5,hase demand strategy60 Thisstrategy permits hiring and layoff of workers, use of overtime, and subcontracting as re)uired in each

period. However, inventory build>up is not used.9. "roduce at a constant rate and use inventories. 5+evel production strategy60 This strategyretains a stable work force producing at a constant output rate. nventory can be accumulated tosatisfy peak demands. n addition, subcontracting is allowed and back orders can be accepted.

http://en.wikipedia.org/wiki/Autoregressive_moving_average_modelhttp://en.wikipedia.org/wiki/Autoregressive_integrated_moving_averagehttp://en.wikipedia.org/wiki/Extrapolationhttp://en.wikipedia.org/wiki/Linear_predictionhttp://en.wikipedia.org/wiki/Trend_estimationhttp://en.wikipedia.org/wiki/Growth_curve_(statistics)http://en.wikipedia.org/wiki/Autoregressive_moving_average_modelhttp://en.wikipedia.org/wiki/Autoregressive_integrated_moving_averagehttp://en.wikipedia.org/wiki/Extrapolationhttp://en.wikipedia.org/wiki/Linear_predictionhttp://en.wikipedia.org/wiki/Trend_estimationhttp://en.wikipedia.org/wiki/Growth_curve_(statistics)


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6romotional programmes may also be used to shift demand.. "roduce $ith sta7le $orkforce 7ut vary the utili8ation rate 5!ta7le $ork4force strategy60 This

strategy retains a stable work force but permits overtime, part>time, and idle time.#ome versions of this strategy permit back orders, subcontracting, and use of inventories. lthoughthis strategy uses overtime, it avoids the detrimental effects of layoff.

"e can use the following data in !igure to illustrate the three focussed strategies described above.These figures display a histogram of a &>month forecast for motors. The total re)uirement for the &months is


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e. 6hysical distributionf. /utsourcingGpartnershipsg. 6erformance measurementh. "arehousing management

4.%; Aive the meaning of nventory. "hat are the reasons for keeping inventories :escribe the

meaning of nventory control and write the objectives of nventory control. "hat are benefits of inventory control

5eaning of nventorynventory generally refers to the materials in stock. t is also called the idle resource of an enterprise.nventories represent those items which are either stocked for sale or they are in the process of

manufacturing or they are in the form of materials, which are yet to be utilised. The interval betweenreceiving the purchased parts and transforming them into final products varies from industries toindustries depending upon the cycle time of manufacture. t is, therefore, necessary to holdinventories of various kinds to act as a buffer between supply and demand for efficient operation ofthe system.Thus, an effective control on inventory is a must for smooth and efficient running of the productioncycle with least interruptions.Deasons for keeping inventory%.(o sta7ilise production0 The demand for an item fluctuates because of the number of factors, e.g.#seasonality, production schedule etc. The inventories 1raw materials and components2 should be madeavailable to the production as per the demand failing which results in stock out and the productionstoppage takes place for want of materials. Hence, the inventory is kept to take care of this fluctuationso that the production is smooth.9. (o take advantage of price discounts0 Csually the manufacturers offer discount for bulk buyingand to gain this price advantage the materials are bought in bulk even though it is not re)uiredimmediately. Thus, inventory is maintained to gain economy in purchasing.

. (o meet the demand during the replenishment period0 The lead time for procurement of

materials depends upon many factors like location of the source, demand supply condition, etc. #oinventory is maintained to meet the demand during the procurement 1replenishment2 period.


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;. (o prevent loss of orders 5sales60 n this competitive scenario, one has to meet the deliveryschedules at %(( per cent service level, means they cannot afford to miss the delivery schedule whichmay result in loss of sales. To avoid the organizations have to maintain inventory.+. (o keep pace $ith changing market conditions0 The organizations have to anticipate thechanging market sentiments and they have to stock materials in anticipation of non>availability ofmaterials or sudden increase in prices.#ometimes the organizations have to stock materials due to other reasons like suppliers minimum)uantity condition, seasonal availability of materials or sudden increase in prices.5eaning of nventory control

nventory control is a planned approach of determining what to order, when to order and how much toorder and how much to stock so that costs associated with buying and storing are optimal withoutinterrupting production and sales. nventory control basically deals with two problems7 1 i2 "henshould an order be placed 1/rder level2, and 1 ii2 How much should be ordered 1/rder )uantity2.These )uestions are answered by the use of inventory models. The scientific inventory control systemstrikes the balance between the loss due to non>availability of an item and cost of carrying the stock of an item. #cientific inventory control aims at maintaining optimum level of stock of goods re)uired bythe company at minimum cost to the company.

O !ecti"es o# $n"entory Control%. To ensure ade)uate supply of products to customer and avoid shortages as far as possible.9. To make sure that the financial investment in inventories is minimum 1 i.e.# to see that the workingcapital is blocked to the minimum possible extent2.

. @fficient purchasing, storing, consumption and accounting for materials is an important objective.;. To maintain timely record of inventories of all the items and to maintain the stock within thedesired limits+. To ensure timely action for replenishment.term and long>term planning of materials.%ene&ts o# $n"entory Control

t is an established fact that through the practice of scientific inventory control, following are the

benefits of inventory control7%. mprovement in customer$s relationship because of the timely delivery of goods and service.9. #mooth and uninterrupted production and, hence, no stock out.

. @fficient utilisation of working capital. Helps in minimising loss due to deterioration, obsolescencedamage and pilferage.;. @conomy in purchasing.+. @liminates the possibility of duplicate ordering.

4.%+. Aive an overview of the types of inventory and explain the techni)ues of inventory control.

Inventory in manufacturing companies:Manufacturing companies produce goods and sell them to customers or merchandising companies. Manufacturing companies normally maintainthree inventory accounts. These are: raw materials inventory, work in process inventory and finished goods inventory. These are briefly explained

below:Raw materials inventory:Raw material is the basic material that is processed and converted into finished goods. The cost incurred to obtain raw materials that have not yetbeen placed into production is reported as raw materials inventory in the current assets section of the balance sheet. Examples of raw materialsinclude wood for the manufacturers of cricket bat and steel for the manufacturers of cars.

Work-in-process inventory:The units that remain incomplete at the end of a period are known as work in process inventory. These units need the addition of more materials,labor or manufacturing overhead to be completed int the coming period. !ike raw materials, work in process inventory is reported in the currentassets section of the balance sheet.

Finished goods inventory:"inished goods are completed but unsold goods. The total cost incurred to complete these unsold goods are reported as finished goods inventoryalong with raw materials and work in process inventory in the current assets section of the balance sheet.The three inventory accounts described above are common among manufacturing companies# however, a fourth inventory account knownas manufacturing or factory supplies account is some time maintained by manufacturing companies. $t includes items that are not the basic rawmaterial to be process but are used to manufacture a product. Examples of such items include nails, glue, cleaning materials, packagingmaterials, lubrication, machine oils etc. The inventory of such items on hand at the end of a period is also presented on the balance sheet. The

packaging materials presented in the current asset section of the manufacturing company is an example of such material.


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n any organization, depending on the type of business, inventory is maintained. "hen the number ofitems in inventory is large and then large amount of money is needed to create such inventory, it

becomes the concern of the management to have a proper control over its ordering, procurement,maintenance and consumption. The control can be for order )uality and order fre)uency.

The different techni)ues of inventory control are7 1%2 *0 analysis, 192 H58 analysis,1 2 K@: analysis, 1;2 !#B analysis, 1+2 #:@ analysis, 1heads and then proper exercise is exercised for each sub>heads.%. B, analysis0 n this analysis, the classification of existing inventory is based on annualconsumption and the annual value of the items. Hence we obtain the )uantity of inventory itemconsumed during the year and multiply it by unit cost to obtain annual usage cost. The items are thenarranged in the descending order of such annual usage cost. The analysis is carried out by drawing agraph based on the cumulative number of items and cumulative usage of consumption cost.0lassification is done as follows7


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/nce *0 classification has been achieved, the policy control can be formulated as follows71a2 A-Item: Kery tight control, the items being of high value. The control need be exercised athigher level of authority.1b2 B-Item: 5oderate control, the items being of moderate value. The control need be exercisedat middle level of authority.1c2 C-Item: The items being of low value, the control can be exercised at gross root level of authority, i.e ., by respective user department managers.9. )M+ analysis0 n this analysis, the classification of existing inventory is based on unit priceof the items. They are classified as high price, medium price and low cost items.

. %D analysis0 n this analysis, the classification of existing inventory is based on criticalityof the items. They are classified as vital, essential and desirable items. t is mainly used in spare

parts inventory.;. #!' analysis0 n this analysis, the classification of existing inventory is based consumptionof the items. They are classified as fast moving, slow moving and non>moving items.!D% analysis0 n this analysis, the classification of existing inventory is based on the items.seasonal items.!or effective inventory control, combination of the techni)ues of *0 with K@: or *0 withH58 or K@: with H58 analysis is practically used.

4.%


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Material re uirements planning 1M*" 2 is a production planning , scheduling, and inventory controlsystem used to manage manufacturing processes. 5ost 5D6 systems are software >based, while it is

possible to conduct 5D6 by hand as well.n 5D6 system is intended to simultaneously meet three objectives7

• @nsure materials are available for production and products are available for delivery tocustomers.

• 5aintain the lowest possible material and product levels in store• 6lan manufacturing activities, delivery schedules and purchasing activities.

4.%- what is capacity management and give the overview of 0D6 activities.,apacity planning is the process of determining the production capacity needed by an organizationto meet changing demands for its products . n the context of capacity planning, design capacity is themaximum amount of work that an organization is capable of completing in a given period. @ffectivecapacity is the maximum amount of work that an organization is capable of completing in a given

period due to constraints such as )uality problems, delays, material handling, etc. The phrase is alsoused in business computing as a synonym for capacity management .

discrepancy between the capacity of an organization and the demands of its customers results ininefficiency, either in under>utilized resources or unfulfilled customers. The goal of capacity planning

is to minimize this discrepancy. :emand for an organization's capacity varies based on changes in production output, such as increasing or decreasing the production )uantity of an existing product, or producing new products. *etter utilization of existing capacity can be accomplished through

http://en.wikipedia.org/wiki/Production_planninghttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Delivery_(commerce)http://en.wikipedia.org/wiki/Delivery_(commerce)http://en.wikipedia.org/wiki/Capacity_utilizationhttp://en.wikipedia.org/wiki/Demand_curvehttp://en.wikipedia.org/wiki/Demand_curvehttp://en.wikipedia.org/wiki/Demand_curvehttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Capacity_managementhttp://en.wikipedia.org/wiki/Capacity_managementhttp://en.wikipedia.org/wiki/Production_planninghttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Computer_softwarehttp://en.wikipedia.org/wiki/Manufacturinghttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Delivery_(commerce)http://en.wikipedia.org/wiki/Capacity_utilizationhttp://en.wikipedia.org/wiki/Demand_curvehttp://en.wikipedia.org/wiki/Product_(business)http://en.wikipedia.org/wiki/Capacity_management


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improvements in overall e)uipment effectiveness 1/@@2. 0apacity can be increased throughintroducing new techni)ues, e)uipment and materials, increasing the number of workers or machines,increasing the number of shifts, or ac)uiring additional production facilities.0apacity is calculated as 1number of machines or workers2 L 1number of shifts2 L 1utilization2 L1efficiency2.

4.%&. @xplain the importance of 6roduction activities control 16 02 and data re)uirement.• The time comes when plans must be put into action. %roduction activity control &%'() is

responsible for executing the master production schedule and the material re*uirementsplan. 't the same time, it must make good use of labor and machines, minimi+e work inprocess inventory, and maintain customer service.

• The material re*uirements plan authori+es %'(:

o To release work orders to the shop for manufacturing.

o To take control of work orders and make sure they are completed on time.

o To be responsible for the immediate detailed planning of the flow of ordersthrough manufacturing, carrying out the plan, and controlling the work as itprogresses to completion.

o To manage day to day activity and provide the necessary support.

• "igure shows the relationship between the planning system and %'(. The activities ofthe %'( system can be classified into planning, implementation,and control functions.

http://en.wikipedia.org/wiki/Overall_equipment_effectivenesshttp://en.wikipedia.org/wiki/Overall_equipment_effectiveness


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Planningo The flow of work through each of the work centers must be planned to meet delivery

dates, which means production activity control must do the following:

Ensure that the re*uired materials, tooling, personnel, and information areavailable to manufacture the components when needed.

chedule start and completion dates for each shop order at each work center sothe scheduled completion date of the order can be met. This will involve theplanner in developing a load profile for the work centers.

Implementationo -nce the plans are made, production activity control must put them into action by

advising the shop floor what must be done. sually instructions are given by issuing ashop order. %roduction activity control will:

/ather the information needed by the shop floor to make the product.

Release orders to the shop floor as authori+ed by the material re*uirementsplan. This is called dispatching.


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c. Controlo -nce plans are made and shop orders released, the process must be monitored to learn

what is actually happening. The results are compared to the plan to decide whethercorrective action is necessary. %roduction activity control will do the following:

Rank the shop orders in desired priority se*uence by work center and establisha dispatch list based on this information.

Track the actual performance of work orders and compare it to plannedschedules. 0here necessary, %'( must take corrective action by replanning,rescheduling, or ad1usting capacity to meet final delivery re*uirements.


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Monitor and control work in process, lead times, and work center *ueues.

Report work center efficiency, operation times, order *uantities, and scrap.

Manufacturing Systemso The particular type of production control system used varies from company to company,

but all should perform the preceding functions. 2owever, the relative importance of thesefunctions will depend on the type of manufacturing process. Manufacturing processescan be conveniently broken down into three categories:

%. "low manufacturing.9. $ntermittent manufacturing.

. %ro1ect manufacturing.

Data Requirements• To plan the processing of materials through manufacturing, %'( must have the following

information:o 0hat and how much to produce.o 0hen parts are needed so the completion date can be met.

o 0hat operations are re*uired to make the product and how long the operationswill take.

o 0hat the available capacities of the various work centers are.

• %roduction activity control must have a data or information system from which to work.sually the data needed to answer these *uestions are organi+ed into databases. The

files contained in the databases are of two types: planning and control.

4.9( what are the objectives and functions of production activity control

The objectives of production activity control are7

%. To plan production facilities in the best possible manner along with the proper

systematic planning of production activities.

9. 6roviding men, machines, materials etc. of right )uality, )uantity and also providing

them at the right time forms a very important factor.

. To inform, about the difficulties or the various awkward positions expected to cropup later, to the management beforehand.

6roduction planning functions are hierarchic, having different time horizons i.e. the

time period for some of the functions is in years, while for some of the functions, it is

in weeks or daysIso the functions of production planning and control can be

summarized into two categories, which are as follows

%. Degular functions M nvolves order preparation, process planning or routing

concerns, fixation of method of manufacture, scheduling, dispatching, progressing,

expediting etc.


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9. /ptimal functions M nvolves cost estimation, work measurement, subcontracting,

capacity planning and demand forecasting etc.

Operations Management Notes for Major Topics

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