SPBA203

POSTGRADUATE COURSE
MBA

SECOND YEAR
THIRD SEMESTER

CORE PAPER - XIII

OPERATIONS MANAGEMENT

INSTITUTE OF DISTANCE EDUCATION

UNIVERSITY OF MADRAS
MBA CORE PAPER - XIII
SECOND YEAR - THIRD SEMESTER OPERATIONS MANAGEMENT

WELCOME
Warm Greetings.

It is with a great pleasure to welcome you as a student of Institute of Distance

Education, University of Madras. It is a proud moment for the Institute of Distance education
as you are entering into a cafeteria system of learning process as envisaged by the University
Grants Commission. Yes, we have framed and introduced Choice Based Credit
System(CBCS) in Semester pattern from the academic year 2018-19. You are free to
choose courses, as per the Regulations, to attain the target of total number of credits set
for each course and also each degree programme. What is a credit? To earn one credit in
a semester you have to spend 30 hours of learning process. Each course has a weightage
in terms of credits. Credits are assigned by taking into account of its level of subject content.
For instance, if one particular course or paper has 4 credits then you have to spend 120
hours of self-learning in a semester. You are advised to plan the strategy to devote hours of
self-study in the learning process. You will be assessed periodically by means of tests,
assignments and quizzes either in class room or laboratory or field work. In the case of PG
(UG), Continuous Internal Assessment for 20(25) percentage and End Semester University
Examination for 80 (75) percentage of the maximum score for a course / paper. The theory
paper in the end semester examination will bring out your various skills: namely basic
knowledge about subject, memory recall, application, analysis, comprehension and
descriptive writing. We will always have in mind while training you in conducting experiments,
analyzing the performance during laboratory work, and observing the outcomes to bring
out the truth from the experiment, and we measure these skills in the end semester
examination. You will be guided by well experienced faculty.

I invite you to join the CBCS in Semester System to gain rich knowledge leisurely at
your will and wish. Choose the right courses at right times so as to erect your flag of
success. We always encourage and enlighten to excel and empower. We are the cross
bearers to make you a torch bearer to have a bright future.

With best wishes from mind and heart,

DIRECTOR

(i)
MBA CORE PAPER - XIII
SECOND YEAR - THIRD SEMESTER OPERATIONS MANAGEMENT

COURSE WRITER

Mr. SENTHIL GAVASKAR

Associate Professor
Department of Mechanical Engineering
RMK College of Engineering and Technology
Gummidipoondi - 601 201.

COORDINATION AND EDITING

Dr. B. Devamaindhan
Associate Professor in Management Studies
Institute of Distance Education
University of Madras
Chennai - 600 005.

Dr. S. Thenmozhi
Associate Professor
Department of Psychology
Institute of Distance Education
University of Madras
Chepauk Chennnai - 600 005.

© UNIVERSITY OF MADRAS, CHENNAI 600 005.

(ii)
 MBA DEGREE COURSE

SECOND YEAR

THIRD SEMESTER

Core Paper - XIII

OPERATIONS MANAGEMENT
SYLLABUS

UNIT I: INTRODUCTION

Operations Management- Nature, Scope, Historical Development, Functions- Long term

Vs Short term issues- A Systems Perspective- Challenges- Manufacturing Trends in India-
Production Design and Process Planning-Types of Production Processes- Plant Capacity-
Capacity Planning- Make or Buy Decisions- Use of Crossover Chart for Selection Processes-
Types of Charts used in Operations Management.

UNIT II: FACILITY DESIGN

Plant Location: Factors to be considered in Plant Location- Location Analysis Techniques-

Choice of General Region, Particular community and Site- Multiple Plant Location Decision-
Plant Location Trends. Layout of Manufacturing Facilities: Principles of a Good Layout-
Layout Factors- Basic Types of Layout- Principles of Materials Handling- Materials Handling
Equipments- Role of Ergonomics in Job Design.

UNIT III: INVENTORY CONTROL AND MAINTENANCE

Basic Inventory Models- Economic Order Quantity- Economic Batch Quantity- Reorder
Point-Safety Stock- Inventory Costs-Classification and Codification of Stock- ABC
Classification-Materials Requirement Planning (MRP)- JIT- Implications of Supply Chain
Management. Maintenance: Preventive Vs Breakdown Maintenance- Group Replacement
Vs Individual Replacement- Breakdown Time Distribution- Maintenance of Cost Balance-
Procedure for Maintenance.

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UNIT IV: DESIGN OF WORK SYSTEMS AND QUALITY CONTROL

Work Study- Objectives- Procedure- Method Study and Motion Study- Work Measurement-
Time Study-Performance Rating- Allowance Factors- Standard Time- Work Sampling
Techniques- Job Sequencing and Scheduling. Quality Control: Purpose of Inspection and
Quality Control- Different Types of Inspection- Acceptance Sampling- The Operating
Characteristic Curve- Control Charts for Variables and Attributes.

UNIT V: SERVICE OPERATIONS MANAGEMENT

Introduction to Services Management- Nature of Services- Types of Services- Service

Encounter-Designing Service Organizations- Service Facility Location and Layout- Service
Blueprinting-Waiting Line Analysis for Service Improvement- Service Processes and Service
Delivery.

Reference Books

1. Chary, S.N., Production and Operations Management, 5th Edition, Tata McGraw-
Hill, 2012.

2. Gore, A. and Panizzolo, R., Operations Management, Cengage Learning India,

2012.

3. Heizer, J., Render, B. and Rajashekhar, J., Operations Management, 9th Edition,
Pearson, 2009.

4. Krajewski, L., Operations Management: Processes and Supply Chains, 9th

Edition, Pearson, 2011.

5. Metters, R.,.King-Metters, K.H., Pullman, M. and Walton, S., Successful Service

Operations Management, Cengage Learning, 2nd Edition 2012.

6. Panneerselvam, R., Production and Operations Management, 3rd Edition, PHI

Learning, 2012.
 MBA DEGREE COURSE

SECOND YEAR

THIRD SEMESTER

Core Paper - XII

OPERATIONS MANAGEMENT
SCHEME OF LESSONS

Sl.No. Title Page

1 Introduction to Operations Management 1

2 Production Design 21

3 Process Planning 36

4 Production System 47

5 Capacity Planning 60

6 Make or Buy Decision 72

7 Plant Location 85

8 Plant Layout 100

9 Material Handling and Role of Ergonomics in Job Design 111

10 Inventory Control 122

11 Inventory Control (Contd.,) 152

12 Maintenance Management 169

13 Work Study 186

14 Job Sequencing and Scheduling 215

15 Quality Control 231

16 Service Operations Management 246

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LESSON - 1
INTRODUCTION TO OPERATIONS MANAGEMENT
Learning Objectives
After reading this lesson, the learners should be able to

 Understand the meaning of operations management

 Know about the nature and scope of operations management

 List the key elements of operations management

 Discuss the functions of operations management

 System Perspective of operations management

 Outline the Challenges in operations management

Structure
1.1 Introduction to Operations Management

1.2 Nature of Operation Management

1.3 Scope of Operations Management

1.4 Objectives of Operations Management

1.5 Historical Development in Operations Management

1.6 Key Functions of Operations Management

1.7 System Perspective of Operations Management

1.8 Challenges in Operations Management

1.9 Manufacturing Trends in India

1.10 Summary

1.11 Keywords

11.12 Review Questions

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1.1 Introduction
Operations management involves planning, organizing, and supervising processes, and
make necessary improvements for higher profitability. Operations management focuses on
carefully managing the processes to produce and distribute products and services. Major, overall
activities often include product creation, development, production and distribution. These activities
are also associated with Product and Service Management. Related activities include managing
purchases, inventory control, quality control, storage, logistics and evaluations of processes. A
great deal of focus is on efficiency and effectiveness of processes. Therefore, operations
management often includes substantial measurement and analysis of internal processes.
Ultimately, the nature of how operations management is carried out in an organization depends
very much on the nature of the products or services in the organization, for example, on retail,
manufacturing or wholesale.

Operations management is concerned with managing the resources that directly produce
the organisation service and products. The resources are generally consist of people, material,
technology and information but may go wider than this. These resources are brought together
by a series of processes so that they are utilized to deliver the primary service or product of the
organization. Thus operation management is concerned with managing inputs (resources)
through transformation processes to deliver outputs (service or products). The objectives of
operations management are “to produce goods and services of the right quality, in the
right quantities, according to the time schedule and a minimum cost”.

1.2 Nature of Operations Management

Operations management is often used along with production management. It is therefore,
useful to understand the nature of operations management. Operations management is
understood as the process whereby resources or inputs are converted into more useful products.
A second reading of the sentence reveals that, there is hardly any difference between the terms
production management and operations management. But, there are a least two points of
distinction between production management and operations management. First, the term
production management is more used for a system where tangible goods are produced. Whereas,
operations management is more frequently used where various inputs are transformed into
tangible services. Viewed from this perspective, operations management will cover such services
organization as banks, airlines, utilities, pollution control agencies super bazaars, educational
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institutions, libraries, consultancy firm and police departments, in addition, of course, to

manufacturing enterprises. The second distinction relates to the evolution of the subject.
Operation management is the term that is used now a days. Production management precedes
operations management in the historical growth of the subject. The two distinctions not
withstanding, the terms production management and operations management are used
interchangeably.

Operations management is a multi-disciplinary field that focuses on managing all aspects

of an organization’s operations. The typical company carries out various functions as a part of
its operation.. Most companies make a product of some kind or produce a salable service. They
must also carry out a sales and marketing function, an accounting function, and an administrative
function to manage employees and the business as a whole. Operations management focuses
on the function of providing the product or service. Their job is to assure the production of a
quality good and/or service.

For the most part, the title “Operations Manager” is used in companies that produce a
tangible good—manufacturers on the whole. In service-oriented businesses, the person
responsible for the operations manager role is often called by another name, one that addresses
the service being offered. Examples include project manager, consultant, lawyer, accountant,
office manager, datacenter manager, etc.

As an organization develops plans and strategies to deal with the opportunities and
challenges that arise in its particular operating environment, it should design a system that is
capable of producing quality services and goods in the quantities demanded and in the time
frames necessary to meet the businesses obligations.

Designing the system begins with product development. Product development involves
determining the characteristics and features of the product or service to be sold. It should begin
with an assessment of customer needs and eventually grow into a detailed product design. The
facilities and equipment used in production, as well as the information systems needed to
monitor and control performance, are all a part of this system design process. In fact,
manufacturing process decisions are integral to the ultimate success or failure of the system.
Of all the structural decisions that the operations manager makes, the one likely to have the
greatest impact on the operation’s success is choice of the process technology.
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1.3 Scope of Operations Management

Operations management is the business function that responsible to planning, organizing,
coordinating and controlling the resources needed to produce a company’s products and services.
The operations function can be connected to other functional operations within organization
such as marketing, finance, human resource and etc. so it can be described that all functional
areas undertake operations activities because they all produce the services and goods. Today
every company realized that operations management is important and also agreed that is the
main core function to organize their organization. the key elements of Operations Management
are;

Product selection and design: The right kind of products and good designs of the
products are crucial for the success of an organization. A wrong selection of the product and/or
poor design of the products can render the company’s operation ineffective and non-competitive.
Products/services, therefore, must be chosen after detailed evaluation of the product/services
alternatives in conformity with the organization’s objectives. Techniques like value engineering
may be employed in creating alternate designs, which are free from unnecessary features and
meet the intended functions at the lowest cost.

Process selection and planning: Selection of the optimal “conversion system” is as

important as choice of products/services and their design. Process selection decisions include
decisions concerning choice of technology, equipment, machines, material handling systems,
mechanization and automation. Process planning involves detailing of processes if resource
conversion required and their sequence.

Facilities (Plant) location: Plant location decisions are strategic decisions It is important
to choose the right location, which will minimize total “delivered customer” cost (Production and
distribution cost). Locational decisions involve evaluation of locational alternatives against
multiplicity of relevant factors considering their relative importance to the organization and
selecting those, which are operationally advantageous to the organization.

Facilities (Plant) layout and materials handling: Plant layout is concerned with relative
location of one department (Work center) with another in order to facilitate material flow and
processing of a product in the most efficient manner through the shortest possible time. A good
layout reduces material handling cost, eliminates delays and congestion, improves co-ordination,
provide good housekeeping etc.
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Capacity Planning: Capacity planning concerns determination and acquisition of

productive resource to ensure that their availability matches the demand. Capacity decisions
have a direct influence on performance of production system in respect of both resource
productivity and customer service (i.e. delivery performance). Excess capacity results in low
resource productivity while inadequate capacity leads to poor customer service. Capacity planning
decisions can be short-term decisions. Long-term capacity planning decisions concern expansion/
contraction of major facilities required in the conversion process, economics of multiple shift
operation, development of vendors for major components etc. Short-term capacity planning
decisions concern issues like overtime working, sub-contracting, shift adjustments etc.

Production Planning and Control (PPC): Production planning is the system for specifying
the production procedure to obtain the desired output in a given time at optimum cost in
conformance with specified standard of quality, and control is essential to ensure that
manufacturing takes place in the manner stated in the plan.

Inventory control: Inventory control deals with determination of optimal inventory levels
of raw materials, components, parts, tools; finished goods, spares and supplies to ensure their
availability with minimum capital lock up. Material requirement planning (MRP) and just in time
(JIT) are the latest techniques that can help the firm to reduce inventory.

Quality assurance and control: Quality is an important aspect of production system

and it must ensure that services and products produced by the company conform to the declared
quality standards at the minimum cost. A total quality assurance system includes such aspects
as setting standards of quality, inspection of purchased and sub-contracted parts, control of
quality during manufacture and inspection of finished product including performance testing
etc.

Work-study and job design: Work-study, also called time and motion study, is concerned
with improvement of productivity in the existing jobs and the maximization of productivity in the
design of new jobs. Two principal component of work-study are: Method study and Work
measurement.

Maintenance and replacement: Maintenance and replacement involve selection of

optimal maintenance (preventive and/or breakdown) policy to ensure higher equipment availability
at minimum maintenance and repair cost. Preventive maintenance, which includes preventive
inspection, planned lubrication, periodic cleaning and upkeep, planned replacement of parts,
condition monitoring of the equipment and machines, etc. is most appropriate for critical
machines.
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Cost reduction and cost control: Effective production management must ensure
minimum cost of production and in this context cost reduction and cost control acquires significant
importance. There are large number of tools and techniques available that can help to make a
heavy dent on the production cost.

1.4 Objectives of Operations Management

 Producing the right kind of goods and services that satisfy customers’ needs (effectiveness
objective).

 Maximizing output of goods and services with minimum resource inputs (efficiency
objective).

 Ensuring that goods and services produced conform to pre-set quality specifications (quality
objective).

 Minimizing throughput-time – the time that elapses in the conversion process- by reducing
delays, waiting time and idle time (lead time objective).

 Maximizing utilization of manpower, machines, etc. (Capacity utilization objective).

 Minimizing cost of producing goods or rendering a service (Cost objective)

1.5 Historical Development in Operations Management

Year Concept Originator (or) Developer

Prior to 1700 I. Craft production

i) Production system was in
form of cottage systems. Kings
ii) Skilled Craftsman and
apprentice
iii) Craft production was followed

1700 II. Industrial Revolution – England James Watt

i) Invention of mechanical power
machines
ii) Invention of Steam Engine – 1764.
iii) Production Machines.
iv) Establishment of Factory System.

1776 Publication of the wealth of Adams Smith

nations – Division of Labour
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1790 Spread of Industrial Revolution EliWhitney

from England to other European
Countries and to US.
Interchangeable parts developed
by an American inventor.

1800 The growth of textile industries in US.

Development of Gasoline Engines

and Electricity.

Old Cottage System has been

replaced by Factory System.

End of 19th Post Civil War Period

Century i) Emergence of Industrial Era in US.
ii) Great Expansion of Production
capacity.
iii) Abolition of slave labour, Departure
of farm labours to the cities.
iv) Massive influx of immigrants from
1865 to 1900 provided a large
work force.
v) Rapid development of urban
industrial centers.

End of 19th Scientific Management Fredrick Winslow Taylor

century & F.W.Taylor Principles of
(1856-1915) Scientific Management
beginning of
20th century

1841-1925 Contribution of Henry Fayol

towards Scientific Management

1913 Moving Assembly line Henry Ford

1861-1919 Gantt Chart, Activity Scheduling Chart Henry L.Gantt (US)

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1868-1934 Motion study, Methods, Therbligs,

Basic concepts of Industry Psychology Frank B.Gilbreth

1878-1973 Fatigue Studies, human factors in

work, employee selection and training. William M.Gilbreth

1917 Application of Economic lot size

model for inventory control F.W.Harris (US)

1927-1923 Hawthorne Studies of worker Elton Mayo (US)

motivation

1931 Sampling Techniques, PDSA Cycle Walter A.Shewart (US)

Acceptance Sampling plan and H.F.Dodge &

statistical tables for quality control. H.G. Romig (US)

1934 Activity sampling for work analysis L.H.C. Tuppett (England)

1940 Multi-disciplinary team approaches Operation Research Groups

to complex system problems. (England)

1947 Simplex Method of Linear Programming George B.Dantzig (US)

1950-60s Extensive development of OR Tools US & Western Europe

of simulation, waiting line theory,
decision theory, mathematical
programming, PERT and CPM

1970s Development of a variety of computer Computer manufacturers,

software packages to deal with
routine problems of shop scheduling,
inventory, layout, forecasting and
project management, rapid growth
of MRP, service quality and productivity.
researchers & users in US
and Western Europe.
Joseph Orlicky and Oliver
Wright (US) MC Donalds
Restaurant.
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1980s Manufacturing strategy paradigm for Harvard Business School

using mfg as a competitive weapon Faculty
extensive use of JIT, TQC and
Factory Automation (CIM, JIT, FMS, Taguchi (Japan),
CAD/CAM, Robots, Numerical W.E.Deming,
Control M/c like CNC). J.M.Juran (US)

1990’s TQM becomes pervasive, Quality gurus, American

Baldrige Quality Award and ISO Society of Quality Control
9000 used as Certification for and International
quality excellence.Business organization for
Process Re-engineering used standardization.
to make radical changes in Michael hammer and major
production and processes. consulting firms.

1.6 Key Functions of Operations Management

Operations Management is a branch that deals with managing operations and processes
within the organisation. Efficacious management of operations ensures successful delivery
of the project. The operation managers optimizes the operations by making judicious use of
resources and capital. They manage all the aspects related to the operations that take place in
businesses. Operation managers are not only found in a company but also in manufacturing
units. They are required to perform various functions as a part of their job responsibilities.
Some of the key functions of an Operations Manager includes:

1. Finance : Finance plays a chief role in operations management. It is essential to ensure

that the organization’s finance has been utilized properly to carry out major functions
such as the creation of goods or services so that the customer’s needs could be satisfied.

2. Operation : This function in operation management is mainly concerned with planning,

organising, directing and controlling all the activities of an organisation which helps in
converting the raw materials and human efforts into valuable goods and services for
satisfying customer needs.

3. Strategy : Strategy in operation management refers to planning tactics that could help
them to optimise the resources and have a competitive edge over others. Business
strategies imply to supply chain configuration, sales, capacity to hold money, optimum
utilisation of human resources and many more.
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4. Design of the product : Incorporating innovative technologies play a crucial role in the
selling of a product. Thus it is the duty of operations manager to ensure that the product
is designed catering to the market trends and needs of the customers. The modern-day
customers are more concerned about the quality of the product than its quantity. So, the
operation managers focus on producing top-notch quality products.

5. Forecasting : Forecasting refers to the process of making an estimation regarding certain

events that might occur in the future. In operation management, forecasting refers to
the estimation of customer’s demand so that production can be done accordingly. Through
this, the manager gets to know what to produce, when to produce and how to produce in
accordance with the customer’s needs.

6. Supply Chain Configuration : The main motive of Supply Chain Configuration is to

ensure effective management, monitoring and controlling of all the main activities that
are held in a firm. The supply chain configuration starts from the supply of the raw materials
and continues till the production of the final product and then their selling to the customers
which will satisfy their needs and wants.

7. Managing the Quality : Quality management plays an crucial role in selling a product.
The operation managers allocate the task of quality management to a team. The
managers identify project defects and rectify them to ensure quality. For this, certain
systems are used that measure and maintain the quality of the product.

1.7 System Perspective of Operations Management

A System is a group of interrelated items in which no item studied in isolation will act in the
same way as it would in the system. A system is divided into a series of parts or subsystems,
and any system is a part of a larger system. The system’s boundary defines what is inside the
system and what is outside. A system’s environment is everything outside the system boundary
that may have an impact on the behaviour of the system. A system’s inputs are the physical
objects of information that enter it from the environment and its outputs are the same which
leave it for the environment.

Systems view of operations management states that activities in an operations system

can be classified as inputs, transformation process and output. Inputs are classified into three
general categories-external, market and primary resources. Transformation resources are the
elements that act on, or carry out, the transformation process on other elements. These include
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such elements as labour, equipment/plant and energy. The nature and mix of these resources
will differ between operations. The transformed resources are the elements which give the
operations system its purpose and goal. The operations system is concerned with converting
the transformed resources from inputs into outputs in the form of goods and services. There
are three main types of transformed resource of materials which can be transformed either
physically(e.g. manufacturing),by location (e.g. transportation),by ownership(e.g. retail) or by
storage(e.g. Warehousing)

1.8 Challenges in Operations Management

There are multiple challenges that operations managers face on a daily basis; this blog
highlights the following five: globalization, sustainability, ethical conduct, ineffective
communication, and system design.

Globalization

Globalization is “a process of interaction and integration among the people, companies,

and governments of different nations.” It is driven by a reduction in trade barriers, advancements
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in information technology, and transportation technology. Operation managers face competition

from the company across the street, as well as, from across the country and across the world.
Tishta Bachoo, Accounting Professor at Curtin University in Australia, explains that companies
who compete with others abroad will have to improve quality while lowering prices to remain
competitive. This falls on the operations manager as he or she is the one who “engages in the
four functions of planning, organizing, leading, and controlling to ensure that the product or
service remains competitive in the market.” Batchoo adds that the operations manager must
tap into their creative skills as innovation will be a key factor of success as will knowledge about
international business and the myriad cultures of the businesses around the globe.

Sustainability

Business operational sustainability is defined as a “method of evaluating whether a business

can maintain existing practices without putting future resources at risk.” When discussing the
concept of sustainability, it is often referred to as the Three Pillars of Sustainability which are
social, environmental, and economic. Operations managers must concern themselves with the
outcomes of each of the pillars including how their work affects safety, welfare, communities,
the environment and economic sustainability.

Effective operations managers must implement best practices with a concern for all three
pillars of sustainability. They also need to initiate and verify corrective action when any outcome
of one of the three pillars becomes jeopardized.

Ethical Conduct

Ethics is defined as a subset of business ethics that is “meant to ensure that the production
function and/or activities are not damaging to either the consumer or the society.” In particular
organizations should consider the effects new technologies, defective services, animal testing
and business deals have on people, safety, and the environment.

Unethical behavior has significantly contributed to the demise of successful corporations

like Enron, Tyco, and many varied firms doing business on Wall Street. Being ethical across all
business functions such as accounting, human resource management, marketing and sales,
and production are clearly within the purview of the operations manager. Unethical behavior,
regardless of its origin, becomes a stain on the company as a whole. The recently noted ethics
breach at Wells Fargo is just one poignant example.
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Effective Communication

Being consistent and effective when communicating can be difficult anyone in any position
within an organization. The challenge for the operations manager is to be able to communicate
effectively with all internal and external stakeholders. Whether they are talking to someone on
the factory floor, or in the boardroom, they must be able to effectively communicate their message
as well as process the messages being directed to them. Mastering oral, written, and non-
verbal communication is integral to making day-to-day operations run smoothly. Effective and
efficient communication is also necessary for building employee morale and deepening trust
with management. Operations managers who take the time to be self-reflective, the initiative to
be authentic, and the effort to work on their communication skills are bound to be both productive
and successful. The development of these skills are frequently the most requested of upper
level management of their new and mid-level managers and required to be successful in any
company.

 System Design

In Key Issues in Operations, a blog detailing the relationship between system design and
operational management, the main theme is that organizations must develop systems capable
of “producing quality goods and services in demanded quantities in acceptable time frames.”
Designing the system, planning the system, and managing the system present a wide variety of
challenges to even the most savvy operations managers.

As operations managers work in multidisciplinary environments, they must be aware of

and effectively respond to the challenges presented by globalization, sustainability, ethical
conduct, effective communication, and system design. Doing this calls for operations managers
to excel in the business, technical, and interpersonal aspects of their work as they actively
support the mission and vision of their organization.

1.9 Manufacturing Trends in India

Manufacturing has emerged as one of the high growth sectors in India. Prime Minister of
India, Mr Narendra Modi, had launched the ‘Make in India’ program to place India on the world
map as a manufacturing hub and give global recognition to the Indian economy. India is expected
to become the fifth largest manufacturing country in the world by the end of year 2020*. With the
help of Make in India drive, India is on the path of becoming the hub for hi-tech manufacturing
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as global giants such as GE, Siemens, HTC, Toshiba, and Boeing have either set up or are in
process of setting up manufacturing plants in India, attracted by India’s market of more than a
billion consumers and increasing purchasing power.

India has become one of the most attractive destinations for investments in the
manufacturing sector. The fourth industrial revolution, is revolutionizing manufacturing Sectors
in India by providing manufacturers with the opportunity to utilize advanced manufacturing
capabilities and information technology (IT) throughout the product lifecycle. As a result, Indian
manufacturers are benefitting from increased visibility into operations, substantial cost savings,
faster production times and the ability to provide excellent customer support.

The only way Indian manufacturers can stay ahead of competitors and win market share
in today’s quickly morphing environment is to embrace change. Those who wish to thrive and
not just survive are leveraging the latest in growth-inducing Industry 4.0 technologies.

1. IoT is THE Big Thing

“IoT and predictive analytics are having a major impact on manufacturing, offering exciting
new opportunities for connecting operations and transforming business processes,” “Innovation
is driving business growth, and technology is enabling manufacturers to evolve with an
increasingly digital-first business landscape.”

Indian Manufacturers are increasingly leveraging the Internet of Things (IoT), which entails
the interconnection of unique devices within an existing Internet infrastructure, to achieve a
variety of goals including cost reduction, increased efficiency, improved safety, meeting
compliance requirements, and product innovation. IoT’s existence is primarily due to three
factors: widely available Internet access, smaller sensors, and cloud computing.

2. Predictive Maintenance is Keeping Production On Track

A breakdown in critical equipment is costly to manufacturers both in terms of repairs as

well as downtime and loss of productivity. According to Information Technology Intelligence
Consulting, 98% of organizations say a single hour of downtime costs over $100,000. Ensuring
that all equipment is functioning optimally therefore remains a key priority for manufacturers,
many of whom are turning to predictive maintenance technology to do so.
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Widespread adoption of predictive maintenance technologies could reduce companies’

maintenance costs by 20%, reduce unplanned outages by 50% and extend machinery life by
years.

Predictive maintenance programs monitor equipment using any number of performance

metrics. By automating the data collection process through the use of IoT technology,
manufacturers can develop a better understanding of how systems work and when they will fail.
The ability to predict when maintenance should be performed saves manufacturers valuable
time, money, and resources. Typically, monitoring tests can be conducted while equipment is in
operation, which means there is no loss of production due to equipment shutdown.

3. Shifting Focus From B2B to B2B2C

Many manufacturers who traditionally had a B2B business model are shifting to a B2B2C
(business-to-business-to-consumer) model due to the many benefits selling directly to consumers
provides including:

 Increased Profit: You get the full manufacturer’s suggested retail price (MSRP) rather
than wholesale prices for your products.

 Faster Time to Market: You can prototype, test, and get products to market quickly
instead of contending with the lengthy traditional retail sales cycle that requires locked-
down product development far ahead of order and delivery. This agility gives you a
competitive edge.

 Brand Control: You own your brand. It won’t be diluted or misrepresented by third parties.

 Price Control: You can reinforce your MSRP.

 Better Customer Data: Selling direct to customers allows you to collect data about them
that ultimately results in better products, stronger relationships, and increased sales.

To effectively sell direct to consumers you’ll need to select a platform for your e-commerce
operations that supports both your B2B and B2C sales platforms. It will have to deliver on order
fulfillment and tracking, secure payments, customer service management, and sales and
marketing activity tracking while providing a 360° view of all your B2B and B2C customer
interactions.
16

4. Leveraging Supply Chain for Competitive Advantage

Remaining competitive means delivering more value to your customers than your
competitors. While pricing is extremely important, savvy manufacturers will continue to distance
themselves from price wars by leveraging new technology that simplifies supply chain
management, which in turn delivers many competitive benefits. These benefits include being
able to operate your business more efficiently, more visibility and control over inventory, reduction
of operational costs, and improved customer satisfaction and retention.

Today’s supply chain technology solutions address manufacturing needs in a variety of

areas, including:

 Manufacturing Optimization

 Logistics Optimization

 Sales and Operations Planning

 Product Lifecycle Management

 Business Intelligence

 Network and Inventory Optimization

 RFID

 Procurement

5. ERP Systems Are Continuing to Streamline Processes

Small to medium sized manufacturing companies are increasingly recognizing that an

enterprise resource planning (ERP) system is key to creating a lean and competitive advantage.

ERP systems offer two key benefits:

 They streamline processes by automating all business operations and providing accurate,
real-time information.

 By providing accurate, real-time information, administrative and operational costs are

reduced. The end result is that manufacturers can proactively manage operations, prevent
disruptions and delays, break up information roadblocks and help users make quicker
decisions.
 17

The lengthy implementation of traditional ERP systems can be frustrating for

manufacturers. Now, however, you have the option choose a rapid implementation ERP system,
which can be up and running much faster and more affordably than traditional ERP systems.

6. Greater Visibility Into Big Data is Helping Manufacturers Achieve More

IoT is transforming almost every surface into a sensor for data collection and providing
real-time insights for manufacturers. This ability to collect data from so many sources combined
with increasingly powerful cloud computing is finally making big data usable. Manufacturers
can slice and dice data in ways that provide them with a comprehensive understanding of their
business. This enables them to improve production, optimize operations, and address issues
before problems arise.

7. VR and AR Are Continuing to Forge Winning Partnerships Between

Man and Machine

Assistive technologies, such as augmented reality (AR) and virtual reality (VR), will continue
to create mutually beneficial partnerships between man and machine that positively impact
manufacturers. Due to VR software interfacing seamlessly with computer-aided designs, product
developers can use VR to quickly make modifications and additions to products during the
product design stage before they go into modeling and manufacturing processes. AR and VR
can also decrease inspection time and assist in detecting errors in addition to improving workers’
sight line, which enables them to complete tasks faster.

For example, by using AR devices such as electronic glasses or goggles, computer-

generated graphics can be placed in a worker’s field of vision that provide him with real-time
help when it comes to performing a task. AR technology can also be used with cameras and
sensors for training. Workers can be shown how to perform a task and use the data feed to
correct mistakes, which makes it possible to quickly and effectively train unskilled workers for
high-value work.

8. 3D Printing is Making Production Faster and Cheaper

Manufacturers will benefit from faster, less expensive production as a result of 3D printing.
It makes rapid prototyping, which is a highly cost-effective way for product designers to test and
troubleshoot their products, possible. In addition, it enables manufacturers to produce items on
demand instead of having to manufacture and warehouse them.
18

The expensive and time-consuming process of tooling for manufacturers is already being
transformed by 3D printing. Historically the production of molds, jigs and fixtures used in the
mass production of heavy equipment took months, was very expensive and typically involved
utilizing tooling companies headquartered overseas. 3D printing makes it possible for tooling to
be cost effectively completed on-site, in days, and has already been embraced by the automotive
and aerospace manufacturing industries.

9. Continued Reshoring is Leading to an Increase in Made in the India

Products

Reshoring – bringing operations back to India shores – is becoming increasingly common

among manufacturers. There are multiple factors contributing to reshoring. Firstly, the economies
in many go-to offshoring countries are doing well, which has led to an increase in wages for
their residents. Secondly, in countries where labor remains inexpensive, the infrastructures
typically can’t support complex manufacturing operations. In addition, transportation costs are
rising. The increased use of new software programs that help manufacturers utilize robotics to
automate many of the processes that used to require a human, are also contributing to a
resurgence in reshoring.

10. Finding Tech-Savvy Employees Will Be Challenging

As manufacturers increasingly rely on technology, their need to hire tech-savvy employees

is increasing. The challenge is that there are not enough skilled employees to fill the number of
open jobs. To fill the void, manufacturers are having to do two things:

 Train existing workers to perform skilled tasks.

 Find ways to make their business appealing to computer coders, app developers, data
scientists, 3-D printing specialists, and other highly trained professionals.

Road Ahead

India is an attractive hub for foreign investments in the manufacturing sector. Several
mobile phone, luxury and automobile brands, among others, have set up or are looking to
establish their manufacturing bases in the country.

The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025 and
India is expected to rank amongst the top three growth economies and manufacturing destination
 19

of the world by the year 2020. The implementation of the Goods and Services Tax (GST) will
make India a common market with a GDP of US$ 2.5 trillion along with a population of 1.32
billion people, which will be a big draw for investors.

With impetus on developing industrial corridors and smart cities, the government aims to
ensure holistic development of the nation. The corridors would further assist in integrating,
monitoring and developing a conducive environment for the industrial development and will
promote advance practices in manufacturing.

1.10 Summary
Operations management is concerned with managing the resources that directly produce
the organisation service and products. operation management is concerned with managing
inputs (resources) through transformation processes to deliver outputs (service or products).
The objectives of operations management are “to produce goods and services of the right
quality, in the right quantities, according to the time schedule and a minimum cost”.Operations
management involves planning, organizing, and supervising processes, and make necessary
improvements for higher profitability. Operations management focuses on carefully managing
the processes to produce and distribute products and services. Major, overall activities often
include product creation, development, production and distribution.

The key elements of Operations Management are Product selection and design, Process
selection and planning, Facilities (Plant) location, Facilities (Plant) layout and materials handling,
Capacity Planning, Production Planning and Control (PPC), Inventory control Quality assurance
and control, Work-study and job design Maintenance and replacement, Cost reduction and
cost control

There are multiple challenges that operations managers face on a daily basis. They are:
globalization, sustainability, ethical conduct, ineffective communication, and system design.
Manufacturing has emerged as one of the high growth sectors in India. India is expected to
become the fifth largest manufacturing country in the world by the end of year 2020*. With the
help of Make in India drive, India is on the path of becoming the hub for hi-tech manufacturing
as global giants such as GE, Siemens, HTC, Toshiba, and Boeing have either set up or are in
process of setting up manufacturing plants in India, attracted by India’s market of more than a
billion consumers and increasing purchasing power. India has become one of the most attractive
destinations for investments in the manufacturing sector.
20

1.11 Keywords
Capactity Planning

Inventory Control

Plan Layout

Plant Location

Production Selection

Quality Assurance

Work Study

1.12 Review Questions

1. Explain operations management in detail.

2. Discuss the Nature and scope of operation management.

3. Discuss the Key elements of operations management.

4. What are the Objectives of production and operations management?

5. Explain the historical development or historical milestones of operations management.

6. Write a Summary on history of production and operations management.

7. Disucss the key functions of operations management.

8. Explain the System Perspective of operations management in detail.

9. Discuss the various challenges in operations management

10. Explain the Manufacturing trends in India.

 21

LESSON - 2
PRODUCTION DESIGN
Learning Objectives

After reading this lesson the learners should be able to

 List the Objectives of Product Design

 Identify the factors that influence Product Design

 Describe the characteristics of a good product design

 Discuss the various stages in new product development process

 Outline the importance of Design for manufacturability (DFM)

 Explain about Design Quality and Safety Responsibility

Structure
2.1 Introduction

2.2 Product Design

2.3 Need to Design a New Product

2.4 Objectives of Product Design

2.5 Factor’s that Influence Product Design

2.6 Characteristics of a Good Product Design

2.7 Stages in New Product Development Process

2.8 Role of Product Engineer

2.9 Design for Manufacturability (DFM)

2.10 Design Quality and Safety Responsibility

2.11 Concurrent Engineering

2.12 Computer –Aided-Design

2.13 Summary

2.14 Keywords

2.15 Review Questions

22

2.1 Introduction
The production design is concerned with the efforts undertaken to create overall productive
facilities to manufacture an already designed and approved products. The design of a product
as established by the designer to meet the functional requirements. This is called functional
design. While the product designer is interested only in the product functional requirement, the
production manger is interested in the cost of producing it. As design influences cost of production
to a large extent, he is interested in having a design that would have a low manufacturing cost.
This conscious effort to deisgn for low manufacturing cost is referred to as “ Production Design”.

Production design is the planning, analysis and selection of

a) Materials or inputs to be used

b) Nature and types of machines to be used

c) Amount and quality of labour to be used

d) Manufacturing operation to be used,

In order to ensure the efficiency of operation and reduce the cost of production of products.
The process planning department obtains drawings and specifications and from these the process
planners decide the labour and machine operations to be used and their sequences. They
decide what operations are to be performed, on what machines, at what speeds, capacity etc,
what tools and fixtures.

2.2 Product Design

Companies today face incredible pressure to continually improve the quality of their
products while simultaneously reducing costs, to meet ever increasing legal and environmental
requirements and to shorten product life cycles to meet changing consumer needs and remain
competitive. The ability to achieve these goals depends on a large extent on product design.
The complexity of today’s products makes design a difficult activity; a single state-of –the –art
integrated circuit may contain millions of transistors and involve hundreds of manufacturing
steps. Nevertheless, improved design not only reduce costs, but increase quality.

2.3 Need to Design a New Product

Every organization has to design, develop and introduce new products as a survival and
growth strategy. ‘Design’ is termed as the conversion of knowledge in to a form, convenient
 23

and suitable for use or to manufacture. Organization design new product due to following reasons.

1. To be in business for a long time.

2. To satisfy the unfulfilled needs of the customers.

3. If the existing product line becomes saturated.

4. If the sales is on decline stage.

5. If the company decides to enter new prospective businesses through diversification.

6. If there exists too much competition in the existing product line.

7. Due to continuous changes in technology

‘Design’ is termed as the conversion of knowledge in to a form, convenient and suitable

for use or to manufacture.

Product design and its types

 The product design can be defined as a visible and tangible expression of an idea.

 Product design deals with both form and function of the product

 Form design involves the determination of what a product would look like i.e the shape
and appearance of the product, Aesthetic, product structure and process design(How it
will be made)

 Functional design deals with working or functioning of the product. Functional design is
one of the foremost requirements of a good product. For example For a Television set,
the picture quality (video) and the sound quality (audio) are more important than appearance
of the cabinet.

2.4 Objectives of Product Design

 To determine and specify the products that will be more profitable for the organization

 To make the product more aesthetic

 To make the product functionally efficient.

 To design the product acceptable to the customers or beneficial to end users.

 To reduce the product development time, cost of design and to generate more profit.
24

 To achieve the desired product quality.

 To ensure producibility or manufacturability (To make easy for the production department
to manufacture the product without any problems) i.e Designing the products for easy
manufacturing.

2.5 Factor's that Influence Product Design

There are many factors, which significantly affect the design of a product. The contribution
of these factors and their influence on the product should be duly considered while designing a
product. The factors are

 Customer’s requirement

The designers should find out then exact requirements of the customers to ensure that
the products will satisfy the needs of the customers. It should create a good impression on the
customer and generate his confidence regarding durability, quality and performance of the
product.

 Facility to operators

The products have to be designed in such a manner it should be convenient and

comfortable to operate or use. A complicated design may involve certain operations, which the
operator may not be able to perform efficiently. The designer therefore must design a product in
such a manner to see that an operator feels comforts and facilities in handling the operation.

 Functionality

The design should be such that the product is functionally sound. It should able to perform
the functions to the complete satisfaction of the customers.

 Trade off between functional and form

The design should combine both functional performance and appearance with a proper
balance between two.

 Material requirement
 The nature and quality of materials have significant effect on the design of the product.
Discovery of new and better materials can improve the product design.
 25

 The designers should have updated information about availability of new materials and
components, which help the designers to select the best alternative for product design.

 Work methods and equipments

 The designer must be aware of availability of various working methods and equipments.

 The work methods and equipments required to perform the operations specified in the
design are of great significance on the utility and viability of the design.

 The product design should be such that there is sufficient scope for adoptability and
improvement in work methods and type of equipment required for the operations involved
in production process.

 Cost
 The designers should design the product in an economical way because increase in cost
of design will lead to increase in price of the product.

 Product Quality
 The Quality of the product partially depends on quality of the design and partially on
quality of conformance. The quality policy of the firm should provide guidelines for the
designers to decide the appropriate design, specifications and tolerances.

 Process capability
 The product design should take in to consideration the quality of conformance i.e the
degree to which quality of design is achieved in manufacturing. This depends on the
process capability of the machines and equipment.

 Standards
 The product design should be simple. It should be designed in such a way that types and
varieties of parts should be minimum. The design should make use of standard parts.

2.6 Characteristics of a Good Product Design

A good product design must ensure the following.

1. Function or Performance

A good product design lead to effective functioning of a product by satisfying the customers
needs and desires.
26

2. Appearance or Aesthetics

This includes style, shape, color etc which not only adds value for the product but also
appeals the customer to buy the product.

3. Reliability

A good product design should leads to reliability of the product. The term reliability means
the probability that a product will function for a specific time period without failure.

4. Maintainability

This refers to the restoration of a product once it has failed. High degree of maintainability
is desired so that the product can be restored to be used within a short period of time after it
breaks down. This is also known as serviceability.

5. Availability

This refers to the continuity of service to the customer. A product is available for use when
it is in an operational state. Availability is a combination of reliability and maintainability. High
reliability and maintainability ensures high availability.

6. Producibility or Manufacturability

This refers to the ease of manufacture with in minimum cost. This is ensured in product
design by proper specification of tolerances, use of materials that can be easily processed and
also use of economical processes to produce the product quickly and at cheaper cost.

7. Simplification

It refers to the elimination of complex features so that the intended function is performed
with reduced costs, high quality and more customer satisfaction. A simplified design has fewer
parts which can be manufactured and assembled in less time.

8. Standardization

It refers to the design activity that reduces variety among a group of parts. Standard
design leads to variety reduction and results in economies of scale.
 27

9. Specification

A specification is a detailed description of a material, part or product, including physical

measures such as dimensions, volume, weight, surface finish etc. These specifications indicate
tolerances on physical measures which provides precise information for production department
about the characteristics of the products to be produced.

10. Safety

The product should be designed in such a manner it should be safe for the user to use the
product.

2.7 Stages in New Product Development Process

The design process originates from a set of stated requirements for a given product and
evolves through the following stages as shown below.

Step1: Idea Generation

New product development starts with idea generation which is a systematic search for
new ideas. It is necessary to generate many new ideas in order to find out a good one. The new
ideas may be generated from various sources such as internal sources like Employees,
Executives, R&D Engineers, Sales people etc. and external sources such as competitors,
distributors and Suppliers.

Step2 : Idea Screening

It is a process of screening new product ideas in order to find out good ideas and drop
poor ones as earlier as possible. The firm must go head with those product ideas that will turn
in to profitable products. The new product ideas are written down on a standard form and
reviewed by a New product committee.

Step3 : Concept Development

An attractive idea must be developed or transformed in to a product concept. A product

concept is a detailed version of the product idea stated in meaningful consumer terms.
28

Step 4: Concept Testing

The new product concept has to be tested among target customer groups to find out
whether the concepts have strong customer appeal. Marketers may expose the product concept
to the target customer groups. After exposing the concept the consumers may be asked to
react it by answering questions in a questionnaire. The answer will help the firm to decide which
concept has the strongest appeal.

Step : 5 Market strategy development

This step involves designing an initial marketing strategy for introducing the new product
to the market. The marketing strategy statement has three parts.

i. The description of the target market.

ii. The planned product positioning.

iii. The sales, market share and profit goals for the first few years.

Step : 6 Business analysis

Once the company has decided on its product concept and marketing strategy, it can
evaluate the business attractiveness of the proposal. It involves a review of the sales and profit
projections for a new product to find out whether these factors specify the company objectives.
If so, the product concept can be moved to the product design and development stage.

Step :7 Product development

It involves developing the physical product by the R&D or engineering department, one or
more prototype models are developed and tested.

Step : 8 Test Marketing

If the product causes functional and consumer test, then test market is conducted. In this
stage, the products are produced in a small batch and was introduced into market in real market
settings. It helps the company to test products in market among the users. It also helps in
preparing a detailed marketing programme such as positioning strategy, advertising, distribution,
pricing, branding, packaging and budgeting.
 29

Step : 9 Commercialization

It is based on the information obtained from test marketing the company can make final
decision about whether to launch the new product in full scale to the market or not.
Commercialization involves full scale manufacturing and marketing of the product which will
involve considerable expenditure to the company. The company launching the new product
must first desired on introduction timing and also on where to launch the new product in a single
location, region, national of international market.

2.8 Role of Product Engineer

The product engineer’s role in the programme phase involves a variety of functions that
are dependent on the type and nature of the product. These functions includes the following.

 Evaluating different alternative design approaches through product selection and detailed
product analysis.

 Preparing product and component specifications

 Preparing functional design layouts, engineering drawings, parts and material lists,
standards and so on, with the objective of thoroughly defining the product through
documentation. This includes preliminary drawings schematic diagrams, and manufacturing
drawings. The designer determines specified dimensions and design tolerance, input-
output requirements, material applications, forms and finishes.

 Assessing the design through prediction, analysis and the performance of product design
reviews.

 Developing engineering models and prototypes for product evaluating purposes.

 Developing product software which is required to define, design, test and produce the
product.

 Developing product and component test specifications and procedures and accomplishing
specific tests to ensure that all design requirements are met.

 Performing design modifications as necessary to correct deficiencies and/or to improve

product design.

The design function generally involves a team effort which utilizes the services of
engineering specialists from appropriate technical fields and supported primarily by draftsman,
technicians, production engineers and so on.
30

2.9 Design for Manufacturability (DFM)

Design for Manufacturability is the process of designing a product for efficient production
at the highest level of quality. DFM is intended to prevent product designs that simplify assembly
operations but require more complex and expensive components. Many industries have
developed more specific guidelines for design. Design guidelines for improving manufacturability
and thus improving quality and reducing costs have been shown in the table.

Design Guidelines for Quality Assurance

Minimize number of parts

Fewer parts and Assembly drawings — Lower volume of drawings and instructions to
control
Less Complicated Assemblies — Lower assembly error rate
Fewer parts to hold to required
Quality characteristics — Higher consistency of part quality
Fewer parts to fail — Higher reliability

Minimize number of part numbers

Fewer variations of like parts design
for robustness — Lower assembly error rate.
Low sensitivity to component — Higher first pass yield; Less degradation
Variability of performance with time

Eliminate Adjustments
No assembly adjustment errors — Higher first pass yield
Eliminate adjustable components
with high failure rates — Lower failure rate

Make Assembly easy and foolproof

Parts cannot be assembled wrong — Lower assembly error rate
Obvious when parts are missing — Lower assembly error rate
Assembly tooling design in to part — Lower assembly error rate
Parts are self-securing — Lower assembly error rate
No “force fitting “of parts — Less damage to parts; better serviceability
 31

Use Repeatable well understood process

Part quality easy to control — Higher part yield
Assembly quality easy to control — Higher assembly yield

Choose parts that can survive process operations

Less damage to parts — Higher yield
Less degradation of parts — Higher reliability

Design for efficient and adequate testing

Less mistaking “good” for “bad”
Product and vice versa — Truer assessment of quality; less unnecessary rework

Lay out parts for reliable process completion

Less damage to parts during handling
and assembly — Higher yield; higher reliability

Eliminate Engineering changes on Released products

Fewer errors due to changeovers
and multiple revisions/versions — Lower Assembly error rate

2.10 Design Quality and Safety Responsibility

 All companies that are responsible for design, manufacture, sales and service of a defective
product are now liable for damages. Safety in consumer products represent a major
issue in design and certainly an important part of a company’s public responsibilities.

 Liability concerns cause many companies to forgo certain product development activities.

 According to the theory of strict liability, who sells a product that is defective or unreasonably
dangerous is subject to liability for any physical harm caused to the user, the consumer or
the property of either.

 This law applies when the seller is in the business of selling the product and the product
reaches the consumer without a substantial change in condition even if the seller exercised
all possible care in the preparation and sale of the product.

 The principal issue is whether a defect, directly or indirectly, exists then the manufacturer
usually will be held liable. A plaintiff need to prove only that (1) The product was defective
(2) The defect was present when the product changed ownership and (3) The defect
resulted in injury.
32

 Attention to design quality can greatly reduce the possibility of product liability claims as
well as provide supporting evidence in defense arguments. Liability makes documentation
of quality assurance procedures as necessity. A firm should record all evidence that shows
the designer established test and monitoring procedures of critical product characteristics.
Feedback on test and inspection results along with corrective actions taken must also be
documented. Managers should address the following questions.

 Is the product reasonably safe for the end user?

 What could possibly go wrong with it?

 Are any needed safety devices absent?

 What kind of warning labels or instructions should be included?

 What would attorneys call “reasonable foreseeable use”?

 What are some extreme climatic or environmental conditions for which the product
should be tested?

 What similarities does the product have with others that may have encountered
previous problems?

 In addition to legal issues, environmental concerns have an unprecedented impact on

product and process designs.

 Design for environment offers the potential to create more desirable products at lower
costs by reducing disposable and regulatory costs, increasing the end –of-life value of
products, reducing material use and minimizing liabilities.

 Recyclable products are designed to be taken apart and their components repaired,
refurbished, melted down or otherwise salvaged for reuse.

 Now design for disassembly promises to bring back easy, affordable product repair. Thus
reparability has the potential of pleasing customers who would prefer to repair a product
rather than discard it. At the same time, companies are challenged to consider fresh
approaches to design that build both cost effectiveness and quality into the product.

2.11 Concurrent Engineering

With the latest development due to globalization, business units must have the capacity
to deal with the increasing competition. This is possible only by drastic organizational productivity
improvement. One of the tools to achieve the organizational productivity improvement is
 33

‘Concurrent Engineering’. Concurrent engineering is also called as parallel or simultaneous

engineering. It is a new philosophy viewed by most of the corporations as a means to competitive,
world class manufacturing.

 Concurrent engineering or simultaneous engineering is an effective approach for managing

the product development process by using multi-functional teams to help remove
organizational barriers between departments and there-by reduce product development
time.

 Concurrent engineering is a process in which all major functions involved with bringing a
product to market are continuously involved with product development from conception
through sales. Such an approach not only helps to achieve trouble free introduction of
products and services, but also results in improved quality, lower costs and shorter product
development cycles.

 Concurrent engineering involves multi functional teams usually of 4 to 20 members and

including every specialty in the company.

 The functions of such teams are to determine the character of the product and decide
what design methods and production methods are appropriate, analyze product functions
so that all design decisions can be made with full knowledge of how the item is supposed
to work; perform design for manufacturability, study to determine whether the design can
be improved without affecting performance, formulate an assembly sequence and design
a factory system that fully involves workers.

2.12 Computer Aided Design

The application of computers in design and manufacturing constitutes the most significant
opportunity for substantial productivity gains in industry today. Companies implementing
concurrent engineering should possess CAD/CAM systems. One recent development in product
design is the use of a man and computer as a team in generating design concept. This approach
is termed Computer-aided-design (CAD) which was initially got its start in aerospace industry.CAD
covers several automated technologies auch as computer graphics to examine the visual
characteristics of the product. The sophisticated CAD software is able to draw lines between
points, creating three dimensional drawing that can be rotated to show all sides of the design.
Computer aided engineering (CAE) is the analysis of a design for error checking, or optimize
manufacturability, performance and economy. Information drawn from CAD / CAM database is
used to analyse the functional characteristics of a product, parts or system and design and to
34

simulate its various performance. When working on CAD system, the designer can conceptualize
the object to be designed more easily on the graphics screen and can consider alternative
designs or modify a particular design quickly to meet the necessary design requirements or
changes. The design can then be subjected to various engineering analysis and identify potential
problems. The CAD system produces quickly and accurate model of products and components
and the output of the system generates working drawings of very high quality. They can be
reproduced number of times and at different levels of reductions and enlargements. As such
CAD can speed up the normally slow and laborious work of drafting.

2.13 Summary
Companies today face incredible pressure to continually improve the quality of their
products while simultaneously reducing costs, to meet ever increasing legal and environmental
requirements and to shorten product life cycles to meet changing consumer needs and remain
competitive. The ability to achieve these goals depends on a large extent on product design.
The production design is concerned with the efforts undertaken to create overall productive
facilities to manufacture an already designed and approved products. The design of a product
as established by the designer to meet the functional requirements. Every organization has to
design, develop and introduce new products as a survival and growth strategy.

The product design can be defined as a visible and tangible expression of an idea. At the
time of designing and developing a product, due consideration is given for the manufacturability
or producibility of the product using the current process technology and the capability of the firm
to manufacture the product.After the final design of the product has been approved and released
for production, the production planning and control department takes the responsibility of process
planning and process design for converting the product design in to a tangible product.

Design for Manufacturability is the process of designing a product for efficient production
at the highest level of quality. DFM is intended to prevent product designs that simplify assembly
operations but require more complex and expensive components. Design Guidelines for Quality
Assurance helps in Minimize number of parts, Minimize number of part numbers, Eliminate
Adjustments, Make Assembly easy and foolproof, Use Repeatable well understood process,
Choose parts that can survive process operations, Design for efficient and adequate testing,
Lay out parts for reliable process completion and to eliminate engineering changes on Released
products. All companies that are responsible for design, manufacture, sales and service of a
defective product are now liable for damages. Safety in consumer products represent a major
issue in design and certainly an important part of a company’s public responsibilities.
 35

With the latest development due to globalization, business units must have the capacity
to deal with the increasing competition. This is possible only by drastic organizational productivity
improvement. One of the tools to achieve the organizational productivity improvement is
‘Concurrent Engineering’. Concurrent engineering is also called as parallel or simultaneous
engineering. It is a new philosophy viewed by most of the corporations as a means to competitive,
world class manufacturing.

The application of computers in design and manufacturing constitutes the most significant
opportunity for substantial productivity gains in industry today. Companies implementing
concurrent engineering should possess CAD/CAM systems. One recent development in product
design is the use of a man and computer as a team in generating design concept. This approach
is termed Computer-aided-design (CAD) which was initially got its start in aerospace industry.CAD
covers several automated technologies auch as computer graphics to examine the visual
characteristics of the product.

2.14 Keywords
Computer Aided Design

Concurrent Engineering

Design for Manufacturing

Product Design

2.15 Review Questions

1. Review the concept of Production Design.

2. What do you mean by Product Design?

3. Discuss the need to design a product

4. What are the Objectives of Product Design?

5. Discuss the factor’s that influence Product Design.

6. Explain the role of product engineer

7. Explain Design Quality and Safety Responsibility

8. What do you mean by Concurrent Engineering?

9. Write short notes on Computer –aided-design.

36

LESSON - 3
PROCESS PLANNING
Learning Objectives

After reading this lesson, the learners must be able to

 Define process planning

 List out the purpose of process planning

 Disuss the significance of process planning

 Prepare an operation planning sheet

 Outline the various process planning activities

 List the various steps involved in CAPP

Structure
3.1 Introduction

3.2 Meaning of Process Planning

3.3 Selection of Process

3.4 Purpose of Process Planning

3.5 Significance of Process Planning

3.6 Rules for Selection of Manufacturing Process

3.7 Scope of Process Planning

3.8 Operation Planning Sheet

3.9 Process Planning Activities

3.10 Computer Aided Process Planning

3.11 Summary

3.12 Keywords

3.13 Review Questions

 37

3.1 Introduction
A process is defined as any activity or group of activities that takes one or more inputs,
transforms and add value to them, and provides an output. (Or) A process is defined as a
sequence of activities that is intended to achieve some result, typically to create added value
for the customers. A process converts inputs into useful outputs in a production system. A
process involves the use of an organization’s resources to provide something of value. No
product can be made and no service can be provided without a process and no process can
exist without a product or service.

Before introduction to the role of computer aided process planning (CAPP), it is worthwhile
to understand the role of process planning in the product cycle. Once the design of the product
has been evolved from customer’s views, its manufacturing necessitates careful planning and
scheduling of the various processes of manufacture. So that, the product is made to right
specifications and delivered at the right time at a minimal cost. The cycle from concept to
design, planning, production, quality control and feedback to design goes on in which one can
easily understand the crucial role of planning. In job/batch manufacture, as an enormous amount
of data is needed for planning as well as other activities, data bases are required and the flow
of information should be fast for a high performance of the total manufacturing system.

3.2 Meaning of Process Planning

It may be defined as the determination of the processes and the sequence of operations
required to make the product. It consists of devising, selecting and specifying processes, machine
tools and other equipment to transform the raw material into finished product as per the
specifications called for by the drawings. When the design engineers have designed the product,
the assembly drawings and working drawings of individual components are made. The process
planners have to see how the product can best be made to meet the specifications mentioned
in the part drawing.

3.3 Selection of Process

Process selection decisions determine the type of productive process to be used and the
appropriate span of that process. The type of process may however vary. For example, At a
factory a primary process would be a manual, or mechanical or chemical change of raw materials
into products. At a college or University it would be the education of students and at hospital it
would be the treatment of sick patients.
38

One essential issue in the design of a production system is deciding what processes to
use in making products or providing services. Deciding on processes involve many different
choices in selecting human resources, equipments and materials. Processes are involved in
how a manufacturing plants performs its assembly operations. Processes decisions are strategic
and can affect an organization’s ability to compete over the long run.

Process decisions affect what the firm achieves with the competitive priorities of quality,
flexibility, time and cost. For example, firms can improve their ability to compete on the basis of
time by examining each step of their processes and finding ways to respond more quickly to
their customers. Productivity is affected by choices made when processes are designed.

3.4 Purpose of Process Planning

The purpose of process planning is to determine and describe the best process for each
job so that

(i) Specific requirements are established for which machines, tools and other
equipment can be designed or purchased.

(ii) The efforts of all engaged in manufacturing are co-ordinated.

(iii) A plan is made to show the best way to use the existing or proposed facilities.

iv) Process planning is a detailed specification which lists the operation, tools, and
facilities

v) Systematic determination of the engineering processes and systems to

manufacture a product competitively and economically

3.5 Significance of Process Planning

In manufacturing, the goal is to produce components that meet the design specifications.
The design specification ensures the functionality aspect. Next step to follow is to assemble
these components into final product. Process planning acts as a bridge between design and
manufacturing by translating design specification into manufacturing process detail. Hence, in
general, process planning is a production organization activity that transforms a product design
into a set of instruction (sequence, machine tool setup etc.) to manufacture machined part
economically and competitively. The information provided in design includes dimensional
specification (geometric shape and its feature) and technical specification (tolerance, surface
finish etc.)
 39

3.6 Rules for Selection of a Manufacturing Process

1. The process must assure a product that meets all design The process must assure a
product that meets all design requirements of quality, function and reliability requirements of
quality, function and reliability

2. Daily production requirement must be met Daily production requirement must be met

3. Full capacity of the machine and its tooling should be utilized

4. Idle operator and idle machine time must be reduced to Idle operator and idle machine
time must be reduced to minimum

5 The process must provide the maximum utilization of the minimum amount of material

6. The process should be flexible enough to accommodate reasonable changes in design

7.The process should be designed to eliminate any unnecessary operations and combine
as many unnecessary operations ass are physically and economically operations practical

8. Capital expenditure that must be amortized over short periods must be kept as low as
possible

9. The process must be designed with the protection of both the operator and the workpiece
in mind

10. The process should be developed so that the final product will be produced at a
minimum cost to to the enterprise as a whole

3.7 Scope of Process Planning

A process is defined as any group of actions instrumental to the achievement of the
output of an operations system in accordance with specified measure of effectiveness. When
the product designed, certain specifications are established; physical dimensions, tolerance,
standards and quality are set forth. Then it becomes a matter of deciding over the specific
details of how to achieve the desired output. This decision is the essence of process planning.
The production function essentially is a transformation process that accepts the inputs and
gives the outputs after adding value to the inputs. Process selection is a major strategic decision
40

as it involves allocation of men and material resources as well as financial commitments for a
long period.

Operation planning is a responsibility of the manufacturing organization. A number of

functional staff arrangements are possible. This process leads to the same output despite
organizational differences. The following are business objectives for operations planning:

1. New product manufacture

A new design may have not been produced before or, alternatively, new manufacturing
operations may be introduced for the product. Unless there is planning, the product introduction
will be helter-skelter.

2. Sales

Opportunity for greater saleability of an existing or new product can develop from different
colours, materials, finish, or functional and non-functional features. Sales and marketing
departments provide advice to help manufacturing planning.

3. Quantity

Changes in quantity require different sequences, tools, and equipment. The OP planner
differentiates for these fluctuations. If volume increases, the chance is for lower cost. In contrast,
if volume decreases, the cost should not increase out of reason. There may be a fortuitous
opportunity for reduced cost, if economics and technology will allow substitution of new process,
training, and resources even if quantities are reduced. If quantity reduces too much, however,
it is appropriate for the OP planner to recommend that production may no longer be economical,
perhaps, a supplier may be the appropriate lower cost alternative.

4. Effective use of facilities

Operation planning often can find alternate opportunities for the plant’s production facilities
to take up any slack that may develop. Seasonal products, which might be popular in the
summer, need an alternative product for the winter season. For example, companies that produce
sporting equipment may use the same facilities to produce tennis rackets and skis.
 41

5. Cost reduction

Various opportunities become available if the company has an ongoing cost reduction
effort. Suggestion plans, value analysis, design for manufacturing (DFM), and directed and
systematic effort involve operations planning.

3.8 Operation Planning Sheet

The following information are required to do the process planning effectively:

1. Quantity of work to be done along with product specifications.

2. Quality of work to be completed.

3. Availability of equipment, tools and personnel.

4. Sequence in which operations will be performed on the raw material.

5. Names of equipments on which the operations will be performed.

6. Standard time for each operation.

7. When the operations will be performed?

8. Cutting speed

9. Feed

10. Material specification.

11. Job rating of labours.

42

3.9 Process Planning Activities

1. Analyze finished part requirements
 Component drawing should be analyzed to identify its features, dimensions, and tolerance
specifications

 Part’s requirement defined by its features, dimensions, and tolerance specifications will
determine corresponding processing requirements

2. Determine operating sequence

Basic aim is to determine the type of processing operation that has the capability to
generate various types of features, given the tolerance requirements. There are two ways of
viewing decision process.

 First view is to consider processing evaluation of part from rough state to finished final
state. In this view material is removed or modified on rough part in stages in order to
transform it into finished part

 Second view is to consider part evaluation from finished state back to rough/ initial state.
In this view material is added back onto the part.

3. Select machines
Machine selection requires determining how the part would be processed on each of the
alternative machines so that best machine can be selected

 At this phase, firm has to decide whether to make or buy the component part

 Break even analysis is most convenient method for selecting optimum method of
manufacture or machine amongst the competing ones

 Factures which influence the selection of machine are, ? Economic considerations

 Production rate and unit cost of production ? Durability and dependability

 Lower process rejection

 Minimum set-up and put away times

 Longer productive life of machines or equipment

 Functional versatility
 43

4. Material selection parameters

 Function

 Appearance

 Reliability

 Service life

 Environment

 Compatibility

 Productivity

 Cost

5. Calculate processing time

 Determination of set-up times requires knowledge of available tooling and sequence of
steps necessary to prepare the machine for processing given work piece

 For establishing accurate set-up times, detailed knowledge of equipment capacity, tooling,
and shop practice required

 Calculation of part processing time requires determination of sequence of processing

steps on each machine. This is called as out planning.

 After calculation of processing time, appropriate times for loading, part unloading, machine
indexing, and other factors involved in one complete cycle for processing a part must be
included to compute the expected machine cycle time

 Allowances are added with machine cycle time to calculate standard cycle time for
processing one piece

 Appropriate machine rates are added with calculated cycle time to calculate expected
standard cost for given operation

6. Document process planning

 Process plan is documented as job routing or operation sheet

 Operation sheet also called “route sheet”, “instruction sheet”, “traveler”, “planner”

 Information provided by route sheet are,

 Part identification
44

 Description of processing steps in each operation

 Operation sequence and machines

 Standard set-up and cycle times

 Tooling requirements for each operation

 Production control information showing the planning lead time at each operation

Reasons for documentation

 To have a record on hoe a part is processed in order to plan future parts with similar
design requirements in a consistent manner

 To provide a record for future job quoting, cost estimating, and standard costing systems

 To act as a vehicle for communication

7. Communicate process knowledge

 Communication is essential to ensure that part will be processed according to most
economical way

 Process documentation and communication provide basis for improved part consistency
and quality in manufacturing

3.10 Computer Aided Process Planning

Computer-aided process planning (CAPP) helps determine the processing steps required
to make a part after CAP has been used to define what is to be made. CAPP programs develop
a process plan or route sheet by following either a variant or a generative approach. The variant
approach uses a file of standard process plans to retrieve the best plan in the file after reviewing
the design. The plan can then be revised manually if it is not totally appropriate. The generative
approach to CAPP starts with the product design specifications and can generate a detailed
process plan complete with machine settings. CAPP systems use design algorithms, a file of
machine characteristics, and decision logic to build the plans. Expert systems are based on
decision rules and have been used in some generative CAPP systems.

CAPP has recently emerged as the most critical link to integrated CAD/CAM system into
inter-organizational flow. Main focus is to optimize the system performance in a global context.
The essentiality of computer can easily be understood by taking an example, e.g. if we change
 45

the design, we must be able to fall back on a module of CAPP to generate cost estimates for
these design changes. Similarly for the case of the breakdown of machines on shop floor. In
this case, alternative process plan must be in hand so that the most economical solution for the
situation can be adopted.

CAPP is the application of computer to assist the human process planer in the process
planning function. In its lowest form it will reduce the time and effort required to prepare process
plans and provide more consistent process plan. In its most advanced state, it will provide the
automated interface between CAD and CAM and in the process achieve the complete integration
with in CAD/CAM.

Steps Involved in CAPP

Now-a-days, rapid progress is being made in the automation of actual production process
and also the product design element. However, the interface between design and production
presents the greatest difficulty in accomplishing integration. CAPP has the potential to achieve
this integration. In general, a complete CAPP system has following steps :

(i) Design input

(ii) Material selection

(iii) Process selection

(iv) Process sequencing

(v) Machine and tool selection

(vi) Intermediate surface determination

(vii) Fixture selection

(viii) Machining parameter selection

(ix) Cost/time estimation

(x) Plan preparation

(xi) Mc tape image generation.

In recent days, several computer-aided process planning systems are available for use
for a variety of manufacturing operation.
46

These systems can broadly be clarified into two categories :

(i) Variant computer aided process planning method.
(ii) Generative computer aided process planning method.
The details of these are explained in next subsections.

3.11 Summary
Process planning may be defined as the determination of the processes and the sequence
of operations required to make the product. A process is defined as any activity or group of
activities that takes one or more inputs, transforms and add value to them, and provides an
output. When the design engineers have designed the product, the assembly drawings and
working drawings of individual components are made. The process planners have to see how
the product can best be made to meet the specifications mentioned in the part drawing. Steps
involved in Computer Aided Process Planning are also explained in this lesson.

3.12 Keywords
Computer Aided Process Planning

Operation Planning Sheet

Process Planning

3.13 Review Questions

1. Define Process planning.

2. What is the purpose of process planning?

3. Discuss the significance of Process planning

4. Describe the rules to select the manufacturing process

5. Discuss the scope of process planning.

6. Discuss the steps in process planning

7. Explain Computer aided process planning with a neat sketch

 47

LESSON - 4
PRODUCTION SYSTEM
Learning Objectives

After reading this lesson, the learners must be able to

 Explain the system concept of production

 Discuss the meaning for production

 List out the stakeholders of production

 Analyze various factors of production

 Explain the meaning of productivity

 Identify the factors that influence productivity

 Classify the types of production system

 Compare the characteristics of continous, batch and project type of production system

Structure
4.1 Introduction

4.2 Meaning of Production

4.3 Stakeholders of Production

4.4 Factors of Production

4.5 Meaning of Productivity

4.6 Factors Influencing Productivity

4.7 Types of Production System

4.8 Comparison of Types of Production System

4.9 Summary

4.10 Keywords

4.11 Review Questions

48

4.1 Introduction
System can be defined as a set of entities or element which are inter-related and integrated
with each other.

 A production system consist of set of entities that includes inputs, processing and output
which are inter-related and integrated with each other.

 The inputs to the system includes basic resources like men, materials, capital, energy
etc.

 These inputs are combined and processed in to required goods or services by a suitable
method.

 The inputs used may vary from one industry to another based on nature of products to be
produced.

4.2 Meaning of Production

“Production is the organized activity of transforming resources into finished products in
the form of goods and services. Production is a process of combining various material inputs
and immaterial inputs (plans, know-how) in order to make something for consumption (the
output). It is the act of creating an output, a good or service which has value and contributes to
the utility of individuals.
 49

. In production there are two features which explain increasing economic well-being. They
are improving quality-price-ratio of goods and services and increasing incomes from growing
and more efficient market production.

The most important forms of production are:

 market production

 public production

· household production

In order to understand the origin of economic well-being, we must understand these three
production processes. All of them produce commodities which have value and contribute to
well-being of individuals.

The satisfaction of needs originates from the use of the commodities which are produced.
The need satisfaction increases when the quality-price-ratio of the commodities improves and
more satisfaction is achieved at less cost. Improving the quality-price-ratio of commodities is to
a producer an essential way to improve the competitiveness of products but this kind of gains
distributed to customers cannot be measured with production data. Improving the competitiveness
of products means often to the producer lower product prices and therefore losses in incomes
which are to compensated with the growth of sales volume.

Economic well-being also increases due to the growth of incomes that are gained from
the growing and more efficient market production. Market production is the only production
form which creates and distributes incomes to stakeholders. Public production and household
production are financed by the incomes generated in market production. Thus market production
has a double role in creating well-being, i.e. the role of producing goods and services and the
role of creating income. Because of this double role market production is the “primus motor” of
economic well-being and therefore here under review.

4.3 Stakeholders of Production

Stakeholders of production are persons, groups or organizations with an interest in a
producing company. Economic well-being originates in efficient production and it is distributed
through the interaction between the company’s stakeholders. The stakeholders of companies
are economic actors which have an economic interest in a company. Based on the similarities
50

of their interests, stakeholders can be classified into three groups in order to differentiate their
interests and mutual relations. The three groups are as follows:

Interactive contributions of a company’s stakeholders (Saari, 2011,4)

 Customers
 Suppliers
 Producers.
The interests of these stakeholders and their relations to companies are described briefly
below. Our purpose is to establish a framework for further analysis.

Customers

The customers of a company are typically consumers, other market producers or producers
in the public sector. Each of them has their individual production functions. Due to competition,
the price-quality-ratios of commodities tend to improve and this brings the benefits of better
productivity to customers. Customers get more for less. In households and the public sector
this means that more need satisfaction is achieved at less cost. For this reason the productivity
of customers can increase over time even though their incomes remain unchanged.

Suppliers

The suppliers of companies are typically producers of materials, energy, capital, and
services. They all have their individual production functions. The changes in prices or qualities
of supplied commodities have an effect on both actors’ (company and suppliers) production
functions. We come to the conclusion that the production functions of the company and its
suppliers are in a state of continuous change.
 51

Producer community

The incomes are generated for those participating in production, i.e., the labour force,
society and owners. These stakeholders are referred to here as producer communities or, in
shorter form, as producers. The producer communities have a common interest in maximizing
their incomes. These parties that contribute to production receive increased incomes from the
growing and developing production.

The well-being gained through commodities stems from the price-quality relations of the
commodities. Due to competition and development in the market, the price-quality relations of
commodities tend to improve over time. Typically the quality of a commodity goes up and the
price goes down over time. This development favourably affects the production functions of
customers. Customers get more for less. Consumer customers get more satisfaction at less
cost. This type of well-being generation can only partially be calculated from the production
data. The situation is presented in this study. The producer community (labour force, society,
and owners) earns income as compensation for the inputs they have delivered to the production.
When the production grows and becomes more efficient, the income tends to increase. In
production this brings about an increased ability to pay salaries, taxes and profits. The growth
of production and improved productivity generate additional income for the producing community.
Similarly the high income level achieved in the community is a result of the high volume of
production and its good performance. This type of well-being generation – as mentioned earlier
- can be reliably calculated from the production data.

4.4 Factors of Production

Production of a commodity or service requires the use of certain resources or factors of
production. Since most of the resources necessary to carry on production are scarce relative to
demand for them they are called economic resources. Resources, which we shall call factors of
production, are combined in various ways, by firms or enterprises, to produce an annual flow of
goods and services.
52

Each factor gets a reward on the basis of its contribution to the production process, as
shown in the table. In fact, the resources of any community, referred to as its factors of production,
can be classified in a number of ways, but it is common to group them according to certain
characteristics which they possess. If we keep in mind that the production of goods and services
is the result of people working with natural resources and with equipment such as tools, machinery
and buildings, a generally acceptable classification can readily be derived. The traditional division
of factors of pro-duction distinguishes labour, land and capital, with a fourth factor, enterprise,
some-times separated from the rest.

The people involved in production use their skills and efforts to make things and do things
that are wanted. This human effort is known as labour. In other words, labour represents all
human resources. The natural resources people use are called land. And the equipment they
use is called capital, which refers to all man-made resources.
 53

4.5 Meaning of Productivity

Productivity describes various measures of the efficiency of production. Often (yet not
always), a productivity measure is expressed as the ratio of an aggregate output to a single
input or an aggregate input used in a production process, i.e. output per unit of input. Most
common example is the (aggregate) labour productivity measure, e.g., such as GDP per worker.
There are many different definitions of productivity (including those that are not defined as
ratios of output to input) and the choice among them depends on the purpose of the productivity
measurement and/or data availability. The key source of difference between various productivity
measures is also usually related (directly or indirectly) to how the outputs and the inputs are
aggregated into scalars to obtain such a ratio-type measure of productivity.

Productivity is a crucial factor in production performance of firms and nations. Increasing

national productivity can raise living standards because more real income improves people’s
ability to purchase goods and services, enjoy leisure, improve housing and education and
contribute to social and environmental programs. Productivity growth can also help businesses
to be more profitable

4.6 Factors influencing Productivity

Human Factors Affecting Productivity
 Employee health: Healthy employees show up to work physically able to do their jobs
with focus and stamina. If your staff is feeling well, they’ll be better able to be engaged
and follow through on tasks. Investing in health insurance and employee wellness adds
costs in the short term, but your company will likely reap the benefits of these expenditures
with increased productivity and improved quality of work.

 Employee attitudes: Workers who enjoy their jobs are likely to work well and efficiently
and even collaborate to find better ways to perform basic tasks. If you treat your workers
fairly, they’re likely to stay with your business longer, allowing you to increase productivity
by building skills and a shared knowledge base.

 Employee education and training: Unless your employees are performing rote, entry-
level jobs, their work and productivity will improve over time. You can leverage this growth
through ongoing onsite training, such as familiarizing staff with the nuances of your systems
as their proficiency grows. You can also invest in their education by funding learning
programs geared toward factors that affect efficiency of labor.
54

Equipment Factors Affecting Productivity

Your business infrastructure can also affect productivity. Equipment upgrades can be
costly, but slowdowns because of substandard equipment can be even costlier.

 The right tools: It takes a fraction of the time to slice a bale of onions by hand than to
process them with a food processor. Whatever your industry, there are probably standard
tools such as electric drills or sewing machines that can improve workflow and also custom
equipment tailored to your specific processes and products.

 The right layout: Once you’ve acquired equipment that can speed up your processes,
you should also arrange it in ways that save time and space. Equipment performing
different steps in a sequence should be laid out so work can gracefully move from one
step to another. Reduce clutter in equipment areas to avoid unnecessary slowdowns.

Systems Factors Affecting Productivity

Even if your workers are happy, and your equipment is in good shape, there may be
systems factors that affect work and sabotage your efforts at improvement.

 Supply chain issues: If you’re missing an ingredient or part that’s essential to completion
of your product, productivity can grind to a halt. Even if you divert employees to other
tasks, you’ll probably lose the efficiency that comes from performing tasks in the proper
sequence. Develop strong inventory tracking systems to avoid running out at inopportune
times, and cultivate multiple sources for the same items in case of shortages.

 Chain of command: If your employees are knowledgeable and empowered to make

spur of the moment decisions, they’ll be able to make judgement calls and keep work
flowing rather than having to stop and seek guidance. Similarly, if essential management
staff members are available when needed to make upper-level decisions, employees can
get the information they need to continue.

 Work flow protocols: Some work flow protocols are part of basic employee training,
such as letting cooked food items cool before packing them. Other protocols evolve over
time if your staff is engaged enough to continue finding new ways to work well. Reward
staff for successful innovations and encourage them to share information that can improve
productivity for the workplace as a whole.
 55

4.7 Types of Production System

There are three different types of productions which are most commonly used. Which
type of production should be used by the company depends on the type of product being
manufactured, the demand of the product as well as the supply of raw materials. Taking these
factors into consideration, below are the 4 types of Production. The production system can be
classified into three types

1. Continuous Production

a) Mass Production or line production

b) Flow production or process production

2. Intermittent (or) batch type production system

3. Job order or project type production system

1. Continuous Production

In continuous production identical articles are produced in a continuous manner. In

continuous production system products which are in high demand are produced in large
quantities.
56

The continuous production can be classified into two types

a) Mass Production b) Flow Production

a) Mass Production
 In mass production identical parts or products are produced in very large quantities using
both general purpose and special purpose. Automatic machines and other equipments.
Eg. Manufacture of Bolts, nuts, automobile, spare parts, gears, household articles and
electrical appliances like bulbs, radio etc.

b) Flow Production
 In flow type of production identical parts are produced continuously in large quantities. In
flow type, the raw material is processed continuously stage by stage and ends in a finished
products. In all types of process industries flow production takes place (e.g) sugar mills,
textile mills, chemical plant, fertilizer plant, cement plant etc.

c) Batch type or intermittent production

In this type of production identical products are produced in batches of small quantity.
After one batch of a particular product is produced another batch of similar product is produced
The same type of machines and equipments are used to produce those products in batches.
(eg) Machine tools like lathe, drilling machine, Milling machine, shoes, paints etc.

d) Job order (or) project type of production

In this type the job is manufactured after the receipts of orders from the customers. (eg).
Boiler manufacturer, ship building, construction of plants, dams, bridges and buildings etc. In
this type of production system the required raw material, men, machines are brought to a place
where the project work is carried out. The product is fabricated in a fixed place.
 57

4.8 Comparison of Types of Production System

Continuous Batch Production Project type Production
Production (or) (or)
[Mass & flow type] Intermittent Production Job type production system

1. Quantity produced Products are produced in One or few products are

is very large. batches of small quantities. produced.

2. Products are highly Product is standardized. Products is produced as

standardized. specified by customers.

3. Products and process Combined layouts are Fixed position layouts are
layouts are used. used. used.

4. Both single purpose Special purpose and General purpose

and special purpose general purpose machines
machines are used. machines are used. are used.

5. Routing is standardized. Routing is done for Routing is done for

every batch. every product

6. Scheduling is fixed Scheduling is done for Scheduling is prepared

each batch. for each product

7. Semi skilled and Semi skilled workers Highly skilled workers

unskilled workers are are sufficient are required.
sufficient.

8. Process Planning is Process planning is to be Process planning is to be

done only once. done for each batch done for each product.

9. Control function is easy Control function is difficult. Control function is difficult.

10. Preventive maintenance Preventive as well as Routine maintenance

is necessary to avoid routine maintenance is done
breakdown. is done

11. Unit cost is less Unit cost is high Unit cost is high.

12. Work cycle is short and Work cycle is long Work cycle is very long
repetitive in nature
58

13. Supervision is easy Supervision is difficult. Supervision is difficult

14. Material handling is Material handling is more. Material handling is more.

minimum

15. Fixed path variable path Variable path material Variable path material
material handling handling handling equipments
equipments are used. equipment are used. are used.

4.9 Summary
A production system consist of set of entities that includes inputs, processing and output
which are inter-related and integrated with each other. The inputs to the system includes basic
resources like men, materials, capital, energy etc. A production system operates in an
Environment. The Environment can be classified into internal environment and external
environment. “Production is the organized activity of transforming resources into finished products
in the form of goods and services. The most important forms of production are: market production,
public production and household production. Stakeholders of production are persons, groups
or organizations with an interest in a producing company. The stakeholders of companies are
economic factors which have an economic interest in a company. Based on the similarities of
their interests, stakeholders can be classified into three groups namely Customers, Suppliers
and Producers.

The people involved in production use their skills and efforts to make things and do things
that are wanted. The natural resources people use are called land and the equipment they use
is called capital, which refers to all man-made resources. Productivity describes various measures
of the efficiency of production. Productivity is a crucial factor in production performance of firms
and nations. Increasing national productivity can raise living standards because more real income
improves people’s ability to purchase goods and services, enjoy leisure, improve housing and
education and contribute to social and environmental programs. Various factors that affect
productivity are Human Factors like employee health, employee attitude and employee education
and training., Equipment Factors the right tools, right laouts etc., and system factors like supply
chain issues, work flow protocol etc.,

There are three different types of productions which are most commonly used. The selection
of production system depends on the type f products the company manufacture. Various types
of production system are Continuous Production. Intermittent (or) batch type production system
and Job order or project type production system
 59

4.10 Keywords
Batch Production

Job shop Production

Mass Production

Productivity

4.11 Review Questions

1. Explain the system concept of production with a neat sketch.

2. Define production and Productivity.

3. Discuss the various stakeholders of production system.

4. Discuss the factors that have an impact on production.

5. Discuss the factors that influencing productivity

6. Compare various characteristics of continous, batch and project type of production system.
60

LESSON - 5
CAPACITY PLANNING
Learning Objectives

After reading this lesson, the learners must be able to

 Define capacity and Capacity Planning

 Classify the types of capacity

 Identify the various factors that affect determination of capacity

 List out the need for Capacity planning

 Solve the problems in capacity planning

Structure
5.1 Introduction

5.2 Meaning of Capacity

5.3 Types of Capacity

5.4 Measurement of Capacity

5.5 Capacity Planning

5.6 Capacity Planning Decisions

5.7 Classification of Capacity Planning

5.8 Problems in Capacity Planning

5.9 Summary

5.10 Keywords

5.11 Review Questions

5.1 Introduction
Capacity is usually expressed as maximum productive volume output per time period.
The capacity question arises during:
 61

i. New facility planning.

ii. Leasing or buying the equipment required to maintain the output.

iii. Expansion of the existing facilities

iv. While introducing new products or services

v. While finalizing the fund and energy requirements.

Capacity planning is necessary when an organization decides to increase its production

(or) introduce new products in to the market or to increase the volume of production to gain the
advantages of economics of scale.

5.2 Meaning of Capacity

Capacity refers to the maximum load an operating unit can handle. The operating unit
might be a plant, a department, a machine etc.

Capacity of a plant is the maximum rate of output (goods or services) the plant can
produce.

“Capacity is the ceiling on the maximum load a production unit can handle at a given point
of time”.

“Capacity is the upper limit on the rate of output”.

“Capacity indicates the ability of affirm to meet market demand.”

“Capacity is the maximum production rate of a facility or firm”.

Generally capacity is expressed as volume of output per period of time.

5.3 Types of Capacity

1. Design Capacity: It is otherwise called as installed capacity. Preliminary estimate of
capacity is done based on long range forecast extending 5 to 10 years into the future. The
design capacity of a system is the rate of output of goods and services produced under
full scale operating conditions (or) under normal working conditions.

For Example: A steel factory may be designed to produce 100 tons per day. The projected
demand of r period anywhere from 5 to 10 years is taken as the estimate for the design
capacity.
62

2. System Capacity: It is the maximum output of specific product (or) product mix, a
production system can produce. It is less than the design or installed capacity because of
the limitations of the system due to

i. changes in the product mix

ii. quality specifications

System capacity is adversely affected by short range effects which include actual market
demand, managerial effectiveness, strategy and control, planning and scheduling activities,
labour ineffectiveness, increase in scrap, machine breakdown etc.
3. Fixed Capacity: It refers to the capital assets (buildings and equipments) a firm possesses
at particulars time. It cannot be easily changed in a short period of time.
4. Variable (or) Adjustable capacity: This refers to the size of the work force, the number
of hours per day,(or) per week the extent of overtime work and subcontracting of work.
5. Immediate Capacity: It is that, which can be made available with in the current budgeted
period.
6. Potential Capacity: It is that which can be made available with in the decision horizon of
the top management.
7. Effective (or) Practical(or) Operating Capacity: It is the capacity which can be utilized
after taking in to account the capacity losses due to inefficiencies, bad planning, rejection
and scrap rate etc. It could be 75% to 85% of the design or installed Capacity.
Effective Capacity is used with in the current budget period. No plant can be used up to
maximum or theoretical capacity (Installed or design capacity) because of loss of capacity
due to various reasons. This results in the plant working at an efficiency of less than
100%.
8. Normal Capacity (or) Rated Capacity: It is the estimated quantity of output or production
that should be normally (or) usually achieved by taking in to consideration the overall
efficiency was done by Industrial Engineering department.
Actual capacity which is available for utilization is generally expressed in percentages of
rated capacity.
For Examples: The rated capacity of a steel plant may be expressed as 1 lakh ton of steel
per month.

9. Actual or Utilized Capacity: This is the actual output achieved during a particular time
period. The actual output is less than the rated output because of short range factors
 63

such as actual demand, employee absenteeism, labour inefficiency, machine capacity

etc.

10. Peak Capacity: It is the maximum output that a process or facility can achieve under
ideal conditions. Peak capacity can be sustained only for few hours on day or few days in
a month. Peak capacity can be reached by using excessive overtime, extra shifts,
overstaffing, and subcontracting.

11. Excess Capacity (or) Surplus Capacity: The excess or surplus capacity should be
produced when a new customer places a order (or) when suddenly there is increase in
forecasted demand for a future time period. The excess or surplus capacity occurs because
of

i. Seasonal (or) Cyclical fluctuations in demand

ii. Changes in market conditions (shift in consumers tastes and habits)

12. Bottle neck Capacity: Most facilities have multiple operations and often their effective
capacities are not identical. A bottle neck is an operation which has the lowest effective
capacity of any operation in the facility and thus limits the systems capacity and output

The work centre (or) machine in which the lowest effective capacity exists is known as the
bottleneck centre which puts a limit on the system capacity is referred to as bottle neck
capacity.

5.4 Measurement of Capacity

Capacity of a plant is usually expressed as the rate of output (i.e.) in terms of units produced
per period of time.

Some of the examples of measures of capacity

64

5.5 Capacity Planning

Capacity planning is long-term decision that establishes a firm’s overall level of resources.
It extends over time horizon long enough to obtain resources. Capacity decisions affect the
production lead time, customer responsiveness, operating cost and company ability to compete.
Inadequate capacity planning can lead to the loss of the customer and business. Excess capacity
can drain the company’s resources and prevent investments into more lucrative ventures. The
question of when capacity should be increased and by how much are the critical decisions.
Failure to make these decisions correctly can be especially damaging to the overall performance
when time delays are present in the system

5.6 Capacity Planning Decisions

Capacity planning involves activities such as

i. Assessing the capacity of existing facilities

ii. Forecasting the long range future capacity needs

iii. Identifying and analyzing sources of capacity for future needs.

iv. Evaluating the alternative sources of capacity based on financial, technological and
economical considerations.

v. Selecting a capacity alternative most suited to achieved strategic mission of the firm.

Capacity Changes

When the long range capacity needs are estimated through long range forecasts for
products, a firm may find itself in one of the following situations.

1. A capacity shortage situation where present capacity is not enough to meet the forecast
demand for two products.

2. An excess or surplus capacity situation where the present capacity exceeds the expected
future demand.
 65

5.7 Classification of Capacity Planning

The capacity planning is classified based on the time period and finiteness. They are

Based on time horizon

1. Long term planning

2. Short term planning

Based on amount of resources employed

3. finite capacity planning

4. Infinite capacity planning

1. Long term capacity planning: Long term capacity planning is done to include major
changes that affect the overall level of output in the long run.

Decisions like developing new products, expanding existing facilities, acquire existing
units (or) constructing new units.
66

2. Short term capacity planning: Short term capacity planning is concerned with meeting
the relatively intermediate variation in demand due to seasonal or economic factors.
Strategies adopted to handle the short term requirements are over time, incentive schemes,
BPO, subcontracting increasing the number of shifts.

3. Finite capacity planning: In production planning, it is important to ensure that the plant
has sufficient capacity to adhere to the delivery schedules specified by the customers.

The main characteristics of finite capacity planning are production to stock and method
for push strategy.

In this type of planning, capacity of production is given more importance and dominance
over time element. Finite capacity planning requires forward planning where the tasks
have to be identified, it has to be sequenced and resources have to be allocated to
achieve the result.

This finite plan is useful to organizations to have a stable market demand and productions
can be done to stock. Here the customer does not specify the delivery schedule.

4. Infinite capacity planning: This adopts pull strategy of manufacturing and tires to reach
the market exactly at the time it is required, No stocking of product is done. Hence delivery
schedule is fixed by the customer, then backward scheduling is done to accommodate
thus delivery schedule by planning for infinite capacity (i.e., the capacity required to
executive the customer order in the shortest period time).

5.8 Problems in Capacity Planning

1. A department works on 8 hours shift, 250 days a year and has the usage date, of a
machine as given below.
 67

Determine the number of machines required

Solution:

Step 1: Calculate the processing time needed in hours to produce product X, Y, and Z in
the quantities demanded using the standard time data.

1200 Units Total 5100 Hrs

Total 5100 hrs are required to produce 1200 units

Annual production capacity of

one machine is standard hrs = 8 hrs/days X 250 days

= 2000Hrs per year

workload per year in hrs

 Number of Machines required 
prodcution capcity per machine in hrs
5100
  2.55  3
2000
 3 machines

2. A steel plant has a design capacity of 50,000 tons of steel per day, effective capacity of
40,000 tons of steel per day an actual output of 36,000 tons of steel per day. Compute the
efficiency of the plant and its utilization.
68

Solution:

Given data

Design capacity of a steel plant = 50,000 tons

Effective capacity = 40,000 tons of steel /day

Actual output = 36,000 tons of steel / day

Actual output
Effective of the plant 
effective capacity of the system
36000
 x 100
40000
Efficiency of the plant  90%

Actual output
Actual utilization 
Design capacity
36000
  100
50000
 72%

3. A firm has four work centres A, B, C, and D in series with individual capacities in units per
day shown in the figure below

i. Identify the bottle neck

ii. What is the system capacity?

iii. What is the system efficiency?

Solution:
i. the bottle neck centre is the work centre having the minimum capacity in the system.
Hence work centre ‘C’ is the bottle neck centre.
 69

ii. System capacity is the maximum units that is, possible to produce in the c\system as a
whole. Hence, system capacity is the capacity of the bottle neck (i.e.) 340 units

Actual output
System Efficiency 
system capacity
iii. 300
  100  88.23%
340

4. A firm operates 6 days a week on single shift of 8 hrs per day basis. There are 120machines
of the same capacity in the firm. If the machines are utilized for 75 percent of the time at
a system efficiency of 80 percent, what is the rated output in terms of standard hours per
week?

Solution:

Maximum number of hours of work possible per week

= No. of machines X Machines hrs worked per week

= 10 X 6 X 8 = 480 hrs

If the utilization is 75% then number of hrs worked

= 480 hrs x 0.75 = 360Hrs

Rated output = utilized hrs X system efficiency

= 360 X 0.8 = 288 Standard hrs.
5. A TV assembly unit has 5 work stations whose individual capacities per shift are given
below. The capacity of the assembly line is 350 TV’S per day of single shift calculate the
system capacity and system efficiency?
70

Solution:

A) System capacity is the maximum the system can generate without bottlenecks. Hence it
is equal to the least of the sub assembly capacities(i.e.) the picture tube and final inspection.

System Capacity = bottle neck= 400 TV’s/ days

B) Actual output of TV’s = 350 per day of one shift

C) Actual output of TV’s = 350 per day of one shift

Actual output
System Efficiency   100
system capacity
350
  100  87.5%
400

6. A PC manufacturer intent to buy a PCB manufacturing unit, which can produce 50,000
PCBs per year. The PCB manufacturing unit is part of the PC manufacturing line. The
system efficiency of the PC manufacturing line is 90%.

a. Identify the required system capacity?

b. Calculate the number of PCB manufacturing units required, if one such unit
takes 15minutes to produce a PCB. The PC manufacturing unit works on one
shift per day throughout the year. The PCBG unit is used only 75% of the time
and is 99% efficient.

Solution:

55556
A) SystemEfficiency  19.03PCBs/ hr
8 Hrs  360days

the system capacity can be arrived per hour as follows:

Actual output
System Efficiency 
system capacity
50000
  55556 PCBs / Year
0.90

Output per hour  (Unit Capacity )  (% Utilizatio n)  ( Efficiency)

 60 
   hrs  0.75  0.99  3 PCBs / hr
 15 

system capacity 19.03

Number of PCBs required    6.41  7  7 machines
outputs / hrs 2.97
 71

Summary

Capacity refers to the maximum load an operating unit can handle. The operating unit
might be a plant, a department, a machine etc. Capacity of a plant is the maximum rate of
output (goods or services) the plant can produce. Capacity is usually expressed as maximum
productive volume output per time period. Capacity decisions are based on size of the plant,
capacity to install, Capacity needed, whether to increase (or) decrease capacity and cost of
installing Capacity. Capacity determines the selection of appropriate technology, type of labour
and equipment. Capacity influences the competitiveness of the firm. Various factors affecting
determination of plant capacity are market demand for the product, investment, level of
automation, type of technology, Product obsolesces and technology obsolescence.

Capacity planning is long-term decision that establishes a firm’s overall level of resources.
Capacity planning is necessary when an organization decides to increase its production (or)
introduce new products in to the market or to increase the volume of production to gain the
advantages of economics of scale. Capacity planning involves activities such as assessing the
capacity of existing facilities, forecasting the long range future capacity needs, Identifying and
analyzing sources of capacity for future needs, evaluating the alternative sources of capacity
based on financial, technological and economical considerations, and selecting a capacity
alternative most suited to achieved strategic mission of the firm. The capacity planning is classified
based on the time period and finiteness. Based on time horizon capacity planning can be classified
as long term planning and Short term planning where as, based on amount of resources
employed capacity planning can be classified as finite capacity planning and Infinite capacity
planning

5.10 Keywords
Capacity

Capacity Planning

Peak Capacity

5.11 Review Questions

1. Define capacity and Capacity Planning.
2. How can Capacity be measured ?
3. Discuss the need for Capacity planning.

4. Classify various types of capacity planning.

72

LESSON - 6
MAKE OR BUY DECISION
Learning Objectives

After reading this lesson, the learners must be able to

 Identify the factors that influence make or buy decision

 List out the criteria’s for make and buy decisions

 Discuss the various approaches to make or buy decisions

Structure
6.1 Introduction

6.2 Factors Influencing Make or Buy Decision

6.3 Criteria for Make or Buy Decisions

6.4 Approaches to Make or Buy Decisions

6.4.1 Simple Cost Analysis

6.4.2 Economic Analysis

6.4.3 Break Even Analysis

6.5 Summary

6.6 Keywords

6.7 Review Questions

6.1 Introduction
In the process of carrying out business activities of an organization, a component/product
can be made within the organization or bought from a subcontractor. Each decision involves its
own costs. So, in a given situation, the organization should evaluate each of the above make or
buy alternatives and then select the alternative which results in the lowest cost. This is an
important decision since it affects the productivity of the organization. In the long run, the make
or buy decision is not static. The make option of a component/product may be economical
today; but after some time, it may turn out to be uneconomical to make the same.
 73

Thus, the make or buy decision should be reviewed periodically, say, every 1 to 3 years.
This is mainly to cope with the changes in the level of competition and various other environmental
factors.

6.2 Factors influencing Make or Buy Decisions

Two primary factors which have a decisive influence on the choice of make or buy are the
cost and availability of production capacity. Facilities are made available and other things being
equal cost consideration assumes primacy. If the cost of making an item in-house is going to be
higher than the cost of acquiring it from an outside supplier, the choice is to buy it. On the other
hand, if the cost of making the item in one’s own plant is cheaper than buying it from the
supplier, the choice is to make it. A good make-or-buy decision, nevertheless, requires the
evaluation of several less tangible factors in addition to the two basics ones.

Considerations which favour making the parts are:

1. Cost considerations less expensive to make the part

2. Desire to integrate plan operations

3. Productive use of excess plant capacity to help absorb fixed overheads.

4. Needs to exert direct control over production and/or quality

5. Design secrecy.

6. Unreliable suppliers.

7. No suitable supplier quotation

8. Desire to maintain a stable workforce in periods of declining sales

Considerations which favour buying the part are:

1. Cost considerations less expensive to buy the part

2. Suppliers research and specialized know-how

3. Small volume requirements

4. Limited production facilities

5. Desire to maintain stable workforce in periods of rising sales.

6. Desire to maintain multiple source policy.

74

7. Governments policy favoring ancillary industries.

8. Monopoly items which are rationed by the government and on which, the buyer has no
option

6.3 Criteria for Make or Buy Decisions

In this section the criteria for make or buy are discussed.

Criteria for make decisions

The following are the criteria for make decisions:

1. The finished product can be made cheaper by the firm than by outside suppliers.

2. The finished product is being manufactured only by a limited number of outside firms
which are unable to meet the demand.

3. The part has an importance for the firm and requires extremely close quality control.

4. The part can be manufactured with the firm’s existing facilities and similar to other items
in which the company has manufacturing experience.

Criteria for buy decision

The following are the criteria for buy decisions:

1. Requires high investments on facilities which are already available at suppliers plant.

2. The company does not have facilities to make it and there are more profitable opportunities
for investing company’s capital.

3. Existing facilities of the company can be used more economically to make other parts.

4. The skill of personnel employed by the company is not readily adaptable to make the part.

5. Patent or other legal barriers prevent the company for making the part.

6. Demand for the part is either temporary or seasonal.

 75

6.4 Approaches to Make or Buy Decision

Types of analysis followed in make or buy decision are as follows:

a. Simple cost analysis

b. Economic analysis

c. Break-even analysis

6.4.1 Simple Cost Analysis

A make or buy cost analysis involves a determination and comparison of the cost to make
the part and the cost to buy it. The final make or buy decision must be based on a careful
weighing of the cost considerations and various quantitative considerations. The most difficult
make-buy factors to assess are those that will significantly be affected by change in economic
conditions, technological advancement, growth of the firm, or changes in the labour manage-ment
relations in the future. Studies show that more mistakes are made in making what could be
more profitable to bought than in buying what could more profitable to be made.

EXAMPLE :

A company has extra capacity that can be used to produce a sophisticated fixture which
it has been buying for Rs. 900 each. If the company makes the fixtures, it will incur materials
cost of Rs. 300 per unit, labour costs of Rs. 250 per unit, and variable overhead costs of Rs.
100 per unit. The annual fixed cost associated with the unused capacity is Rs. 10,00,000.
Demand over the next year is estimated at 5,000 units. Would it be profitable for the company
to make the fixtures?

Solution We assume that the unused capacity has alternative use.

Cost to make

Variable cost/unit = Material + labour + overheads

= Rs. 300 + Rs. 250 + Rs. 100

= Rs. 650

Total variable cost = (5,000 units) (Rs. 650/unit)

= Rs. 32,50,000
76

Add fixed cost associated with unused capacity + Rs. 10,00,000

Total cost = Rs. 42,50,000

Cost to buy

Purchase cost = (5,000 units) (Rs. 900/unit) = Rs. 45,00,000

Add fixed cost associated with unused capacity + Rs. 10,00,000

Total cost = Rs. 55,00,000

The cost of making fixtures is less than the cost of buying fixtures from outside. Therefore,
the organization should make the fixtures.

On the basis of above cost analysis it is quite clear that the decision must be in favour of
buying the part.

6.4.2 Economic Analysis

(i) Buying:

As we know that economic purchase (ordering) quantity is equal to 2AP/C

or Q = 2AP/C

and also we know total cost = Procurement cost/year + Inventory cost per year

Total cost = A × P/Q + Q x C/2

This can further be modified by adding purchase cost/year.

Thus Total cost = A × I + A × P/Q + Q x C/2

where A = Total demand per year

P = Procurement cost per order

C = Annual carrying cost per item/year

Q = Economical purchase (ordering) quantity

 77

I = Purchase price of one unit.

(ii) Making:

Further, it can be found out that economical production quantity is equal to

and Total cost = A × I + A × S/Q1 + C(R – A) Q1/2R

where A = Total demand per year

S = Set up cost per lot

C = Annual carrying cost per item/year

Q1 = Economical production quantity

I = Production cost per unit

R = Production rate.

By using above mentioned formulas, an economic analysis can be made in respect of

make or buy decision.

This can be understood easily with the help of the following example:

1.Suppose an item has yearly demand of1000 units.

The different costs regarding make and buy are as follows:

Item cost/unit Buy Make

Rs. 6.00 Rs. 5.90
Procurement cost/order Rs. 10.00 --
Set up cost/lot -- Rs. 50.00
Annual carring cost/item/year (22% of item cost) Rs. 1.32 Rs. 1.30
Production rate equal to 6000 units per year.
Indicate which of the alternative is economical
78

Solution:

(i) Buying:

Economical purchase quantity = Q

Now, calculating the total cost with the help of formula,

Total cost = A × I + A × P/Q + Q × C/2

For different purchase quantities, total cost is calculated, and shown in, Table 37.1.

(ii) Making:

Similarly while making we have

 79

and total cost table is prepared with the help of formula

Total cost = A × I + A × S/Q1 + C(R – A) Q1/2R

Now plotting the two tables on a graph as shown below.

The decision to buy or make may be made by analysing the minimum cost for each
alterna-tive. In this example, to buy will be the choice as by choosing this we can have saving of
Rs. 66 (Rs. 6228 – Rs. 6162) per year.

Such analysis may be used for comparing alternative manufacturing facilities, or to

evalu-ate alternate suppliers.

Figure. 6.1

6.4.3 Break-even Analysis

The decision regarding make or buy can easily be made with the help of break-even-
point theory.
80

There are following two methods to obtain break-even point:

(a) Mathematical method.

(b) Graphical method.

(i) Mathematical method:

Let cost be the common variable in two situations 1 and 2, then cost equations will be

c1 = f1 (x)……. a function of (x) …(1)

c2 = f2 (x)…… another function of (x) …(2)

c1 — May be as total cost, annual cost, cost per item or cost per day etc. for situation 1.

c2— Same as c1 but application to situation 2.

x—a variable effecting c1 and c2.

To solve for the value of x, let c1 = c2

i.e. f1(x) = f2(x) …(3)

Equation (3) can be solved for obtaining the value of x. The value of x making the cost
equal in both the situations is called “Break-Even Value”. Below this value of x one situation will
be economical while above it another situation will be economical.

(ii) Graphical method:

Although the break-even point may be calculated mathematically but it is usually

represented graphically because it enables manager to see more clearly the break-even point
and the possibilities for profits and losses. By using these charts one can predict probable
profits at various levels of output.

A break-even chart given in Fig. 6.2 is used to determine break-even point and amount of
profit or loss under varying conditions of output of costs. Sales or expenditure in rupees is
represented on vertical axis, while output (either in quantity or in percentage capacity) is
rep-resented on horizontal axis.
 81

Line A represents the “fixed cost”, Line B represents total cost or total expenses, while
line C represents sales revenue and indicates income at various levels of output. The point
where lines B and C intersect each other is “Break-Even Point”. The space between lines B and
C to the right of the “Break-Even Point” potential loss. The amount of loss or profit can be
measured on vertical scale.

Figure 6.2 Break-even chart

This method can be applied to various management problems. For example, suppose a
manager wants to replace an old lathe machine being used for manufacturing screws by
auto-matic screw machine. Then he must first know whether it will be profitable or not, for which
he must adopt break-even point theory and construct the chart as explained in Figure 6.3.

Figure 6.3
82

The figure shows that for a production less than Q, it must not be changed whereas for
production more than Q automatic machine or new machine will be economical or in other
words below Q manual lathe is cheaper; beyond Q, automatic machine is cheaper. This break-
even point is also known as “cut-even point”.

Some Important Definitions

(i) Angle of incidence

It is the angle at which income line or sales line cuts the total cost line. If the angle is large,
it is an indication that profits are being made at a high rate, on the other hand, if the angle is a
small, it indicates that less profits are being made and are achieved under less favourable
conditions.

(ii) Margin of safety

It is the output at full capacity minus the output at “Break-Even Point”. It is expressed as
percentage of output at full capacity. If the margin of safety is small, a small drop in production
capacity will reduce the profit greatly.

It can also be expressed as:

(iii) Contribution

It is the difference between sales and variable cost (marginal cost). It is also called as
Marginal Profit or Gross Margin. The marginal profit provides the contribution towards fixed
cost and profit.

Contribution = (Sales – Variable cost) which in turn will be equal to fixed cost + Profit.

The various assumptions that underline in these techniques are given as under

(i) It is assumed that over the entire range of volume of production all costs are perfectly
variable.
 83

(ii) It is assumed that over the entire range of volume of production all costs are constant
fixed.

(iii) It is assumed that with the physical volume of production all revenue is perfectly
variable.

(iv) The volume of sales and volume of production are equal.

(v) It is assumed that for multi-products firms, the product mix should be stable.

Example

The following data from a plant is available:

Solution:

Total fixed cost per year = Rs. 7500.

Sales for the current year = 25,000
Product A contribution = Rs. (10 – 6) = Rs. 4
... Contribution for 20% sales of product A = 10 – 6/10 × 0.20 = 0.08
Similarly for product B, = 6 – 4/6 × 0.30 = 0.10
and for product C = 20 – 12/20 × 0.5 = 0.20
Thus contribution ratio for product A, B and C
= 0.08 + 0.10 + 0.20 = 0.38
... Total contribution of sales = 0.38 × 25,000 = Rs. 9500
... Profit = Contribution—Fixed costs = 9500 – 7500 = Rs. 2000
Similarly, the profit or contribution for new product line of products D, B, C
D = 16-6/16 × 10% = 0.06
B = 6 – 4/6 × 0.50 = 0.17
C = 20 – 12/20 × 0.40 = 0.16
... Total contribution ratio = 0.06 + 0.17 + 0.16 = 0.39
84

... Total contribution from sales = 26,000 × 0.39 = Rs. 10,140

... Profit = 10,140 – 7500 – Rs. 2640.
Hence proposed decision is profitable to accept.

6.5 Summary
In the process of carrying out business activities of an organization, a component/product
can be made within the organization or bought from a subcontractor. Each decision involves its
own costs. So, in a given situation, the organization should evaluate each of the above make or
buy alternatives and then select the alternative which results in the lowest cost. This is an
important decision since it affects the productivity of the organization.

Two primary factors which have a decisive influence on the choice of make or buy are the
cost and availability of production capacity. If the cost of making an item in-house is going to be
higher than the cost of acquiring it from an outside supplier, the choice is to buy it. On the other
hand, if the cost of making the item in one’s own plant is cheaper than buying it from the
supplier, the choice is to make it. A good make-or-buy decision, nevertheless, requires the
evaluation of several less tangible factors in addition to the two basics ones. Before taking
make or buy decision it is very important to consider the important criteria’s that favours make
and buy decisions . There are three different approaches to be followed to take make or buy
decisions .They are Simple cost analysis, Economic analysis and c. Break-even analysis

6.6 Key words

Break-even Analysis
Make or Buy discussion
Simple Cost Analysis

6.7 Review Questions

1. Write a overview on Make or Buy decision
2. Discuss the factors that influence make or buy decision
3. Discuss the Criteria’s for make and buy decisions
4. Explain the various approaches for make or buy decisions
5. Explain simple cost analysis with suitable example
6. Explain economic analysis with suitable example
7. Explain break even analysis with a neat sketch.
 85

LESSON - 7
PLANT LOCATION
Learning Objectives

After studying this lesson, the learners must be able to

 Analyze the need for selecting a suitable location

 Discuss the reasons for replacement of existing facilities to new location

 List the various stages in facility location decisions

 Explain the methodologies to determine the plant locations

 Describe the current Trends in locations

Structure
7.1 Introduction

7.2 Need for Selecting a Suitable Locations

7.3 Stages in Facilities Location Decisions

7.4 Methodologies to Determine Facility Location

7.4.1 Single Facility Location Problem

7.4.2 Divisional Analysis

7.4.3 Rate of Return Method

7.4.4 Centre of Gravity Method

7.5 Multiplant Location Decisions

7.6 Trends in Facilities Location

7.7 Summary

7.8 Keywords

7.9 Review Questions

7.1 Introduction
The selection of plant location is a key decision because large investment is made in
building, plant and machinery. It is not advisable (or) not possible to change the location very
86

often. So an improper location of plant may lead top waste of all the investment made in building
and machinery equipment. The plant location should be based on the company’s expansion
plan and policy, diversification plan for the products, changing market conditions, the changing
sources of raw materials and many other factors influence the choice of location decision.

Business system utilizes facilities like plant, machineries, equipment and warehouses
etc., while performing the task of producing products/service. A proper planning of these facilities
would definitely reduce their cost of operation and maintenance. At the time of starting any
industry, one should generate several alternative sites for locating the plant. After a critical
analysis the best site is to be selected for commissioning the plant.

7.2 Need for selecting a suitable Location

The need for selecting as suitable location because of following reasons.

(i) when starting a new factory

(ii) in case of existing factory

(iii) The existing firms will seek new locations in order to expand its capacity and facilities.

(iv) Whether to expand the existing capacity and facilities

(v) Whether to look for new locations for additional facilities

(vi) Whether to close down the existing facilities to take advantage of some new locations.

7.3 Stages in Facility Location Decisions

There are four stages in facility location decisions:

Stage 1: Selection of a country

Stage 2: Selection of a general territory (or) region

Stage 3: Selection of a community

Stage 4: Selection of a particular site

Stage 1: Selection of a country: Companies are under competitive pressure to engage

in global production and service operations due to the rapid growth of global markets.

The International companies can select a country where it finds competitive advantages
than other country’s across the globe.
 87

Various factors to be considered while selecting a country for locating the plant are:

1. The political situation of the country.

2. Government trade polity (Export – import policy).

3. Government industrial policy.

4. The economical conditions of the country.

5. Infrastructure facilities.

6. Availability of labour and cost of labour.

7. Socio-economic conditions.

8. Market conditions.

9. Availability of competitions.

10. Economics of scale of operations.

11. Natural calamities.

Once the company decides to locate its facilities in a particular country the next step is to
select a region in that country.

Stage 2: Selection of a region: This refers to the selection of a particular geographical

zone or state taking into consideration such factors like the local government industrial policy,
availability of labour, market, cost of labour, sources of raw materials, basic infrastructure facilities,
climatic conditions and taxation and laws.

Stage 3: Selection of a Community: This refers to the selection of specific locality with
in the selected region. The factors that influence the selection of community are availability of
labour, community attitude, social structure and service facilities.

Generally the following alternatives are available.

1. Urban area
2. Semi urban area near the urban area
3. Rural area
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Stage 4 : Selection of particular site: This refers to the selection of specific site within
the community. The factors that influence site selection are the costs of the land, availability
and suitability of the land.

The type of manufacturing process may dictate the site selection.

Various conditions that govern the particular types of community are as follows:

Condition that demand Urban location

1. If highly skilled labours are required.

2. If manufacturing (ie manufactured product) depends on urban utilities.

3. If excellent communication and transport facilities are required.

4. If suppliers are available in and around urban centres.

Condition that demand for sub – urban location

1. If semi skilled work force is required.

2. Large space availability for future expansion.

3. If the community is close to large population centre.

Conditions demand for Rural location:

1. If cost of land should be cheap.

2. Availability of more land for future expansion.

3. Requirement of unskilled labour.

4. Low wage structure.

5. If it pollutes the environment and other surrounding.

6. Compare the advantages and disadvantages between Urban and Rural location.

Urban location:

Advantages:

1. Good transport facilities.

2. Availability of skilled and trained manpower.

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3. Factory in the viscinity of market hence local demand is high. So less distribution and
transportation cost.

4. Availability of good communication network.

5. Good educational, recreational and medical facilities are available.

6. Adequate storage facilities like warehouse.

7. Availability of service consultants, training institutes and trainers.

8. Excellent sub contracting facilities.

Disadvantages:

1. Cost of land is very high.

2. Sufficient land may not be available for future expansion.

3. Cost of living is very high.

4. Cost of labour is high.

5. Difficult to get skilled labours due to more demand.

6. Industrial interest due to trade union activities.

7. High labour turn over due to better opportunities.

8. Municipal and other authority restrictions on buildings etc.

7.4 Methodologies to determine Facility Location

7.4.1 Single Facility Location Problem

If there are set of existing facilities with their co-ordinates on X – Y plane and the movement
of materials from a new facility to all these existing facilities, then the objectives is to determine
the optimal location for the new facility. In order to find the optimal location we have to follow
rectilinear distance method

The rectilinear distance between any two points whose co-ordinates are (X1, Y1) & [X2, Y2]
is given by the following formula

d12 = [X1 – X2] + [Y1 – Y2]

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Properties to determine optimum solution in rectilinear distance location method

The X coordinate of the new facility will be the same as the X coordinate of some existing
facility. Similarly, the Y coordinate of the new facility will coincide with the Y coordinate of some
existing facility.

The optimum X coordinate [Y coordinate] location for the new facility is a median location.

A median location is defined to be a location such that no more than one half of the items,
should more to the left (below) of the new facility location. Similarly no more than one half of the
items should move to the right (above) of the new facility location.

Example: There are five existing plants which have a material movement relationship
with the new plant. The existing plants have location of (400, 200) (800,500) (1100, 800) (200,
900) and (1300, 300). The number of tonnes of materials transported per year from the new
plant to the various existing plants are 450, 1200, 300, 800 and 1500 respectively. Determine
the optimum location for the new plant such that the distance moved (cost) is minimum.

Solution:

Let X & Y be the coordinate of the new plan. The optimum X coordinate for the new plant
is determined as follows:

The data of the existing plants are according to that X coordinate values. Next the weights
are accumulated. The total number of tons transported per year is 4250.
 91

Thus the median location corresponds to a cumulative weight of 4250 / 2 = 2125.

From the above table, the corresponding X coordinate value is 800m, since the cumulative
weight first exceeds 2125 at X = 800.

Similarly, the determination of Y coordinate is shown below.

The median location on Y axis corresponding to the cumulative weight 4250 / 2 = 2125 is
500. Hence the optimal Y coordinate for the new facility is 500.

The optimal location (X*, Y*) = (800, 500)

7.4.2 Divisional Analysis

Dimensional analysis involves calculation of the relative merits (advantages) or cost ratios
for each of the factors, giving each of the cost factor an appropriate weightage by means of an
index to which the cost ratio is raised and multiplying these weighted ratios in order to arrive at
a figure on the relative merits of alternative sites.

Let Cm1, Cm2, Cm3…………..CmZ are the costs associated with site M for different cost
factors.

Cn1, Cn2, Cn3…………..CnZ are the costs associated with site N on 2 different factors.

W 1, W 2, W 3…………..W Z are the weightage of various factors.

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Merit (or advantages of location M = (Cm1 ) W1  Cm 2 ) W2   CmZ ) WZ

Merit (or advantages of location N = (Cn1 ) W1  Cn 2 ) W2   CnZ ) WZ

The relative merits of sites M & N are given by

W1 W2
Merit of M  Cm1    C    C 
    m2    mZ 
Merit of N  Cn1   Cn 2    Cnz 

Merit of M
If the value of  1 select the site N otherwise (i.e)<1 select N
Merit of N

The advantages of this method are it compares both subjective and objective (tangible
and intangible) factors and gives a quantitative figure to the decision maker.

7.4.3 Method based on the economics of various sites (or) Rate of return
method

Total revenues  Total exp enses

ROI 
Total investment

An ABC company intends to select one of the three locations – both tangible and intangible
factors collected by the expert is given below.
 93

Using ROI method select the best site.

Calculation of ROI for the three alternatives.

Total revenuefor site A  Total exp enses 

ROI for site A =
Total investment

410  204 515  230 360  181

ROI A   82.4% ROI B   87.6% ROI C   66.29%
250 325 270

As the ROI for site B is higher and further the community facilities and attitudes are good
than other two sites. Site B should be selected.

7.4.4 Center of Gravity Method (or) Gravity Location Problem

The centre of gravity is found by calculating the X & Y coordinates that result in the
minimal transportation cost. The formula to calculate X & Y coordinates are

CX 
d Vix i
CY 
d V
iy i

V i V i
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Where
CX = x coordinate of the centre of gravity for the new facility.
CY = y coordinate of the centre of gravity for new facility.
dix = x coordinate of the new facility.
diy = y coordinate of the new facility.

The coordinates CX and CY are the optimal coordinates of the new facility.

Example : There are five existing facilities which are to be served by a single new facility.
The details of the existing facilities are shown in the table

Find the optimum location of the new facility based on gravity location concept.
Solution:

The optimum locations of the new facility = [21, 14.5].

An automobile air conditioner manufacturer currently manufacturers its RB = 300 line at

three different places (locations,) plant A, Plant B, an dPlant C respectively. Recently management
has decided to build all compressors, a major component in a separate facility plant D. Using
centre of gravity method and the information given determine the best location for plant D.
 95

Assuming linear relationship between volumes shipped and shipped costs. Quantity of
compressor required by each plant.

d1X = 150 ; V1 = 6000

d2X = 100 ; V2 = 8200

d3X = 275 ; V3 = 7000

The location for plant D is (172, 263)

Facility layout decisions – (FLYD) – types (fixed opposition, product, process, flexible)
Methodologies (distance minimizing) computer software systems (CRAFTS, CORELAP, ALDEP).

7.5 Multiplant Location Decisions

Multiplant location decision is concerned with the ideas of establishing multiple plants in
the other geographical regions of a country or state in addition to the existing plant(s). Sometimes
locating plants outside the country can also be considered as multiplant location decisions.
Multiplant location decisions may arise in the following circumstances.
96

1. The existing capacity of the existing plant has exhausted.

2. To meet the expanding market demand all over the country.

3. To take advantage of various incentives and benefits offered by central and state
governments.

4. The cost advantage arising out of some of the primary factors influencing plant location.

5. As per the management policy with regard to diversification.

COS (Critical, Objective and Subjective factors) effect in Multiplant

Location

The criteria set by management in multiplant location can be classified as follows and
termed as “ COS effect” which considers : Critical, Objective and Subjective factors in multiplant
locational problem.

1.Critical : Criteria are critical if their nature may preclude the location of a plant at a
particular site, regardless of other conditions, that might exist. For example, a water –oriented
enterprise, such as brewery would not consider a site, where a water shortage was a possibility.
A power oriented enterprises, such as ferro-silicon manufacturing plant, would not consider
sites where low-cost and uninterrupted electricity was not available. Critical factors have the
effect of eliminating sites from consideration.

2. Objective : Criteria that can be evaluated in monetary terms such as raw-material,

labour, utilities, taxes etc are considered as objective.

3.Subjective : Criteria characterized by a qualitative type of measurement. For example,

the nature of community available at the location, the union relationship, etc may be evaluated,
but its monetary equivalent cannot be established.

Nature of the products

Multiplant location is influenced by existing location and the nature of products

manufactured. If a company or plant manufactures the identical products in the existing as well
as proposed plants, then each location proposed is considered as economic perspective with
the existing plants and market area.
 97

The objective factor measures focus on the minimizing of total production – distribution
costs. Because each alternative location requires a different allocation of capacity to markets in
order to minimize overall costs. If the plants which are proposed has to manufacture different
types products from one another, then each plant can be considered as a location problem of a
single plant and all the critical, objective and subjective factors may be considered in order to
select the best location for each. Since, the market or distribution costs vary one another and
the market for each plant overlaps on the other plant.

7.6 Trends in Location of Plant

Location of plant in recent times have considerable changes due to dynamic nature of
industrialization. The traditional priorities such as nearness to market, suppliers, capital, labour
etc have no longer a motivating forces to locate an industry for an entrepreneur. The following
developments in the country are really influencing the locational decisions.
a) Development of alternate raw materials.
b) Increased generation and supply of electricity.
c) Development of basic infrastructure facilities.
d) Availability of competitive terms finance.
e) Awareness and mobility of labour.
f) Policies of Government to promote regional development.

7.7 Summary
Facility location decisions are a key element to any firm’s overall strategic plan. Dramatic
changes in the global geopolitical environment, coupled with rapid advances in technology,
have provided decision makers with a variety of options and opportunities for locating their
businesses. The criteria for selecting appropriate locations have also evolved beyond the singular
focus on minimizing cost or distance. Today, a number of quantitative and qualitative issues
impact location decisions. A company’s long term success depend on its manager’s ability to
make a comprehensive synthesis of the various dimensions of the multifaceted location problems.

7.8 Keywords
Center of Gravity method

Divisional Analysis
98

Rate of Return Method

Single facility Location Problem

7.9 Review Questions

1. Write a overview of plant locations

2. Discuss the need for selecting a suitable locations

3. What are the reasons for replacement of existing facilities to new location

4. Discuss the various stages in facilities location decisions

5. Explain various methodologies to determine facility location

6. Explain single facility location problem

7. Explain divisional analysis method

8. Explain Rate of return method with an example

9. Explain centre of gravity method

10. Discuss multiplant location decisions

11. Discuss the trends in facilities location.

12. An XYZ company intends to select one of the three locations – both tangible and intangible
factors collected by the expert is given below
 99

Using ROI method select the best site

13. There are five existing facilities which are to be served by a single new facility. The details
of the existing facilities are shown in the table

Find the optimum location of the new facility based on gravity location concept.
100

LESSON - 8
PLANT LAYOUT
Learning Objectives

After reading this lesson, the learners must be able to

 Define the plant or facilities layout

 List out the need for plant layout design

 Discuss the Objectives of good plant layout

 Describe the various principles of plant layout

 Explain the factors that influencing plant layout

 Classify the types of layouts

Structure
8.1 Introduction

8.2 Need for Plant Layout Design

8.3 Objectives of Designing Good Plant Layout

8.4 Principles of Plant Layout

8.5 Factors Influencing Plant Layout

8.6 Types of Layouts

8.6.1 Product Layout

8.6.2 Process Layout

8.6.3 Fixed Position Layout

8.6.4 Cellular Layout

8.7 Techniques to Improve Plant Layout

8.8 Difference between Product and Process Layout

8.9 Summary

8.10 Keywords

8.11 Review Questions

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8.1 Introduction
Plant layout is a floor plan where the physical arrangement of production facilities are
found. It refers top the generations of several possible plans for the spatial arrangement of
physical facilities and select the one which minimize the distance between the departments.
According to Moore plant layout is a plant of an optimum arrangement of facilities including
personnel, operating machineries and equipments, materials handling equipments and all other
supporting services along with the design of best structure to contain all these facilities.

8.2 Need for Plant Layout Design

1. Due to changes in production method.

2. Due to change in product design.

3. Due to introduction of new product.

4. Due to changes in volume of demand.

5. If plant and machinery becomes outdated and is to be replaced by new one.

6. Poor working environment affecting worker efficiency and productivity.

7. Due to increase in frequency of accidents.

8. Due to change in market location.

8.3 Objectives of Designing Good Plant Layout

Objectives of designing a good layout are:

1. To steam line the flow of material through the plant.

2. To increase the productivity.

3. To minimize the cost of production.

4. To reduce the time taken for production.

5. To reduce the idle time of men and machineries.

6. To avoid bottlenecks and congestions.

7. To minimize the movement of men, materials and material handling devices.

8. Provide good working environment.

9. To utilize the men and machines effectively.

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8.4 Principles of Plant Layout

1. Principle of integration: A good layout is one that integrated men, materials, machines
and supporting services in order to make optimum utilization of resources.
2. Principle of Cubic space utilization: The good layout is one that utilize all the three
dimension 9i.e.) horizontal space (floor space), vertical space and overhead space.
3. Principle of Flow: A good layout is one such that materials should flow or move in a
forward direction and there should not be any back tracking.
4. Principle of minimum distance: This principle is concerned with the minimum movement
of men, materials and material handling equipments. As far as possible straight line
movement should be preferred.
5. Principle of maximum flexibility: A good layout is one that can be altered without much
cost and time. The layout should be highly flexible in enough in order to overcome the
changes that takes place in future.
6. Principle of safety, security and satisfaction: A good layout is one that gives due
consideration to workers safety and satisfaction and safeguards the plant and machinery
against fire, theft etc.

8.5 Factors Influencing Plant Layout

Various factors that influence plant layout are

1. Type of production system – continuous project type and batch type.

2. Availability of total area.

3. Type of building – single storey, multi storey.

4. Future expansion plan.

5. Type of material handling system to be used.

8.6 Types of Layouts

1. Layouts can be classified as follows:

2. Product layout (or) line layout

3. Process layout (or) functional layout

4. Fixed position layout

5. Group layout (combination layout)

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8.6.1 Product Layout

It is a layout in which machines are arranged as per the sequence of operations for
producing a given product. Product layout is also called as line layout. This type of layout is
used for mass production. Eg – manufacture of shaft, nut, bolt washers etc.

Advantages of product layout

The flow of product will be smooth and logical in flow lines. In – process inventory is less.
Operators need not be skilled. Material handling cost is minimum. Simple production planning
and control systems are possible. Production cycle time is less. Workers are highly specialized
due to repeated work.

Limitations

A breakdown of one machine in a product line may cause stoppages of machines. A

change in product design may require major alternation in the layout. Investment is high.

Product (or) Line Layout

8.6.2 Process layout

A process layout is otherwise called as functional layout. It is a layout in which the machines
or processes of the same type are grouped together in the same area.In this type of layout the
same type of machines of various types are found in one place. For eg. All type of latehs are
kept at one place. All drilling machines are kept in another place. The product is moved through
different according to the nature of operation to be performed on the material. This type of
layout is used in batch type production.

Advantages
Higher utilization of production facility.

Variety of jobs can be manufactured.

A high degree of flexibility in terms of work distribution to machineries and workers.

Breakdown of machines may not affect the production activities.

104

Disadvantages
Investment is very high.

Production planning and control is difficult.

More space is required.

Fixed path material handling equipments cannot be used.

8.6.3 Fixed position layout

This is also called as project type of layout used for project type of manufacturing system.

In this type of layout the materials and all major components of the products are kept in a
fixed position.

Men, machines and tools have to be brought to place where the product is manufactured.

This type of layout is suitable when one or few types of identical products are manufactured.

E.g. Air craft assembly, Ship building, construction of dam and bridges, Fabrication of
boilers

8.6.4 Group layout

A group layout is a combination of the product and process layout. It is otherwise called
as cellular layout where group of cells are arranged. It combines the advantages of both layout
systems. A group layout can be designed based in principle of group technology. Group
technology is the analysis and comparisons of items to group them into families with similar
characteristics. The basic aim of a group technology layout is to identify families of components
that require similar processing on a set of machines. In turn these machines are grouped into
cells.

Each cell is capable of satisfying all the requirements of the component family assigned
to it. This technique is very useful for companies that produce parts in small batches. The
application of group technology involves two basic steps. First step is to determine component
families based on similarity of characteristics. The second step in applying group technology is
to arrange the machineries used to process a particular family of components. The group
technology reduces production planning time for jobs. It also reduces the set up time.
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8.7 Techniques to Improved Plant Layout

Various techniques used to improve the plant layout are:

1. Flow diagram
2. String diagram
3. Templates
4. Models

Existing layouts can be studied using flow diagram, and string diagram

For improving the layout and designing a new layout we can make use of templates and
three dimensional models.

Flow diagram

A flow diagram shows the path of movement of the materials or products from one place
to another.
106

A flow diagram is a diagram or chart drawn to a scale.

The relative position of machineries gangways, materials handling equipments are drawn
first.

Then the path followed by men or material is marked on the diagram.

Different movements can be marked in different colours.

Process symbols are added to the diagram, to identify the different activities at different
work centres.

The flow diagram, are used for the following purposes.

1. To remove unwanted movement of men, materials and material handling equipments.

2. To avoid back tracking.

3. To avoid traffic congestion.

4. To improve the plant layout.

Conditions adopted are

Heading and description of the process should be given at the tope of the diagram.

Other information like location, name of the shop, name of the person draw the diagram,
should also be given.

The path followed by the material is shown by a flow line.

Direction of movement is shown by small arrows along the flow lines.

The different activities are represented by the symbols on the flow lines.

If more than one product is to be shown in the diagram colours are used for each path.

String Diagram
String diagram is used to record the movement if workers.

It shows the total distance traveled by the worker.

By analyzing the string diagram the unwanted movement of worker can be found out.

String diagram is a scaled plan of the shop location of machines and various facilities are
drawn to scale in a drawing sheet.

Pins are fixed at the various work centers in the drawing sheet.
 107

A continuous coloured thread or string is taken round the pins where the material or
worker moves during the process.

Construction
Draw the layout of the shop to scale in a drawing sheet.

Mark the various work centers like machines, stores, etc in the diagram.

Hold the drawing sheet on a soft board and fix pins at the work centres.

Tie one end of a coloured string to the work centre from which the movement starts.

Follow the path of worker to different work centre and accordingly take the thread to
different points on the drawing board.

At the end of the session note down the number of movements from one work centre to
another.

Remove the string and measure the total length of the string. Multiply by the scale and get
the actual distance of movement.

Applications
String diagram is used for recording the complex movement of material (or) men.

Back tracking, congestion, bottlenecks and under utilized paths are easily found out.

Used to correct irregular movements.

Used to find out the most economical.

Templates
Templates are tow dimensional pieces made of cardboard or plastics. They are made to
reduced scales (1 : 50).

They represent the floor area required for machines and other equipment.

The outline plan of the shop floor is drawn to the scale in a drawing sheet and the templates
are placed on it.

The templates are moved on the drawing sheet from place to place.

By doing this we can get various possible position of the machines. The best arrangement
is settled.
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Advantages
They are cheaper.

Technical people can easily understand.

Duplicate copies can be made.

Disadvantages
Non-technical people cannot understand.

Overhead facilities cannot be visualized.

Measurement won’t be accurate.

Models
Models are three dimensional scale of equipments of machines.
Models are very much useful for planning a layout for new factories.
Models are made up of wood or plastics. The method of developing a layout using models
are same as that of template method.
Models give the height of the machines also. Hence it is helpful to plan for overhead
materials handling equipments.

Advantages
Even layman can understand.
Layout can be easily explained to management.
Models can be easily shifted and alternative layout can be arranged.
Overhead devices can be easily represented.
It shows the real situation.
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Disadvantages
It is expensive method.

8.8 Difference between product and process layout

S.No Characteristics Product layout Process layout

1 Alternative name It is otherwise called Process layout is otherwise

as line layout called as functional layout

2 Nature A sequence of facilities Al similar facilities are

arranged in a line as grouped together
per processing
requirement of products

3 Application High volume of one or High volume and more

two product can be variety of products can be
manufactured manufacture

4 Standards Products are highly Diversified

standardized

5 Workflow Straight line, same Variable flow for each

sequence of operations product type
for all products

6 Material Handling All types of material Automatic material handling

handling equipment equipment cannot be used
can be used

7 Break down Break down in any Break down of machines

one machine stops may not affect the product
products line process

8 Production center Simple Complex

9 Flexibility Low High

10 Production planning Production planning & Production planning and

& control control is easy control have to be done for
each product
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8.9 Summary
In this lesson various types of plant layouts, need for designing a good layout, objectives
of designing a good plant layout, various factors influencing plant layout design and tools and
techniques used for improving a plant layout are discussed. Layout is a plan or blue print where
various facilities have to be considered while designing. There is a close relationship between
the product, layout and manufacturing system. The selection of plant layout mainly depends on
the type of product the company decided to manufacture. Generally three different types of
layouts are there. They are Line or product layout, process or functional layout and fixed
position layout. Recently a new type of layout has been evolved namely cellular layout. This
type of layout is designed based on Group technology. Before designing a layout there is need
to consider the important factors that influence plant layout design. It is also vital to consider all
the important principles while designing a layout.

8.10 Keywords
Plant Layout

Cellular Layout

Process Layout

Product Layout

8.11 Review Questions

1. Define plant or facilities layout.

2. Discuss the need for plant layout design.

3. List the objectives of designing good plant layout.

4. Explain various principles of designing a good plant layout.

5. Discuss the factors that influencing plant layout.

6. Explain various types of layouts with neat sketches .

7. Discuss the various techniques used to improved plant layout.

8. Differentiate between product and process layout.

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LESSON - 9
MATERIAL HANDLING AND ROLE
OF ERGONOMICS IN JOB DESIGN
Learning Objectives

After reading this lesson, the lessons must be able to

 List out the functions of material handling.

 Describe the principles of material handling.

 Classify material handling equipments.

Structure
9.1 Introduction

9.2 Functions of Material Handling

9.3 Role of Material Handling

9.4 Principles of Material Handling

9.5 Meaning of Material Handling Equipment

9.6 Factors to be considered for Selection of Material Handling Equipment

9.7 Classification of Material Handling Equipments

9.8 Job Design

9.9 Criteria used in Job Design

9.10 Principles of Job Design

9.11 Role of Ergonomics In Job Design

9.12 Summary

9.13 Keywords

9.14 Review Questions

9.1 Introduction
Material handling involves short-distance movement within the confines of a building or
between a building and a transportation vehicle. It uses a wide range of manual, semi-automated,
112

and automated equipment and includes consideration of the protection, storage, and control of
materials throughout their manufacturing, warehousing, distribution, consumption, and disposal.
Material handling can be used to create time and place utility through the handling, storage,
and control of material, as distinct from manufacturing, which creates form utility by changing
the shape, form, and makeup of mater

9.2 Functions of Material Handling

The basic function of material handling is to choose most appropriate materials handling
equipment which is safe and can fulfill material handling requirements at the minimum possible
overall cost and to choose production machinery and assist in plant layout so as to eliminate, as
far as possible, the need of materials.

9.3 Role of Material Handling

 Material enters a factory as raw materials and leaves it as a finished product. In between
the material is processed in a number of work places inside the factory so it has to be
moved from one work place to another place for which suitable material handling devices
or equipments are essential.

 Material handling can be defined as a process of moving or transferring materials from

one location to another using material handling equipments.

 Material handling involves the movement of materials manually or mechanically batches

or one at a time within the plant.

 The movement of materials may be in horizontal directions, vertical direction or combination

of both.

 It has been estimated that the average cost of material handling is about 20 to 60% of the
total cost of production. Sometimes a component may have been handled 50 tomes or
more before it is converted into finished product. Therefore it is clear that the cost of
production can be considerably reduced by reducing material handling cost. Moreover it
has been found that about 40% of industrial accidents occur due to bad methods adopted
in material handling.

9.4 Principles of Material Handling

1. Try to eliminate material handling wherever possible, as material handling does not add
value to the product.
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2. Minimize the distances moved by adopting shortest routes.

3. Arrange the sequence of operations so that the movement of material is smooth and
unidirectional.

4. avoid backtracking and duplicate handling.

5. Make use of gravity for material movement wherever possible. It saves power and fuel.

6. Use bulk containers for transporting smaller components. Load them to optimum and
move them as one unit.

7. Design the containers properly so that rehandling is avoided and damage to material
during transit is avoided.

8. Use mechanical devices instead of manual labour. This saves labour and time.

9. Select proper and suitable material handling equipment. The equipment should be safe,
adequate and efficient.

10. Avoid interference of handling equipment with the production flow.

11. Reduce non-production time of handling equipment like stinging, loading, unloading etc.
For example, use devices like magnetic cranes for handling steel scrap.

12. Deliver material closer to the point of use.

13. Locate the key centers like stores near the plant. This reduces the material handling.

14. Avoid wasteful movement of handling equipment conduct method study for this purpose.

15. Select multi-purpose handling equipment to reduce investment.

16. Use operation research technique for optimum utilization of handling equipment.

17. Standardize handling equipment. This reduces stocks of spare parts.

18. Move men is preference to material.

19. Give proper training to operators in operating material handling equipment.

20. Do preventive maintenance for material handling equipment to reduce their down time.

21. The handling system should be simple and accident proof.

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9.5 Meaning of Material Handling Equipment

Material handling equipment encompasses a diverse range of tools, vehicles, storage
units, appliances and accessories involved in transporting, storing, controlling, enumerating
and protecting products at any stage of manufacturing, distribution consumption or disposal.

9.6 Factors to be considered for Selection of Material

handling Equipment
The following factors should be considered while selecting material handling equipment.

1. Material to be moved

Size of the material, shape, weight, strength and nature of material (solid, liquid or gas).

2. Path of travel

Horizontal direction, vertical direction or combination of both.

Fixed path, variable path.

3. Type of building

Floor load capacity, ceiling heights, column spacing, door size, and location of columns.

4. Space Available

If floor space is limited but overhead space is available cranes and hoists are preferred.

If both floor space and overhead space are limited smaller trucks and mobile conveyors
are used.

5. Required handling capacity

The load to be moved within a time gap.

The frequency of movement.

6. Type of production activity

Mass production – conveyors are suited

Batch production – powered trucks are suitable.

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7. Cost of material handling equipment

8. Operating and maintenance cost

9. Expected life of equipment

9.7 Classification of Material Handling Equipments

Basically material handling equipments can be classified under two categories

A. Fixed path equipments

These type of material handing equipments moves only in fixed direction . The direction
of the movement of the path are determine, designed and fabricated well in advance.

Example : Conveyors , chutes , monorails etc.

B. Variable path equipments

 These equipments have not restrictions in the direction of movement.

 Trucks, fork lifts, cranes, Industrial tractors etc belong to this category.

The various types of material handling equipments are discussed below.

I. Conveyors
 Conveyor is a device which moves material in either a vertical or horizontal direction
between two fixed points. Conveyors are generally fixed permanently in the shop floor.

Types of Conveyors

1. Belt Conveyors These conveyors are used to move small components, materials in powder
form and in granular type.

 The belt will be normally flat, made up of rubber covered canvas, steel, plain cloth etc.

 These belts are made endless and are driven by drums at the ends.

 Small mobile belt conveyor are used for unloading material from trucks.

2. Roller Conveyors
 These conveyors are used for transporting solid products with flat bottoms.

 Roller Conveyors are gravity type or powered type.

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 In the powered type, drive mechanism is attached to the rollers.

 Bigger jobs can be handled directly on these conveyors. Small jobs are put inside a
container and then transported through roller conveyor.

 These type of roller conveyors can move the material in a straight path or in a curved
path.

3. Bucket Conveyors
 These conveyors are used for transporting granular material, powder or liquid.

 The buckets which are used for loading the materials are mounted on the chain or belt.

 In bucked conveyors materials are moved in horizontal, vertical and in inclined direction.

4. Chute Conveyor
 In this type of conveyor gravitational force are effectively used for transporting material
from a higher floor to a lower floor.

5. Chain Conveyor
 In this type an endless chain is mounted an overhead. It is fixed in the ceiling and moves
in a fixed path.

 A lifting device [electromagnet (or) hook] is fitted to the Chain which is used for lowering
down the product for unloading.

 These conveyors are used for painting automobile bodies, components, refrigerator shells
etc.

6. Screw Conveyor These type of conveyors are used for transporting granule or
powdered material in a fixed horizontal direction. Here material is poured at one end. A rotating
helical screw carries the material to the other end.

II. Cranes and hoists

 These are equipments, which in a certain location can move materials vertically and
laterally in a space of limited length, width and height. These cranes can be moved from
one location to another.
 Cranes are used for lifting, transporting and lowering of bulky items and packages.
 Cranes are used in heavy engineering industries and in intermittent type of production.
They provide overhead movements.
 117

 A crane can cover a rectangular area (Bridge crane) or circular area (Jib crane). They
make use of overhead space which is normally unused.

 Cranes are also used in construction sites to move and position building materials.

 Cranes were also used in ports for loading and unloading of cargo.

 Shearleg, derrick crane are stationary cranes.

 Mobile job crane can be moved on the floor from one location to another for hoisting and
transporting materials.

Hoists

These are devices, which are fitted to the cranes and other handling devices to life bulky
material and containers. These are used for removing engine from an Automobile or position
load or unload heavy jobs. Chain pulley blocks are used for lifting heavy objects annually with
the help of set of pulleys and chain.

III. Trucks and similar vehicles

 These are vehicles operated manually or by power and are used for transporting goods in
a horizontal path.

 These are variable path equipments. They can move from one location to any other
location if suitable traveling space is available and there is no obstruction in the route.

(e.g) platform truck, forklift truck, and container trucks.

 Platform trucks are operated manually where as a fort truck and container trucks are
operated mechanically using power.

9.8 Job Design

Introduction: A Job can be defined as the set of tasks and responsibilities of a worker.
These tasks and responsibilities along with performance expectations, work conditions, general
skills and possibly methods to used are normally contained in a written job description. Thus
Job design specifies the work activities of an individual or group in an organization.

Definition: Job Design may be defined as the function of specifying the work activities of
an individual or group in an organizational setting.
118

Its objective is to develop job structures that meet the requirements of the organization
and its technology and that satisfy the job holder’s personal and individual requirements.

9.9 Criteria used in Job Design

1) Economic Considerations

2) The desire to minimize costs

3) Technical considerations

4) Relating to process requirements

5) Time and space

6) Limitations imposed by time and space

7) Skills requirements

8) Availability of labour into the right skills

9) Equipment needed

10) Machinery used

9.10 Principle of Job Design

The quality of a job design can be significantly enhanced by establishing the following
design principles.

a) Co-processing: In many Jobs workers performs tasks with two levels of involvement,
which are active and passive phases. During active phases the worker must be actively involved
with the task.

During passive phase the worker will not actively involved with the task but he do other
things. If the active and passive phases of tasks are matched appropriately, a worker can be
engaged in two or more tasks or serve two or more customer at one time. This is called Co-
processing. Co-processing is one the important aspect of the job to the considered while
designing a job.

b) Back Hauling: Back hauling principle says that when you carry something from location
– A to location – B, you carry something from B back to A on the same trip rather than returning
 119

empty – handed and then later making a special trip to carry the item from B to A. This reduces
movement and effort and saves time.

c) Motion Economy: A number of principles have been developed for the economy of
movement. They are

i. Use of human body

ii. Arrangement of work place

iii. Design of tools and equipments

d) Ergonomics: Ergonomics is a technique to design the machines in such among to

prevent stress and fatigue of the workers and to make them to work ease and at the same time
to gain increased rate of production.

9.11 Role of Ergonomics in Job Design

Ergonomics is a filed of scientific study concerned with designing tools and equipments
and arranging the works area in a way that makes human work most productive by minimizing
stress fatigue and injury. The focus of ergonomics is the man – machine interface. Ergonomics
is derived from two Greek works ‘ergon’ meaning ‘work’ and ‘nomos’ meaning ‘laws’. Ergonomics
studies people at work, the method used and working conditions etc. Ergonomics aims to find
ways in which to improve and maintain safety, health, comfort, efficiency and productivity in the
workplace and beyond by trying to ensure that tasks are made to suit the worker.

· To achieve these goals, ergonomists analyse a number of working environment aspects

including:

 The job being done and the demands that it makes on the worker;

 The equipment used (size, shape and suitability for the job);

 The information used (how it is presented, accessed and interpreted);

· The physical environment (heat, light, noise, humidity); and

 The social environment (teamwork, management approach).

Furthermore, ergonomists assess a worker’s physical characteristics, such as body size

and shape, fitness levels, the senses (especially vision and hearing) and the stresses placed
on the bones, joints, muscles and nerves. Using this information, ergonomists can then design
120

(or redesign) the work set-up to ensure safe, healthy, effective, efficient and comfortable work.
Although it may be possible to find solutions to a problem after it has developed, ergonomics
aim to deal with the potential problem before it materialises.

9.12 Summary
Material handling can be defined as a process of moving or transferring materials from
one location to another using material handling equipments. Material handling involves the
movement of materials manually or mechanically batches or one at a time within the plant. It
has been estimated that the average cost of material handling is about 20 to 60% of the total
cost of production. .The basic function of material handling is to choose the most appropriate
materials handling equipment which is safe and can fulfill material handling requirements at the
minimum possible overall cost and to choose production machinery and assist in plant layout
so as to eliminate, as far as possible, the need of materials .Material enters a factory as raw
materials and leaves it as a finished product. In between the material is processed in a number
of work places inside the factory so it has to be moved from one work place to another place for
which suitable material handling devices or equipments are essential. Some of the important
principles of material handling are to eliminate material handling wherever possible, as material
handling does not add value to the product, to Minimize the distances moved by adopting
shortest routes, to avoid backtracking and duplicate handling , to make use of gravity for material
movement wherever possible, to design the containers properly so that rehandling is avoided
and damage to material during transit is avoided.etc., Material handling equipment encompasses
a diverse range of tools, vehicles, storage units, appliances and accessories involved in
transporting, storing, controlling, enumerating and protecting products at any stage of
manufacturing, distribution consumption or disposal. Some of the important factors to be
considered while selecting material handling equipments are Size of the material, shape, weight,
strength and nature of material (solid, liquid or gas), Path of travel of material handling equipments
, type of building , availability of space, required handling capacity and expected life of the
equipment . Material handling can be classified as fixed path and variable path material handling
system.

A Job can be defined as the set of tasks and responsibilities of a worker. Job design
specifies the work activities of an individual or group in an organization. Some of the criteria’s
used in job design are economic Considerations, Technical considerations, process
requirements, tme and space, skills requirements etc., The quality of a job design can be
 121

significantly enhanced by establishing the following design principles. They are Co-processing
, back hauling , motion economy and ergonomics .Ergonomics is a filed of scientific study
concerned with designing tools and equipments and arranging the works area in a way that
makes human work most productive by minimizing stress fatigue and injury. The focus of
ergonomics is the man – machine interface. Ergonomics aims to find ways in which to improve
and maintain safety, health, comfort, efficiency and productivity in the workplace and beyond by
trying to ensure that tasks are made to suit the worker.

9.13 Keywords
Cranes

Conveyors

Ergonomics

Hoists

Material Handling

9.14 Review Questions

1. Define material handling.

2. What are the functions of Material handling ?

3. Explain the role of Material handling.

4. Discuss the principles of material handling.

5. Define material handling equipment.

6. Discuss the factors to be considered for selection of material handling equipments.

7. Classify and explain various types of material handling equipments.

8. Define Job design.

9. Discuss the Criteria’s used in Job design.

10. Explain the principles of Job design.

11. Discuss the role of ergonomics in Job design.

122

LESSON - 10
INVENTORY CONTROL
Learning Objectives

After reading this lesson, the learners must be able to,

 List the Objectives of Inventory control

 Discuss the need for Inventory control

 Classify the types of Inventory cost

 Draw the Cost-trade off model in determining EOQ.

 Derive Economic Order Quantity [EOQ]

 Explain the types of inventory system

Structure
10.1 Introduction

10.2 Objectives of Inventory Control

10.3 Need for Inventory Control

10.4 Types of Inventory Cost

10.5 Cost Trade-Off Model in Determining EOQ.

10.6 Derivation of Economic Order Quantity [EOQ]

10.7 Models of Inventory

10.7.1 Purchase Model with Instantaneous Replenishment and without

Shortages

10.7.2 Purchase Model with Shortages

10.7.3 Manufacturing Model without Shortages

10.7.4 Manufacturing Model with Shortages

10.8 Types of Inventory System

10.9 Quantity Discount Model

10.10 Summary
 123

10.11 Keywords

10.12 Review Questions

10.1 Introduction
The term inventory means stock of raw material, work-in-process, spare parts and finished
goods in the stores. Inventory is idle resources of an enterprise. Even through inventory is an
idle resource, it is necessary to maintain some inventories for the smooth functioning of an
organization. In the absence of a proper stock control system, overstocking or under-stocking
may occur.

An inventory system is the set of policies and controls that monitors the level of inventory
and determines what level of stock should be maintained, when stock should be replenished
and how large orders should be. Inventory control or stock control means controlling the stock
so that materials are available at the correct time at the least cost. It is a scientific method of
finding out how much stock to be maintained in order to meet the production demands.

10.2 Objectives of Inventory Control

Various Objectives of inventory control are

i) To supply material to the production department as and when required.

ii) To keep the money invested in stock to minimum.

iii) To avoid shortage of materials as well as overstocking of materials.

iv) To provide suitable storage location for different stocks.

v) To check up the stock periodically.

vi) To evolve procedure for receipt and issue of stocks.

vii) To keep the inventory cost to minimum.

10.3 Need for Inventory Control

In order to appreciate the need for inventory control it is better to understand the advantages
and disadvantages of holding inventories.
124

a) Advantages of holding inventories

(i) It serve as a buffer stock in case of delay in supply of materials.

(ii) Ensures against scarcity of materials.

(iii) Flexibility for changes in rate of production.

(iv) Purchasing bulk of goods and stocking may leads to price discounts.

(v) Adequate customer services.

b) Disadvantages of overstocking
(i) Overstocking of materials leads to capital lock up and unnecessary loss of interest

(ii) Fall in prices of materials will result in heavy losses.

(iii) In case of certain materials, deterioration will happen.

(iv) Loss due to pilferage(theft) and damage of materials.

(v) Overstocking of materials requires large storage space.

(vi) Overstocking may increase the storage cost and material handling costs.

c) Disadvantages of Under-stocking of materials.

(i) Under-stocking of materials affects the production to market.

(ii) It affects the supply of goods in time to market.

(iii) Under-stocking of materials makes men, machines and material handling

equipments to be in idle condition.

10.4 Types of Inventory Cost

Various types of inventory costs are

(i) Holding (or) carrying costs

(ii) Set up costs

(iii) Ordering costs

(iv) Shortage costs

 125

i) Holding (or) Carrying costs:

Various costs involved in inventory carrying cost are

 The capital invested in purchasing materials.

 The loss of interest on the money invested in the stock of material.

 The salaries and wages to the stores personnel.

 Rent for the sores.

 The depreciation and repairs costs for the equipment of stores.

 Any loss of material due to pilferage and deterioration,

 Cost of obsolescence

 Taxes on inventories

 Stores insurance charges

 Stationary and other consumables used by the stores.

 Costs for shortage facilities

 Cost of handling materials

 Cost for insuring materials

 Cost of breakage.

i) Setup costs

It includes arranging necessary materials, tools and equipments to manufacture different

products;

iii) Ordering costs

This cost refers in preparing the purchase order. In case of placing a purchase order for
a material, one has to incur expenses due to advertising, stationery, postal, telephone, telegram
charges etc. The costs associated will order are as follows:

 Rent for building used by the purchase department.

 Salaries and wages for officers and staffs in purchase department.

 Cost of depreciation on the equipment and furniture.

126

 Postage, telephone and telegraph bills.

 The charges incurred in receiving the vendors.

 Travelling expenses

 Lawyers and Court fees due to any legal matters.

iv) Shortage costs

When the stock of an item is depleted an order for that item must either wait until the
stock is replenished or be cancelled. Therefore shortage cost is the cost that exists due to stock
out of materials.

10.5 Cost Trade-off Model in Determining EOQ

 Consider the procurement of the entire quantity of an item required for a year. In this case
Inventory carrying cost and inventories will be high.

 If we place frequent orders, the cost of order will be more, but the inventory carrying cost
will be less. On the other hand, if we place less frequent orders, the ordering cost will be
less, but the carrying cost will be more.
 127

 The total cost curve represents the sum of ordering cost and carrying cost for each order
size.

 The order size at which the total cost is minimum is called as Economic Order Quantity
(EOQ) or Q* (optimal order size).

10.6 Derivation of Economic Order Quantity [EOQ]

Let

A = Annual Requirements

Q = Quantity / Order

C = Cost of raw material / Unit in Rupees

S = Ordering Cost / Order in Rupees

I = Inventory carrying charges

Total cost = Inventory carrying cost + ordering cost (1)

At Economical Order Quantity

Inventory Carrying Cost = Ordering Cost (2)

Inventory carrying cost = average inventory x cost of raw material / unit / yrs
x inventory carrying cost / unit / yr

Q O
  C 1 .... (3)
2

Ordering cost = cost / order x No. of orders placed

A
S .... (4)
Q

Substitute 3 & 4 in eqn (2) to determine economic order quantity

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Q A
 C  I  S 
2 Q
2 AS
Q2 
CI
2 AS
Q* 
CI

Sub (2) & (3) in eqn (1) to determine total cost of inventory

 Q   A 
Total cos t of inventory    C  I    S  
 2   Q 

Note: EOQ formulate has several assumptions

1. Demand for the item is uniform and constant

2. The entire lot of the item is received at one time

3. There is no purchase quantity discount.

10.7 Models of Inventory

The inventory models can be classified into deterministic and probabilistic models. The
various deterministic models are.

(i) Purchase model with instantaneous replenishment and without shortages.

(ii) Purchase model with instantaneous replenishment and with shortages.

(iii) Manufacturing model without shortages

(iv) manufacturing model with shortages

10.7.1 Purchase Model with instantaneous Replenishment and without

Shortages
 In this model of inventory, orders of equal size are placed at periodical intervals.

 The items against an order are replenished instantaneously and the items are consumed
at constant rate.

 The purchase price per unit is the same irrespective of order size.
 129

o Let ‘D’ be the annual demand in units

o C0 be the ordering cost / order

o CC be the carrying cost / unit / year

o P be the purchase price per unit

o Q be the order size

Let D = annual demand and c1 = holding cost/unit/year and time horizon = 1 year.

Total inventory over the time period t = Area of the first triangle

= ½ Q.t

 Average inventory at any time = (1/2 Q.t ) / t = 1/2Q

 Total cost = Ordering cost + Holding cost + Purchase cost (constant)

 Minimize TC(Q) = cs. D / Q + c1 1/2. Q +Constant

D 1
Minimize TC (Q) = cs ,  c1 , Q
Q 2
We apply calculus method i.e.

dTC Q  d 2TC Q 
  and 0
dQ dQ 2
dTC Q 
0
dQ
D 1
 c2 , 2  c1  0
Q 2
130

2c2 D
Q2 
c1

2c1 D
Q
c1
d 2TC Q  2c2 D 2c2 D
  0 at Q 
dQ Q3 c1

* 2C1D
Hence optimu EOQ is Q 
c1

c1 1 2c3 D
TC * Q   c2 .D.  .c1 .
2c3 D 2 c1
c A  2c1c3 D

Time between orders

T* = Q*/ D

n* = optimum number of orders placed per year

= D / Q*

 Note. if the holding cost is given as a percentage of average value of inventory held, then
total annual holding cost,

 c1 = c * 1, where c = unit cost

1 = % of the value of the average inventory.

Formulae Used
i) EOQ = 2 DCo / Cc
ii) No. of orders placed per year

N= D/Q

iii) Time between successive orders

T=Q/D
 131

Where D = Annual Demand

Q = Economic Order Quantity

CO= Ordering cost

CC = Carrying Cost

Example 1

Alpha Industry estimates that it will sell 12000 units of its product for the forthcoming year.
The ordering cost is Rs.100 per order and the carrying cost per unit per year is 20% of the
purchase price per unit. The purchase price per unit is RS. 50.

Final (a) EOQ

(b) No of orders per year

(c) Time between successive orders

Solution

A = 12000 units / yrs

S = Rs.100 / order

CC = Rs.50 x 0.2 = Rs.10 / unit / yr

2  12000  100
i) EOQ   490units (approx )
10

ii) No. of orders per year

N= D/Q = 12000/490= 24.49 =25 (approx)

iii) Time between successive orders

t= Q/D= 490/12000 = 0.04 Year= 0.48 months

Example 2

Find the economic order quantity and reorder point, given

Annual Demand (D) = 1000 units

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Ordering Cost (Co) = $ 5 per order

Holding Cost (Cc) = $ 1.25 / unit / year

Lead time (L) = 5 days

Cost per unit (p) = $ 12.50

What quantity should be ordered?

Solution

The Optimal Order quantity is

2 DC O 2  1000  5
Qopt    89.4units  89units
CC 1.25

The Reorder point is Rd L

annual demand 1000

Where average demand d   (5days )  13.7units  14units
No. of days in a year 365

Rounding to the nearest unit, the inventory policy is as follows: When the number of units
in inventory drops to 14, place an order for 89 units.

 D Q 
Total Cost   D  p  CO  CC 
 Q 2 
 1000 89 
 (1000  12.50)  (5)  (1.25)
 89 2 
 $12,611.81

Example 3. A medical wholesaler supplies 30 bottles cough syrup each week to various
shops. Cough syrups are purchased from the manufacturer in lots of 120 each for $ 1200 per
lot. Ordering cost is $ 210 per order. All orders are filled the next day. The incremental cost is $
0.60 per year to store a bottle in inventory. The wholesaler finances inventory investments by
paying its holding company 2% monthly for borrowed funds. Suppose multiple and fractional
lots also can be ordered. How many bottles should be ordered and how frequently he should
order ?
 133

 Solution. Consider 1 year = 52 weeks as working time.

Annual demand, D = 30 x 52 = 1560.

Unit cost of purchases =1200/120 = $10

Ordering cost, cs = $210

Inventory carrying cost = 0.6 +10 *24/100= $3 per unit/year

T* = = Q* / D = 467.33 / 1560 = 0.3 year

 Example 4. A company purchases in lots of 500 items which is a 3 month supply. The
cost per item is $ 50 and the ordering cost is $ 100. The inventory carrying cost is estimated at
20% of unit value. What is the total cost of the existing inventory policy? How much money
could be saved by employing the economic order quantity?

 Solution

Given c5 = $ 100

Number of items per order = 500

Annual demand, D = 500 x 4 = 2000.

c1 = Procurement price x inventory carrying cost per year

= 50 * 0.20 = $ 10

Total annual cost of the existing inventory policy

= D/Q.cs + Q/2.c = 2000/500*100+500/2*10 = $ 2900

134

Now

 Then the corresponding annual cost

= 2000/200 x 100 + 200/2 *10 = $ 2000.

Hence by employing the economic order quantity, the company may save $ (2900 - 2000)
= $ 900.

10.7.2 Purchase Model with Shortages (instantaneous supply)

 In this model the items on order will be received instantaneously and they are consumed
at a constant rate.

 The purchase per unit remains same irrespective of order size.

 If there is no stock at the time of receiving a request for the items, it is assumed that it will
be satisfied at a later date with a penalty. This is called as back ordering.

Assumptions. All the assumptions of model I except shortage occurs here. Backlogs due
to shortage to be met with penalty.

One inventory cycle is given in the above figure.

During time period t1 inventory exhaust and during time period t2 shortages developed.

Here

Q 1 = Actual inventory in hand.

 135

Q2 = Shortage/Stock out

Q = Q 1 + Q2, t = t 1 + t2 = cycle time.

 Total cost = Holding cost + Ordering cost + Shortage cost

FORMULAE USED

2C O D (C S  C C
i) Q   EOQ 
CC CS

 2C O D CS
ii) max inventory = Q1 
CC CS  CC

iii) Maximum stcok out = Q  Q1 

iv) Cycle time ‘t’ = t1  t 2 

Q1
D

 Q1
v) Inventory period t1 
D

 Q2
vi) Shortage periods t 2 
D
 The variables which are used in this model are given below

D = Demand / period

CC = Carrying cost / unit / period

CO = Ordering cost / order

CS = Shortage cost / unit / period

Example 5

The annual demand for an automobile component is 24,000 units. The carrying cost is
Re.0.40/unit/yr the ordering cost is Rs.20.00 per order and the shortage cost is Rs.10/unit/year.
Find the optimal values of the following:

(i) Economic Order Quantity

(ii) Maximum Inventory

136

(iii) Maximum Shortage Quantity

(iv) Inventory Period (t1)

(v) Shortage period (t2)

Solution

D = 24,000 units / year

CC = Re. 0.40 /unit / year

CO = Rs. 20 / order

CS = Rs. 10 / unit / year

2  20  24000 (10  0.4)

i) Q   EOQ   1580units
0.40 10

2  20  24000 10
ii) max inventory = Q1   1520units
0.40 10  0.4

iii) Maximum shortage quantity = Q2  Q  Q1   1580  1520  60units

Q 1580
iv) Cycle time ‘t’ =   365  24 days
D 24000

 1520
v) Inventory period t1   365  23days
24000
vi) Shortage periods

10.7.3 Manufacturing Model without Shortages

 If a company manufactures its component which corresponding model of inventory is
called “manufacturing model”.

 This model will be without shortages. The rate of consumption of items is uniform throughout
the year.

 The cost of production / unit is same irrespective of production lot size.

 The operation of the manufacturing model without shortages is shown in figure.

 137

Let

r be the annual demand of an item

k be the production rate of an item (No of units produced per year)

Co be the cost per set up

CC be the carrying cost per unit per period

r be the cost of production per unit.

 During the period t1, the item is produced at the rate of ‘k’ per units per period and
simultaneously it is consumed at the rate of ‘r’ units per period. So, during this period (t1)
the inventory is built at the rate of (k-r) units per period.

 During the period t2 the production of the item is discontinued (stopped) but the consumption
of the produced items are continued. Hence the inventory is decreased at the rate of ‘r’
units per period during this period.

Assumptions. Items are manufactured, shortages are not allowed, demand is uniform,
lead time is zero, items are produced and used to meet demand simultaneously for a portion of
an inventory cycle.

One manufacturing cycle is illustrated in Fig.below.

In this model,

(i) Inventory is building up at a constant rate of (k- r) units per unit time during t1.
138

(ii) No production during t2 and the demand is met at the rate of r per unit of time.

 The optimal quantities are obtained as given below :

Q* = EBQ/Economic batch quantity

t1*= period of production as well as consumption

= Q* / k

 t2 = period of consumption only = r

n * = optimum number of production runs per year

= r / Q*

t*= t1* +t2*

Example 6 : A contractor has to supply 10000 bolts per day to a customer. He finds that
during a production run he can produce 20000 bolts per day. The cost of holding bolt in stock for
one year is 3 paise and set up cost of a production nm is Rs. 20. How frequently should production
run be made?

Solution

r = 10000 bolts/day

k = 20000 bolts/day

c1 = $ 0.03/bolt/year

= $ 0.000082/bolt/day

C5 = $ 20/production run.

= 98772.96 = 98773 bolts.

 139

 Length of production cycle= Q*/ k = 4. 94 days.

 => production cycle starts at an interval of 9.88 days and production continues for 4.94
days so that in each cycle a batch of 98773 bolts is produced

Example : 7 If a product is t be manufactured within the company the details are as

follows

r = 24000 units

k = 48,000 unit / year

CO = Rs.200 / set up

CC = Rs. 20 / unit / year

Determine

i) Economic Batch Quantity

ii) Period of production and consumption

iii) Period of consumption

iv) Total cycle time

2C O r 2  200  24000
EOQ    980units (approx)
i) 
CC 1  r
K
  24000 
20 1 
 48000 

ii)

iii)

iv)

v) Cycle time
140

10.7.4 Manufacturing Model with Shortages

 In this model, the items are produced and consumed simultaneously for portion of the
cycle time.

 The rates of consumption of items are uniform throughout the year.

 The cost of production per unit is the same irrespective of the production lot size.

 In this model stockout (shortages) are permitted.

 It is assumed that the stockout units into be satisfied from the units which will be produced
at a later date with a penalty. This is called back ordering.

 The variables which are used in this model are shown below.

Let

r be the annual demand of an item

k be the production rate of an item (No of units produced per year)

Co be the cost per set up

CC be the carrying cost per unit per period

 be the cost of production per unit.

 141

Here during Lp inventory is built up at the rate of (k - r),

during t2, inventory is consumed at the rate of r,

during t3, shortage is building at the rate of r,

during t4, shortage is being filled at the rate of (k - r).

In the above model

Q = Economic Production Size

Q1 = Maximum Inventory

Q2 = Maximum stock-out

t 1, t 2 = Inventory period

t 3, t 4 = Shortage period

Example 8: The demand for an item is 18,000 per year. Its production rate is 3000 per
month. The carrying cost is Re.0.15/unit/month and the set up cost is Rs.500 per set up. The
shortage cost is Rs.20 per unit per year. Find various parameters of the inventory system.

Solution

r = 18000 units / year

k = 3000 x 12 = 36000 units / year

142

C-O = Rs.500 / set up

CC = Rs.(0.15 x 12) = Rs.1.80 / year

CS = Rs. 20 / unit / year

Q* = EBQ = [(2X500)X36000X18000 (1.80+20)] / [1.80 X(36000-18000)X20]

= 4669 units

Q 2* = [(2X500)X1.8 X18000 (36000-18000)] / [20(1.80+20) X 36000]

= 193 Units

Q1*= [ (36000 -18000) x 4669 / 36000] – 193

= 2142 Units

t*= Q*/ r = 4669/18000 = 95 days

t1* = Q1* / (k-r) = 2142 / (36000-18000) = 43.5 days

t2* = Q1*/r = 2142/18000 = 43.5 days

t3* = Q2*/r = 193/18000 = 4 days

t4*= Q2*/ (k-r) = 193 / (36000-18000) = 4 days

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10.8 Types of Inventory System

An inventory system is an operating policy to maintain and control the goods to be stocked.
There are two types of inventory system.

1. Fixed Order Quantity Model [also called as Economic Order Quantity (EOQ) and Q model].

2. Fixed time period model (also referred as periodic system, periodic review system fixed
order interval system and p model].

10.8.1 Fixed Order Quantity System (or) Model (Q System)

 In this system of inventory, whenever the stock level touches the reorder level (R) an
order is placed for a fixed quantity which is equal to EOQ. The order placed would be
received at the end of time period L.

 Various assumptions in Q and model are

 Demand for the product is constant and uniform throughout the period.

 Lead time (Time from ordering to receipt) is constant.

 Price per unit of product is constant

 Inventory holding cost is based on average inventory

 Ordering of set up costs are constant.

 All demand for the product will be satisfied

 The average demand during the lead time (average lead time) is known as the demand
during lead time (DLT).

 The variation in demand during lead time is known as safety stock.

 The average demand during delivery delays is called reserve stock.

 The reorder level is computed as the sum of the demand during lead time (DLT), the
variation in demand during lead time (safety stock) and the average demand during delivery
delays (Reserve stock).

ROL = DLT + Reserve Stock + Safety Stock

 Fixed order quantity models are “event triggered” (i.e) a fixed order quantity model initiates
an order when the event of reaching a specified reorder level occurs. This event may take
place at any time depending on the demand for the items considered.
144

 To use the fixed order quantity model the inventory position must be continuously monitored.
Thus the fixed order quantity model is a perpetual system, which requires that every time
a withdrawal from inventory or an addition to inventory is made, records must be updated
to ensure that the reorder point has or has not been reached.

Fixed Time Period Models (or) Periodic Review System (P System)

 In this system of inventory, the stock position is reviewed once in a fixed period say every
week or month and an order is placed depending on the stock position.

 Fixed time period models generate order quantities that vary from period to period,
depending on the usage rates. These generally requires a higher level of safety stock
than a fixed order quantity system.

 The review period is approximately is equal to EOQ / D.

 “The desired maximum inventory level is fixed as the sum of the average demand during
average lead time plus review period, variation in demand during average lead time plus
review period and the average demand using delays in supply.

P system of inventory
 145

Differentiate Between Fixed Order Quantity Model (Q System) And Fixed

Time Period Model (P System).

Feature Q P
Fixed Order quantity Model Fixed time period model

Order Quantity Q-constant (The same amount of q-variables (The amount

quantity is ordered each time varies from time to time
when order is placed). when order is placed).

When to R-when quantity on hand drops to T-when the review period

place order reorder level (or) reorder point. arrives.

Record keeping Each time a withdrawal or Counted only at review

addition is made period

Size of inventory Less than fixed time period model Larger than Q model

10.9 Quantity Discount Models

 When items are purchased in bulk, buyers are usually given discount in the purchase
price of goods. This discount may be a step function of purchase quantity as shown
below.

The procedure to compute the optimal order size for the situation.
146

Step:1 Find EOQ for the nth (last) price break

Where

C0 = ordering cost

D = Annual demand

pn= Purchase price

i = inventory carrying cost

If Qn is greater than or equal to bn-1 then the optimal order size Q*=Q*n otherwise go to
step:2.

Step:2 Find EOQ for (n-1)th price break

If it is greater than or equal to bn-1 then compute the following and select least cost purchase
quantity as the optimal order size; other wise go to step:3.

i) Total cost, TC ( Q*n-1)

ii) Total cost, Tc (bn-1)

Step:3 Find EOQ for the n-2th price break

If it is greater than or equal to bn-3 then compute the following and select least cost purchase
quantity, otherwise go to step:4

i) Total cost, TC (Q*n-2)

ii) Total cost, TC (bn-2)

iii) Total cost, TC (bn-1)

Step: 4 : Continue in this manner unit Qn-i ³ bn-i-1. Then compare total costs TC (Qn-1), TC
(bn-I), TC(bn-i+1) ….. TC (bn-1) corresponding to purchase quantities Qn-1, bn-1, bn-i+1 …..bn-1 respectively.
Finally select the purchase quantity with respect to the minimum total cost.
 147

Discounted product prices (costs)

Discount price (cost) schedule

Quantity purchased Price

Q1 to Q2 P1

More than Q2 to Q3 P2

More than Q3 P3

Where P1 > P2 > P3

EXAMPLE 9: Annual demand for an item is 4800 units ordering cost is Rs. 500 per order.
Inventory carrying cost is 24% of the purchase price per unit per year. The price breaks are as
shown below:
148

i) Find the optimal order size

ii) If the order cost is changed to Rs. 300 per order, find the optimal order size.

Solution: D=4800, CO = 500, i = 0.24

Step:1

P3 = Rs.8.00

Step: 2

P2 = Rs.9.00

Since Q*2 > b1 (1200) find the following and select the order size with respect to the least
cost as the optimal order size

b) CO = 300 D = 4800

Step 1:
 149

Step 2

Step 3

The least cost is Rs. 41,520. Hence the optimal order size is b2 which is equal to 2000.

10.10 Summary
In this lesson, topics related to Inventory control are discussed. Inventory includes raw
material, semi-finished goods and finished goods maintained as stock in the stores The term
inventory means stock of raw material, work-in-process, spare parts and finished goods in the
stores. Inventory is idle resources of an enterprise. Inventory control or stock control means
controlling the stock so that materials are available at the correct time at the least cost. The
main objective of inventory control is to supply material to the production department as and
when required and to avoid shortage of materials as well as overstocking of materials. Various
types of inventory costs are Holding (or) carrying costs, Set up costs, Ordering costs, and
Shortage costs. Various models of inventory are Purchase model with instantaneous
150

replenishment and without shortages, Purchase model with instantaneous replenishment and
with shortages, Manufacturing model without shortages and manufacturing model with shortages.
An inventory system is an operating policy to maintain and control the goods to be stocked.
There are two types of inventory system. Fixed Order Quantity Model [ also called as Economic
Order Quantity (EOQ) and Q model] and Fixed time period model (also referred as periodic
system, periodic review system fixed order interval system and p model]. When items are
purchased in bulk, buyers are usually given discount in the purchase price of goods.

10.11 Keywords
Carrying Costs

Inventory

Inventory Costs

Ordering costs

Setup Costs

Shortage Costs

10.12 Review Questions

1. Define Inventory.

2. List the Objectives of Inventory control.

3. Discuss the need for Inventory control.

4. Classify and explain various types of Inventory cost.

5. Draw and explain the Cost-trade off model in determining EOQ.

6. Derive Economic Order Quantity [EOQ].

7. Explain various types of Inventory models.

8. Explain purchase model with instantaneous replenishment and without shortage with a
neat sketch.

9. Explain purchase model with shortages with a neat sketch.

10. Explain manufacturing model without shortages.

11. Explain manufacturing model with shortages.

 151

12. Explain various types of inventory system.

13. Discuss Quantity discount model with an example.

14. The annual demand for a Textile machinery component is 20,000 units. The carrying cost
is Re.1.40/unit/yr the ordering cost is Rs.30.00 per order and the shortage cost is Rs.15/
unit/year. Find the optimal values of the following:

(i) Economic Order Quantity

(ii) Maximum Inventory

(iii) Maximum Shortage Quantity

(iv) Inventory Period (t1)

(v) Shortage period (t2)

15. Annual demand for an item is 8000 units ordering cost is Rs. 400 per order. Inventory
carrying cost is 20% of the purchase price per unit per year. The price breaks are as
shown below:

i) Find the optimal order size

ii) If the order cost is changed to Rs. 350 per order, find the optimal order size.
152

LESSON - 11
INVENTORY CONTROL (Continued)
Learning Objectives

After reading this lesson, the learners must be able to

 Classify the materials

 List the various advantages of classification of materials

 List the Advantages of codification

 List the functions of MRP

 Discuss Manufacturing Resource Planning

 Outline the major modules of a manufacturing resource planning (MRP) Software

Structure
11.1 Introduction

11.2 Classification of Materials

11.2.1 Basis of Classification of Materilas

11.2.2 Advantages of Classification of Materilas

11.3 Codification of Materials

11.3.1 Advantages of Codification

11.3.2 System of Codification

11.4 Material Requirement Planning [MRP]

11.4.1 Objectives of MRP

11.4.2 Functions of MRP

11.4.3 MRP System

11.5 Manufacturing Resource Planning

11.5.1 Major Modules of Manufacturing Resource Planning Software

11.6 Just In Time System

11.6.1 Benefits of JIT System

 153

11.7 Implication of Supply Chain Management

11.8 Summary

11.9 Keywords

11.10 Review Questions

11.1 Introduction
Classification and codification of materials are steps in maintaining stores in a systematic
way. Materials are classified in such way that storing, issuing and identifying of materials become
easy. Generally, materials are classified on the basis of their nature. Materials can also be
classified on the basis of quality and utility. For example, materials may be classified as raw
materials, consumable stores, components, spares and tools. Thus classifying materials on
different bases such as nature, quality and utility is called classification of materials.

For the purpose of identification and convenience in storage and issue of materials, each
item of material is given a distinct name. Such a process of giving distinct names and symbols
to different items of materials is called codification of materials. Good store-keeping requires
proper classification and codification of various items of stores on stock. Stores are generally
classified either by their nature or by their usage. The former method of classification or
classification by the nature of materials is most commonly used. Under this method of
classification, the various items of stores are divided into specific groups like construction
materials, belting materials, consumable stores, spare parts and so on. All the items are grouped,
so that each item of stores will be conveniently codified on alphabetical, numerical or alpha-
numerical basis and given a distinctive store code number.

11.2 Classification of Materials

Classification‘ refers to the systematic division, grouping or categorization of materials or
store items with reference to some common characteristic. Classification of materials can be
made on different bases namely nature, manufacturing process, value, purpose etc.

For identification of materials being purchased and stored it is necessary that they should
be properly classified. The store incharge should make a close study of the materials during the
process of storage for the purpose of their (i) safe custody, (ii) meticulous handling and storing,
and (iii) protection from damages, fire, pilferage, spoilage, etc. He is responsible for the
classification of the materials.
154

The broad classification according to the materials (i) nature, (ii) use, and (iii) service can
be done in the following, classes

(i) Raw Materials.

(ii) Consumable Stores.

(iii) Machinery and Plant.

(iv) Equipment: Factory and office.

(v) Inflammable Stores.

(vi) Chemical.

(vii) Furniture and Fixtures.

(viii) Scrap Materials.

(ix) Packaging Materials.

(x) General Stores.

11.2.1 Basis of Classification of Materials

The important basis of classification of materials may be given as follows:

On the Basis of Nature

On the basis of nature, materials may be divided into:

(i) Direct Materials: Direct materials are those items of material which can be identified
with a product or a group of products in a manufacturing concern and can be easily measured
and charged directly to the product. Such materials form the part of the finished product e.g.,
timber in furniture, cloth in garments, bricks, sand and cement in building, yarn in cloth etc.

(ii) Indirect Materials: These are the materials which cannot be traced to a specific
product and cannot be charged directly to the various products. These materials do not form
part of the product. Examples of indirect materials are—repair and maintenance stores, lubricating
oils, cleaning materials, cotton rags etc.

On the Basis of Manufacturing Process

On the basis of the manufacturing process, stores are divided into:

 155

(i) Pre-process Stock: These are the items of stores which are yet to be taken into the
manufacturing process and are obtained prior to the commencement of the manufacturing
process or production. These include raw materials, bought-out parts and assemblies, and
stock in pipeline of materials in transit.

(ii) Intermediate Stock: Intermediate stock comprises the parts or assemblies which are
manufactured within the factory for use in the final product.

(iii) Finished Goods or Finished Products: As the name indicates, finished goods are
the items which have been duly manufactured in the factory and are ready for shipment or sale
to the customers.

On the Basis of Value

On the basis of the value, the stores items may be divided into:

(i) Category ‘A’: Category ‘A’ consists of materials which constitute 5% to 10% of the
total items in the stores and represent 70% to 85% of the total stores value.

(ii) Category ‘B’: This category consists of materials which constitute 10% to 20% of the
total items in the stores and also represent 10% to 20% of the total stores value.

(iii) Category ‘C’: This category consists of cheap materials which constitute 70% to
85% of the total items in the stores and represent 5% to 10% of the total stores value.

Category ‘A’ items constitute costly items calling for greater degree of control for preserving
them. A reasonable degree of care may be taken to control category ‘B’ items while a routine
type of care may be applied to control ‘C’ category or residuary items.

On the Basis of Movement of Stores

On the basis of the movement or rate of consumption, stores items may be divided into:

(i) Fast Moving Stock: Fast moving stock indicates the items of materials which exhaust
at a very fast speed on account of high demand from production departments of a manufacturing
concern.

(ii) Slow Moving Stock: This category indicates the items of stores or materials which
are consumed or exhausted at a very slow speed on account of low demand from the production
departments of the manufacturing concern.
156

(iii) Dormant Stock: This category covers stores items which do not have any demand at
present and may regain demand in future. This category includes seasonal materials which are
required during specified seasons.

11.2.2 Advantages of Classification of Materials

The main advantages of classifying stores items may be given as follows:

1. Helpful in Grouping of Stores Items: Classification process helps in the grouping of

the different items of materials in the store. Items falling under a particular category can be
stored at one place which ensures optimum utilization of storage space.

2. Easy Location: Proper classification of stores items helps in the easy identification of
the various items. The store-keeping staff can easily find out the materials whenever these are
required in the production departments.

3. Proper Accounting: Record-keeping process of properly classified items of stores is

simplified. Simplified record-keeping ensures accuracy in posting the receipts and issues in the
stores records.

4. Proper Care: By classifying the various store items on the basis of value, their relative
importance can be ascertained and suitable degree of supervision and control may be exercised
over them with reference to such value.

5. Avoidance of Duplication: Proper classification of the store items helps in avoiding

the possibility of duplication in stocking the same item of material.

6. Standardization: Classification helps in the standardization of various items in the

stores. Standardization of store items involves the variety reduction through the use of fixed
sizes and types. Standardization aims at having uniform standards for similar items.

11.3 Codification of Materials

After having classified or grouped the various items of stores, it is necessary and useful
to codify them. Codification is the process of assigning a number or symbol to each store item
in addition to its name for making its identification easy and convenient. Codification of store
items leads to saving in time and labour on account of substitution of a symbol or number for a
longer name. There are different kinds of store codes in use and most of them are specially
 157

designed to suit the requirements of a particular organization. These codes may be based upon
the nature of stock items, the purpose for which these items are used or on any other basis
which is considered as suitable according to the local circumstances.

Also, accurate identification of the materials may require a lengthy description which may
be complicated and hence may add to the confusion. Codification is necessary as it refers to
as allotment of logical and systematic numbers or alphabets or both (as a mixture) so as to help
in simple but accurate identification of the materials.

11.3.1 Advantages of Codification

The following are the main advantages of codification :

1. It avoids the long and unwieldy descriptions.

2. It tries to have accurate and logical identification.

3. It prevents duplication.

4. It standardizes the purchasing as well as storage.

5. It reduces the varieties.

6. It makes purchasing, recording, accounting, computerizing pricing, costing,

location, indexing and inspection efficient and result-producing.

7. It assures planned and quality production.

11.3.2 System of Codification

The following four systems of codification are commonly used in a materials department:

1. Alphabetical system is one in which codes to materials are allotted in alphabets which
have no relation to numbers. Each item of the storehouse is grouped according to nature, use
etc. of the item and materials are then analyzed from the point of view of codification. Say, for
example, Iron ore is given a code of IN-O and Iron Bars the IN-BA and so on.

2. Numerical system is one in which codes to materials are based on numbers. Numbers
are allotted as codes to materials making provision for future expansion as well. Say, for example,
Iron ore is given a code of 05—10 and Iron Bars the 11—67 and so on.
158

3. Decimal system is one in which codes to materials are again based on numbers but
instead of dash in between two number decimals are put. This makes the codes more flexible
and future expansion is very much possible. Say, for example, Iron ore is given a code of or Iron
Bars the 11. 67.03 and so on.

4. Combined Alphabetical and numerical system. This combines all the three above.
Say, for example, Iron ore is given the code of IN–05.10 and Iron Bars the IN-11.6 and so on.

11.4 MRP = Material Requirement Planning

MRP – Definition
 Material requirement planning is a technique for determining the quantity and timing for
the acquisition of dependent demand items needed to satisfy master production schedule
requirements.

 In 1960’s with the growth of computers and its popularity, manufacturers are looking
forward for a system to facilitate ordering of materials and parts for manufacturing goods.
This resulted in the development of a software called MRP (Material Requirement Planning).

 MRP was a simple computer program for planning material orders with the purpose of
reducing inventory and to place the orders in time.

 MRP is a time phased planning system that detects when the due date of an order is out
of phase with its “need date” and ultimately keeps the priorities valid in a changing
manufacturing environment.

 The original MRP programs is linked with material requirements with inventory levels and
replenishment purchase orders and works for new orders over a time frame.

 MRP is used to find out the discrepancies (differences) and help to restore a balance
between the inventory requirements and replenishment.

 MRP program determines the net requirements for every manufactured and purchased
components and create a planned purchase orders (or) work orders for these items.

 MRP is a technique of working backward form the scheduled quantities (forecasted

demand) and need dates for end items (finished products) in a master schedule to
determine the requirements for components needed to meet the master production
schedule.
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 The technique determines what components are needed? How many are needed? When
they are needed and when they should be ordered so that they are likely to be available
in time when items are required.

 MRP was a very good management planning tool if the indicated manufacturing lead time
and the inventory levels were correct.

 MRP is one of the powerful fool when applied properly, helps the managers to control the
manufacturing activities effectively

11.4.1 Objectives of MRP

1) Inventory reduction

2) Reduction in the manufacturing and delivery lead times

3) Realistic delivery commitments as per the scheduled date.

4) Increase the efficiency of the production system

11.4.2 Functions of MRP

1. Order Planning & Control: When to release the orders and what would be the quantities
of materials to be ordered.

2. Priority planning and Control: How the expected date of availability materials is
compared to the need date of each component.

3. Provision of a basis for planning capacity requirements and developing a broad business
plans.

The following questions are addressed in MRP processing

1. What do we want to produce & when – provided by Master production schedule.

2. What component are required to make it & how many – Bill of materials (BOM)

3. How many are already scheduled to be available in future period - Inventory status file

4. How many more items are needed for future – Difference in required and available

5. When to order this quantity – purchase order release.

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11.4.3 MRP system

 The inputs to the MRP system are

i) A master production schedule

ii) An inventory status file

iii) Bill of Materials (BOM)

 Using these three information sources, the MRP processing logic (Computer Programme)
provides three kinds of information (output) for each product component.

 Order release requirements

 Order rescheduling

 Planned orders

MRP Inputs

I. Master Production Schedule (MPS)

 Master production schedule is developed from firms customers orders or from forecast of
demand before MRP system begins to operate.

 The MRP system accepts whatever the master production schedule demands and
translates MPS end items into specific component requirements.

II. Inventory Status File

 Inventory status file gives complete uptodate information on hand quantities, gross
requirements, schedule receipts and planned order releases for the item.

 It also includes planning information such as lot sizes, lead times, and safety stock levels.

 The inventory status file is to keep data about projected use and receipts of each item.

III. Bill of materials (BOM)

 To schedule the production of end product the MRP system must plan for all the
components, parts & sub assemblies that go into the end product. The bill of material
(BOM) in the Computer provides this information.

 Bill of Material (BOM) file identifies each component by unique part number.
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MRP Outputs
 The most visible outputs are the actual and planned order releases that go to purchasing
and then to production shops.

Net requirement of items = projected gross requirement – [ inventory on hand + Scheduled

receipts].

a) Primary reports

Primary reports are the main (or) normal reports used for inventory and production control.
These reports consists of

i) Planned orders to be released at a future time.

ii) Order release notices to execute the planned orders.

iii) Changes in the due dates of open orders due to rescheduling

iv) Inventory status data.

Closed loop MRP

When the material requirements planning (MRP) system has information feedback from
its module outputs this is terms as closed loop MRP.

 A system built around material requirements that includes the additional planning functions
of sales and operations (production planning, master production scheduling and capacity
requirements planning).

 Once this planning phase is complete and plans have been accepted as realistic and
attainable, the execution functions come into play.

 These include the manufacturing control functions of input-output (capacity) measurement,

detailed scheduling and dispatching, as well as anticipated delay reports from both the
plant and suppliers, suppliers scheduling etc.

 The above figure shows a closed loop system. In closed loop MRP system the output
data are feed back up the system for verification and if necessary modification.

11.5 Manufacturing Resource Planning

 Though MRP – materials requirement planning helps to improve inventory control and
material planning many manufacturers feel that there are several segments in the
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manufacturing chain that were missing. This led to the development of manufacturing
resource planning (MRP-II).

 An expansion of the material requirements planning system to include other portions the
productive system like purchasing, shop floor, dispatching and detailed scheduling.

 MRP-II is an advanced planning tool than MRP.

 MRP-II is an effective manufacturing control system than MRP.

 MRP II can plan, tract and control almost any aspect of manufacturing from inventory
levels to job costing, to the placement of finished goods on the proper truck to get to the
right distributor.

 MRP II is an integrated information system than synchronise all aspects of the business
and share timely information with managers, throughout the organization that permits
respective department managers to take appropriate decisions at right time.

 MRP II system coordinates sales, purchasing, manufacturing, finance and Engineering

by using one unified data base to plan and update the activities in all the system.

11.5.1 Major Modules of a Manufacturing Resources Planning (MRP)

Software)

The various modules that are required for a good MRP-II system are listed below:

(i) Manufacturing Applications

(ii) Engineering Applications

(iii) Financial Applications

(iv) Marketing Applications

11.6 Just In Time System (JIT)

 Just in time is defined as a philosophy of manufacturing based on planned elimination of
all wastes and continuous improvement of productivity.

 The concept of JTI is evolved in Japan and was been successfully implemented in many
Japanese Companies. Later on the use of JIT is realized by US and other European
Countries.

 JIT is an approach that seeks to eliminate all sources of waste in production activities by
providing right parts at right place at the right time.
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 The primary goal of JIT is to achieve zero inventory within an organization as well as
throughout the entire supply chain.

 The purpose of JIT is to have only the required inventory when needed, to improve the
quality of zero defects, to reduce lead times by reducing set-up-times, queue length lot
sizes, to revise the operation and to accomplish these things at minimum cost.

 The goal is ultimate total elimination of inventory, minimal work-in-progress and is monitored
by a constant reduction in so called working capital.

In short JIT means

 Producing the quantity of units that is needed, no more or no less.

 Producing them on the date and at the time required, not before nor after.

 To optimize the processes and procedures by continuously pursuing waste reduction.

 Its aim is to improve overall productivity through elimination of waste and which leads to
improve quality.

 Product products with perfect quality.

 Product products with features that customer wants.

 Product products with no wastage of labour, materials, or equipments.

 The major focus in JIT is on reduction of wastes that includes (i) Over production (ii)
waiting time or delays (iii) unnecessary handling (iv) necessary inventory (v) processing
waste (vi) defective products.

11.6.1 Benefits of JIT System

 To maintain zero stock

 To keep inventory levels very low and to reduce inventory turnover.

 To reduce inventory carrying cost

 To reduce ordering cost

 To reduce wastage of materials

 Less work-in-process and finished goods inventory.

 Improve product quality

 Reduced production cycle time

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 Shorter procurement lead time

 Reduced Customer relation problems

 To reduce the overall production cost

 To reduce the inspection cost

 Tom eliminate scraps

 It reduces the cost of depreciation and cost of wear and tear.

 To eliminate for quality raw materials.

11.7 Implication of Supply Chain Management

11.7.1 Meaning of supply chain and supply chain management : A supply chain is a
network of facilities and distribution options that performs the functions of procurement of
materials, transformation of these materials into intermediate and finished products, and the
distribution of these finished products to customers.

Supply Chain Management : Supply Chain Management is an essential aspect of

business today. The idea is to apply a total systems approach to managing the entire flow of
information, materials and services from raw materials suppliers through factories and
warehouses to the end customers. Supply chain refers t the way that materials flow through
different organizations, starting with raw materials and ending with finished products delivered
to the ultimate customers. A supply chain is a sequence of suppliers, warehouses, operations
and retail outlets. Different Companies may have different supply chains due to the nature of
their operations and whether they are primarily a manufacturing operation or a service operation.

Supply Chain for a service organization

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A Company can identify it supply chain by first selecting a particulars product group or
product family. Then it should trace the flow of materials and information. From the final customers
(end users) backward through the distribution system, to the manufacturer and then to the
suppliers and the source of raw materials. This entire chain of activities and processes is known
as the supply chain for that product group. A large company will have several supply chains. In
a multi divisional company with many product groups, there could be many different supply
chains.

For example: Large Companies such as Proctor and Gamble (or) General electric may
use 50 to 100 different supply chains to bring their products into markets.

11.7.2 Relevant of supply chain management to production management

 Distribution or logistics or supply chain management has become a competitive advantage
as Companies struggle to get right materials to the right place at the right time.

 Supply chain Management is a vital process by which companies more materials, parts
and products to customers.

 All the TQM, JIT system, Re-engineering and team work and delighting the customers
depends on the relationship with suppliers and distributors who are part of the supply
chain.

 The supply chain management includes determining

o Transportation vendors

o Credit and Cash transfers

o Suppliers

o Distributors and Banks

o Accounts payables and receivables

o Warehousing and inventory levels

o Order fulfillment

o Sharing customer and forecasting the demand

The idea is to build a chain of suppliers that focus on both waste and maximizing value to
the ultimate customer.
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11.7.3 Objectives of supply chain management

1. A basic purpose of supply chain management is to control inventory by managing the flow
of materials.

2. To maximize the overall value generated.

3. To achieve maximum supply chain profitability.

4. To reduce supply chain costs to the minimum possible level.

11.8 Summary
In this lesson various topics like concepts of classification and codification of stock , basis
for classification of materials , its advantages purpose of codification , its advantages , system
of codification, MRP, MRP System, its objectives and functions , Meaning of Manufacturing
Resource Planning , major modules of a manufacturing resource planning (MRP) Software ,
Just –in-time systems its benefits and implication of supply chain management are discussed.

Classification and codification of materials are steps in maintaining stores in a systematic

way. Materials are classified in such way that storing, issuing and identifying of materials become
easy. Generally, materials are classified on the basis of their nature. Materials can also be
classified on the basis of quality and utility. For the purpose of identification and convenience in
storage and issue of materials, each item of material is given a distinct name. Such a process
of giving distinct names and symbols to different items of materials is called codification of
materials. Good store-keeping requires proper classification and codification of various items
of stores on stock. Classification‘ refers to the systematic division, grouping or categorization
of materials or store items with reference to some common characteristic. Classification of
materials can be made on different bases namely nature, manufacturing process, value, purpose
etc. The main advantages of classifying stores items are Helpful in Grouping of Stores Items
, Easy Location , Proper Accounting and record keeping , proper care , avoidance of duplication
of items and standardization. After having classified or grouped the various items of stores, it is
necessary and useful to codify them. Codification is the process of assigning a number or
symbol to each store item in addition to its name for making its identification easy and convenient.
Codification of store items leads to saving in time and labour on account of substitution of a
symbol or number for a longer name. Codification is necessary as it refers to as allotment of
logical and systematic numbers or alphabets or both (as a mixture) so as to help in simple but
accurate identification of the materials. The following four systems of codification are commonly
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used in a materials department Alphabetical system , Numerical system , Decimal system and
Combined Alphabetical and numerical system.

Material requirement planning is a technique for determining the quantity and timing for
the acquisition of dependent demand items needed to satisfy master production schedule
requirements. The main objective of MRP is to reduce the inventory , reduction in the
manufacturing and delivery lead times, Realistic delivery commitments as per the scheduled
date and increase the efficiency of the production system. The various functions of MRP are
Order Planning & Control and Priority planning and Control: An MRP system consist of MRP
inputs and MRP outputs The inputs to the MRP system are master production schedule ,
inventory status file and bill of Materials (BOM) where as the outputs of MRP are the actual and
planned order releases that go to purchasing and then to production shops. MRP-II is an
advanced planning tool than MRP. MRP-II is an effective manufacturing control system than
MRP. MRP II is an integrated information system than synchronise all aspects of the business
and share timely information with managers, throughout the organization that permits respective
department managers to take appropriate decisions at right time. The various modules that are
required for a good MRP-II system are Manufacturing Applications ,Engineering Applications ,
Financial Applications and Marketing Applications. Just in time is defined as a philosophy of
manufacturing based on planned elimination of all wastes and continuous improvement of
productivity. The major focus in JIT is on reduction of wastes that includes (i) Over production
(ii) waiting time or delays (iii) unnecessary handling (iv) necessary inventory (v) processing
waste (vi) defective products.

A supply chain is a network of facilities and distribution options that performs the functions
of procurement of materials, transformation of these materials into intermediate and finished
products, and the distribution of these finished products to customers. Supply Chain Management
is an essential aspect of business today. A supply chain is a sequence of suppliers, warehouses,
operations and retail outlets. Different Companies may have different supply chains due to the
nature of their operations and whether they are primarily a manufacturing operation or a service
operation. The supply chain management includes determining Transportation vendors, Credit
and Cash transfers , Suppliers , Distributors and Banks , Accounts payables and receivables ,
Warehousing and inventory levels, Order fulfillment , Sharing customer and forecasting the
demand. The basic purpose of supply chain management is to control inventory by managing
the flow of materials.
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11.9 Keywords
Classification

Condification

Just In Time

MRP

MRP - II

11.10 Review Questions

1. Explain the concept of classification and codification of stock.

2. List the advantages of classification of materials.

3. Explain the purpose of codification of materials.

4. Explain the system concept of codification.

5. What do you mean by Material requirement planning ?

6. Explain Manufacturing resource planning.

7. Explain the concept of JIT System.

8. Define Supply chain. What are the objectives of supply chain?

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LESSON - 12
MAINTENANCE MANAGEMENT
Learning Objectives

After reading this lesson, the learners must be able to

 Define Maintenance

 List the objectives of plant maintenance

 Disucss the functions of plant maintenance

 Explain various Maintenance practices

Structure
12.1 Introduction
12.2 Maintenance –Definition
12.3 Objective of Plant Maintenance
12.4 Functions of Plant Maintenance
12.5 Maintenance Practices
12.5.1 Break Down Maintenance
12.5.2 Preventive Maintenance
12.5.3 Scheduled Maintenance
12.5.4 Planned Maintenance
12.5.5 Productive Maintenance
12.6 Advantages of Good Maintenance
12.7 Disadvantages of Poor Maintenance
12.8 Breakdown Time Distribution
12.9 Maintenance Cost Balance
12.10 Procedure for Plant Maintenance
12.11 Individual Replacement vs Group Replacement
12.12 Summary
12.13 Keywords
12.14 Review Questions
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12.1 Introduction
In modern industries, equipment and machinery are very important parts of the production
activity. A large amount of money is invested in machineries and equipments. Special purpose
and modern machineries cost a lot of money. If those machineries and equipments are kept idle
then it will be a great loss to that company. So they have to be kept always in good working
condition. Then only they will work efficiently for more number of years. They should not
breakdown or stop production. So it is very important that machineries and equipments in
plants are properly maintained. In order to take smooth production of finished goods from the
factory, machinery and equipment, should be in proper conditions and with breakdown free.
The damage caused to plant and machineries due to normal wear and tear, improper use,
under and over utilization, mis-operation etc can be viewed seriously and can hamper the
smooth production of goods and services and machine down time. Keeping the productive
resources of plant, machinery, equipment etc in good working condition is an important
responsibility of management to achieve specified level of quality and reliability of operation.

12.2 Maintenance - Definition

Maintenance is the process of keeping the machine and equipment in good working
condition so that the efficiency of machine is retained and its life is increased. “Plant maintenance
is a combination of actions carried out by an organization to replace, repair, service the
machineries, components or their groups in a manufacturing plant, so that it will continue to
operate satisfactorily”

12.3 Objective of Plant Maintenance

The objective of maintenance is to maximize the performance of productive resources of
an organization by ensuring that these resources perform regularly and efficiently. This is achieved
by preventing the breakdown and failures and by minimizing the production loss.

The main objectives of plant maintenance are :

 To maximize the availability of plant, equipment and machinery for productivity through
planned maintenance.

 To extend the life span of the plant, equipment, machinery etc., by minimizing their wear
and tear and deterioration.
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 To reduce the cost of production due to plant breakdown due to improper plant
maintenance.

 To help the production department to go ahead with their production plans without any
problem.

 To ensure operational readiness of all production facilities for emergency use at all times,
such as fire fighting equipment, first aid facilities, alternative method of production etc

 To provide management with proper information on the cost and effectiveness of

maintenance.

 To ensure safety of staff through regular inspection and maintenance of facilities such as
boilers, compressors, elevations, material handling system, conveyors, dangerous heavy
machineries etc.

12.4 Functions of Plant Maintenance

The basic function of any maintenance activity is to maintain the facility and its equipment
in a condition to meet normal operating requirements. The basic function of maintenance are
as follows:

a) Inspection

Inspection involves periodic checking of machines and equipment to ensure safe and
efficient operation, making certain that equipment requiring work at specified periods receives
proper attention, determination of repair feasibility and control of the quality of work accompanied
by maintenance group, Inspection implies detection of faults before they develop in to breakdown
of the equipment. This canbe done effectively by increasing our ability to identify the initial
symptoms of machine trouble as early as possible. The initial symptoms of the machine trouble
may be revealed through noise, vibration, dirtness, leak or heat of the machine.

b) Repair

When any item or components fails or breakdown, then the process of repairing the
component or replacing the item or part by another item to restore the item in working order is
known as repair.
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c) Overhaul

This is another routine and regular maintenance function falling under preventive
maintenance. The frequency of overhauling is for less than lubrication and inspection. In
overhauling, the machine is stripped and the various parts are cleaned and oiled and components
are replaced.

d) Lubrication

Proper lubrication plays a vital role in maintaining the machine accuracy and increasing
its life. Lubrication of machinery should be considered as important as blood circulation in the
human body. The cleaning and lubrication of the machine is normally done by the operator
itself. From the suppliers document, lubricating instructions showing the daily/ weekly/fortnightly/
monthly/ Yearly lubricating points and grades of lubricants to be used should be prepared.
These are tabulated in a chart and explained to the operator. For the convenience of the operator,
it is advisable to paint the lubricating points on the machine. Grade of lubricant and the lubricating
schedule may be indicated there itself.

The lubricant can be designed by the color of the paint mark as given below

Lubricating schedule can be designed by the following symbols

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e) Salvage

Any equipment is said to be salvage when it cannot be repaired or cannot be brought to

desired level of performance. In that case the item is to be replaced by new one to bring back
the system into operation.

12.5 Maintenance Practices

Different maintenance practices are adopted to suit the various types of production,
machineries and other devices. They are

1. Break down maintenance.

2. Preventive maintenance.

3. Scheduled maintenance.

4. Planned maintenance.

5. Productive maintenance.

12.5.1 Break Down Maintenance

In this method the machines are allowed to run without carrying out any maintenance
activities. Only when it becomes out of order (Stops working) it is repaired and set right. Next
maintenance is done only when it breaks down again. This type of maintenance is applicable to
machines which are not important i.e Breakdown of these machines will not affect the production
process.

Causes of Breakdown
i) Failure to replace the wornout parts

ii) Non application of lubricants

iii) Neglected cooling system

iv) Carelessness towards minor repairs

Disadvantages of Break down maintenance

i) Production is affected (Delayed or Stoped)

ii) Leads to hurried maintenance -which in turn leads to poor quality maintenance

iii) The plant depreciates very fast

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iv) Plant life is very much reduced.

v) Increase cost due to overtime payment

vi) Cost of maintenance is high – as down time cost and replacement cost will be high

vii) Leads to direct loss of profit

viii) Leads to increased accidents

ix) More wastage of material

x) Not suitable for equipments like cranes, boilers, lifts, hoists etc

However this type of maintenance is used for ordinary equipments like vises, bench grinders
etc.

12.5.2 Preventive Maintenance

It is a method of maintenance aimed at avoiding or preventing breakdowns. The principle

of preventive maintenance is ‘Prevention is better than cure’

Here some components are identified as weak spots in all machineries and equipments.
These parts are inspected regularly. Minor repairs are carried out immediately as soon as there
is necessity. This reduces the unanticipated breakdowns.

Objectives
1. To minimize the possibility of unanticipated break downs

2. To make plant and machines always available for ready use.

3. To retain the value of the equipment

4. To maintain optimum productivity

5. To maintain the accuracy of the machineries

6. To reduce work content during maintenance

7. To ensure safety to workmen

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Procedure

1) Maintaining machine Records

To carryout the preventive maintenance effectively all the details about the machines
should be kept in records. These are

a) Type of equipment and description

b) Name of the manufacturer

c) Cost and date of the purchase

d) Cost and date of planned repairs

e) Breakdowns if any and their dates and reasons

f) List of spare parts and their code numbers

2) Preparing Inspection checklist

Here the components to be inspected on regular intervals are listed. i.e What are to be
inspected daily/ weekly/ monthly are listed. General items which are to be inspected regularly
are :

a) Material handling equipments like crane, hoists lifts conveyors trucks etc.

b) Safety equipments like relief valves, fire extinguishers, safety alarms etc.

c) Process equipments like furnaces, compressor, pumps, motors etc

d) Water, air and fuel lines

e) Key equipments and machineries

Frequency of inspection depends upon

a) Severity of work carried out on the machine – whether one shift, two shift or for
24 hrs daily.

b) Age, condition and value of the equipment

c) Safety and health environment

d) Amount of exposure to dirt, fumes, friction, fatigue, stress, corrosion, wear etc.
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3. Inspection as per check list and corrective action

Inspection and corrective action can be done as follows

a) Routine up-keep adjustment of guide plates, lubrication and cleaning

b) Periodic inspection – Visual inspection – Overhauls, scheduled replacements etc.

These maintenance works are done without disturbance to the production activities. In
preventive maintenance, the cost of maintenance will be high. Because many people are involved
in inspection, record keeping and maintenance work. More number of spare parts

Are stocked. The parts are replaced before the end of their life.

Advantages of Preventive maintenance

1. reduced break downs and down time

2. Lesser overtime to maintenance people

3. Grater safety to workers

4. Low maintenance and repair cost

5. Less stand –by equipment needed.

6. Reduced production cost

7. Increased equipment life

8. Increase workers morale – as no stoppage of work.

9. Better product Quality

10. Less material wastages.

Comparison between Breakdown and Preventive Maintenance

S.NO Break down Maintenance Preventive Maintenance

1 Maintenance is done only after Maintenance is done before the

machine fails to function machine fails

2 Maintenance is done after breakdown It is done to prevent breakdown

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3 The time of breakdown is unexpected. Maintenance work is planned and

So the maintenance cannot be planned scheduled in a well advanced
manner

4 Not suitable for critical machineries Suitable for all types of equipments
like cranes, hoists, trucks boilers, and machineries
furnaces, Valves etc

5 Cost due to down time is more No down time

6 Production Loss takes place No production Loss

7 The durability (Life) and efficiency of The durability (Life) and efficiency
the equipment and machineries of the equipment and machineries
decreases due to poor maintenance increases decreases due to
planned maintenance

8 It affects the quality of the goods Preventive maintenance improves

produced by that equipments and the quality of the goods
machineries

9 The Breakdown maintenance cannot Preventive maintenance are

be planned and scheduled as planned and scheduled
systematically and effectively systematically and effectively
as preventive maintenance

12.5.3 Scheduled Maintenance

In this type, the maintenance is done according to the recommendation of the supplier of
the equipment. This is usually done at predetermined dates. Example Overhauling machines,
cleaning of tanks, annual shut down and maintenance of power plants, cement factories, sugar
plants, paper mills, fertilizer units etc In this maintenance, the plant is shutdown and following
are done : Inspection, repairing and replacing of worn out parts.
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12.5.4 Planned Maintenance

In this type, the maintenance activities are well planned. The following details are planned:

1) Time of maintenance

2) Material (Spare parts) requirement.

3) Men requirement

4) Maintenance tools and equipment needed.

5) Allocation of work to maintenance people.

6) Estimated cost

The maintenance plan is prepared for a group of equipment and machineries. The
maintenance is carried out as per the plan.

12.5.5 Productive Maintenance

It is a type of preventive maintenance. Here preventive maintenance is done only for

critical machineries. These machineries are very important for production. The failure of these
critical machines will affect the complete production process.

For example : In a chemical plant, a small pump for circulating chemicals may be a critical
equipment If the pump fails to function then the whole plant have to be stopped. So the pump is
considered to be a critical equipment in the chemical plant.. This pump which is identified as a
critical equipment should be given preventive maintenance.

The other equipment in the plant may be given scheduled maintenance or planned
maintenance.

12.6 Advantages of Good Maintenance

1. Life of machinery and equipments are increased

2. production takes place as per the schedule.

3. Products are delivered to customers in time and hence high level of customer satisfaction
can be expected

4. Machines are in good condition. Hence quality of the products will be good.

5. No production loss
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6. Machinery is not damaged

7. No idle time of men and machines. Hence their utility increases

12.7 Disadvantages of Poor Maintenance

1. Machines may be damaged. This is a loss

2. Poorly maintained machines will produce poor quality products

3. More wastage of materials.

4. Break down of machines makes both men and machine in idle position. So production
time is wasted. This will increase cost of production

5. Poor maintenance cause accidents.

6. Due to poor maintenance, life of machine is reduced.

7. If a part of equipment goes out of order in a flow production factory, then the entire
production line will soon come to halt. This leads to heavy loss in productivity as well as
monetary loss.

12.8 Breakdown the Distribution

Breakdown time is the duration of the machine in the breakdown mode. Breakdown time
distribution when plotted on the graph will show the frequency with which machines have
maintenance.-free performance for a given number of operating hours. Breakdown time
distribution are developed from distribution of run time free of breakdowns as shown in the fig.
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The above figure shows percentage of total breakdown time of various machines. Variability
of breakdown will be smaller with a simple machine compared to a complex machine, each part
would have a failure distribution. When we combine these distributions in one distribution, of
breakdown time of the machine, we would expect to find greater variability Breakdown time
distribution data are basic to the formulation of any general policies concerning maintenance.

12.9 Maintenance Cost Balance

Breakdown of equipment makes the workers and machine idle resulting in loss of
production, delay in schedules and expensive repairs. These downtime costs usually exceed
the preventive maintenance costs of inspection, service and scheduled repairs up to the point
‘M’ shown in fig. Beyond this optimal point an increasingly higher level of preventive maintenance
is not economically justified and it is economical to adopt breakdown maintenance policy. The
optimum level of maintenance activity ‘M’ is easily identified on theoretical basis, to do this the
details of the costs associated with breakdown and preventive maintenance must be known.

The cost associated with maintenance are

1. Down time cost- This is the loss of profit due to stoppage in production

2. Cost of material wasted

3. Wages paid to workers when they are idle due to breakdown

4. Cost due to idleness of machine

5. Cost of spares and other materials used for repair

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6. Wages paid to maintenance people

7. Losses due to inefficient operation of machines

8. Capital requirements required for replacement of machines

The maintenance function acts in a role to keep equipment operating effectively to maintain
quality standards as well as to maintain the cost of standard of output. The policies regarding
the maintenance depends on the situation and the relative costs. Is routine preventive
maintenance economical or will it be less costly to wait for breakdown to occur and then repair
the equipment? The decision regarding the appropriate level of preventive maintenance rests
on the balance of costs, as indicated in the fig. Managers may select a policy that minimizes the
sum of preventive maintenance costs plus repair, down time and quality related costs.

Preventive maintenance cost Curve ‘ in fig represents the increase in costs that results
from higher levels of preventive maintenance. These costs increase because of higher levels of
preventive maintenance mean that we replace the parts before they fails and we replace more
components when preventive maintenance is performed and we perform preventive maintenance
frequently. The breakdown cost curve in fig represents the decline in breakdown and repair,
downtime and quality related costs as the level of preventive maintenance increases. With
higher level of preventive maintenance, we should experience fewer actual breakdowns.

The total incremental cost curve is the sum of curves preventive and breakdown cost
curve. The optimal policy regarding the level of preventive maintenance is defined by the minimum
‘M’ of that curve.

There is a combination of costs that leads to the decision not to use preventive maintenance.
suppose if the breakdown and repair costs did not decline as the level of preventive maintenance
increases then preventive maintenance would not be justified, because the minimum total cost
occurs with no preventive maintenance. The optimal policy will be simply to repair the machine
when breakdown occurs.

12.10 Procedure of Plant Maintenance

As the planned maintenance is the true maintenance function compared to the unplanned
maintenance, which has not been foreseen or happened accidently, the techniques of plant
maintenance are most applicable only to planned maintenance, which is the real maintenance
function that should be taken by the industrial unit.
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Planned maintenance is not a specific type of maintenance, but the application of

maintenance should be tackled in a specific manner. It is the comprehensive planning of the
maintenance function, and is designed as the work is organized and is carried out with
forethought, control and reorder.

Techniques of planned maintenance

In order to set up planned maintenance system for an organization it is necessary to

make a general appraisal of all the maintenance work to be carried out and the resources
available for this work. The basic techniques in designing a planned maintenance system are
as follows.

a) Inventory of facilities : Prepare a list of all facilities –plant, buildings, machines and
equipments in the organization which need to be maintained

b) Identification of plant and equipment : After completing inventory of all facilities to

be maintained, it is essential that each facility is positively identified. A typical identification
system makes use of six-digit. The first two digit indicates the location of the machine. i.e the
department, the next two digits indicates the machine number within its particular group. i.e No
:1 Lathe NO:2 Lathe No:3 Lathe, etc

Example: An identification symbol 011-03-06 is interpreted as follows in a pharmaceutical

manufacturing company:

c) Marking the equipment: When an item of equipment has been allocated an identification
symbol, it should be marked clearly and where possible by a method that is standard
throughout the organization.

d) The facility Register : The facility register is a record of all machinery, plant, equipment
and building which has to be maintained, including technical details about each. The
information contained in this facility register can act as a standard reference in terms of
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each facility’s spares, current location, conditions, serviceability model. Size specification,
etc

e) Marking schedule : A maintenance schedule is a comprehensive list of maintenance

work to be done, specifying the frequency, the maintenance worker and the estimated
time required to complete the maintenance work. The maintenance schedule is normally
prepared on the basis of supplier’s literatures of each equipment and as well as the
operational experience of the equipment. A typical maintenance schedule is shown in the
following figure.

N.B It is one, two and three monthly inspection for jobs X,Y and Z respectively.

f. Job Specification : Job specification is a document describing the work to be done.

After scheduling maintenance work to be carried out on each facility, the details of the work to
be carried out on each facility, the details of the work to be performed need to be communicated
clearly and precisely to the maintenance workers to ensure effective maintenance.

g. The Maintenance program : It is a list allocating specific maintenance to a specific

period. i.e When it is to be maintained. The generally used techniques are maintanence planning
charts or visible record cards. In the planning charts the facilities to be maintained are listed
down the left hand side of the chart or board. The time scale usually in days or weeks in days or
weeks is marked along the top edge.

h. Job Report : Job report is a statement recording the work done and the conditions of
the facility. For any planned maintenance scheme there must be a continous flow of information
to and from the persons doing the work. The feedback is essential for the control and adjustment
of the plan.
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12.11 Individual Replacement vs Group Replacement

Individual replacement policy : In this policy a particular time ‘t’ is fixed to replace the
item whether it has failed or not. It can be done when one knows that an item has been in
service for a particular period of time and has been used for that time period.

In this policy a particular time ‘t’ is fixed to replace the item whether it has failed or not. It
can be done when one knows that an item has been in service for a particular period of time and
has been used for that time period. In case of moving parts like bearings this policy is very
useful to know when the bearing should be replaced whether it fails or not. Failure of a bearing
can cause a lot of damage to the equipment in which it is fitted and the cost of repairing the
equipment is much more than the cost of bearing If it had been replaced well in time. If it is
possible to find out the optimum service life ‘t’ the sudden failure and hence loss to the equipment
and production loss etc can be avoided. However, when we replace items on a fixed interval of
preventive maintenance period certain items may be. left with residual useful life which goes
waste. Such items could still perform for another period of time (not known) and so the utility of
items has been reduced.

Group replacement policy : here are certain items which do not deteriorate but fail
completely after certain amount of use. These kinds of failures are analysed by the method
called as group replacement theory. There are certain items which do not deteriorate but fail
completely after certain amount of use. These kinds of failures are analysed by the method
called as group replacement theory. Here, large numbers of items are failing at their average
life expectancy. This kind of items may not have maintenance costs as such but they fail suddenly
without any prior warning. Also, in case of sudden breakdowns immediate replacement may not
be available. Few examples are fluorescent tubes, light bulbs, electronic chips, fuse etc.

12.12 Summary
In this lesson topics related to maintenance management are discussed. The important
topics discussed are Maintenance, its objectives and functions, various types of maintenance
practices like breakdown, preventive, scheduled, productive maintenance etc., Further we have
also discussed on advantages of good maintenance and disadvantages of poor maintenance,
Break down time distribution, Maintenance cost balance, Procedure for Plant Maintenance and
difference between Individual and Group Replacement policies In modern industries, equipment
and machinery are very important parts of the production activity. A large amount of money is
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invested in machineries and equipments. Special purpose and modern machineries cost a lot
of money. If those machineries and equipments are kept idle then it will be a great loss to that
company. So they have to be kept always in good working condition. Then only they will work
efficiently for more number of years. They should not breakdown or stop production. So it is
very important that machineries and equipments in plants are properly maintained. In order to
take smooth production of finished goods from the factory, machinery and equipment, should
be in proper conditions and with breakdown free.

12.13 Keywords
Breakdown Maintenance

Planned Maintenance

Productive Maintenance

Preventive Maintenance

Scheduled Maintenence

12.14 Review Questions

1. What is plant maintenance?

2. What are the specific objectives of any maintenance function of an organization?

3. Differentiate between preventive and breakdown maintenance.

4. What are the causes of breakdown maintenance ?

5. Explain various types of plant maintenance.

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LESSON - 13
WORK STUDY
Learning Objectives

After reading this lesson, the learners must be able to

 List the objectives of work study and Method Study

 Define method study and word study

 Outline the basic procedure for method study

 Draw various charts and diagrams used in method study

Structure
13.1 Introduction

13.2 Work Study

13.2.1 Objectives of Work Study

13.2.2 Advantages of Work Study

13.3 Method Study

13.3.1 Objectives of Method Study

13.3.2 Procedure for Method Study

13.4 Work Measurement

13.4.1 Stop Watch Time Study

13.4.2 Production Study

13.4.3 Work Sampling

13.4.4 Synthesis from Standard Data

13.4.5 Analytical Estimation

13.5.6 Pre-determined Motion Time System

13.5 Examples
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13.6 Summary

13.7 Keywords

13.8 Review Questions

13.1 Introduction
The types of maintenance was explained in the previous lesson. The techniques such as
work study and method stydy will be discussed in this lesson.

13.2 Work Study

First technique applied for increasing productivity. It is Considered as a valuable tool in
increasing productivity. “Work study is a generic term for those techniques, particularly method
study and work measurement, which are used in all its context and which lead systematically to
the investigation of all the factors, which effect the efficiency and economy of the situation
being reviewed in order to effect improvement.”

The main objective of work study is to improve productivity of men, machines and materials.
The aim of work study is to determine the best method of performing each operation and to
eliminate wastage so that production increases with less fatigue. The work study is also used in
determining the standard time that a qualified worker should take to perform the operation
when working at a normal place.

Role of work Study

1. To standardise the method of doing a work.

2. To minimise the unit cost of production.

3. To determine the standard time for doing a task.

4. To minimise the material movement, and operators movement.

5. To eliminate unnecessary human movements.

6. To utilise facilities such as man, machine and materials most effectively, and

7. To a systematic investigation of all factors.

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13.2.1 Objectives of Work Study

The following are the objectives of work study:

1. Increased efficiency.

2. Better product quality.

3. To choose the fastest method to do a job.

4. To improve the working process.

5. Less fatigue to operators and workers,

6. Effective labour control,

7. Effective utilisation of resources,

8. To decide equipment requirements,

9. To pay fair wages,

10. To aid in calculating exact delivery,

11. To formulate realistic labour budgeting, and

12. To decide the required manpower to do a job.

13.2.2 Advantages of Work Study

The advantages of work study are:

1. Work study ensures higher productivity,

2. Better working conditions with less fatigue,

3. Higher wages to workers,

4. Uniform production flow,

5. Job satisfaction and job security to workers,

6. Reduction in unit cost of production,

7. Quality products to consumers,

8. Fast delivery schedule, 

9. Harmonious employer-employee relation, and

10. Better service to customers.

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13.3 Method Study

Method study is the technique of systematic recording and critical examination of existing
and proposed ways of doing work and developing an easier and economical method. It was
originally designed for the analysis and improvement of repetitive manual work but it can be
used for all types of activity at all levels of an organization. Method study is basically conducted
to simplify the work or working methods and must go towards higher productivity. It is always
desirable to perform the requisite function with desired goal minimum consumption of resources.
Method signifies how a work is to be done

13.3.1 Objectives of Method Study

1. Improvement of manufacturing processes and procedures.
2. Improvement of working conditions.
3. Improvement of plant layout and work place layout.
4. Reducing the human effort and fatigue.
5. Reducing material handling
6. Improvement of plant and equipment design.
7. Improvement in the utility of material, machines and manpower.
8. Standardisation of method.
9. Improvement in safety standard.

13.3.2 Procedure for Method Study

The basic procedure for conducting method study is as follows:

1. Select the work to be studied.

2. Record all facts about the method by direct observation.

3. Examine the above facts critically.

4. Develop the most efficient and economic method.

5. Define the new method.

6. Install the new method

7. Maintain the new method by regular checking.

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1. Select

While selecting a job for doing method study, the following factors are considered:

(a) Economical factors.

(b) Human factors.

(c) Technical factors.

(a) Economical Factors

The money saved as a result of method study should be sufficiently more. Then only the
study will be worthwhile. Based on the economical factors, generally the following jobs are
selected.

(a) Operations having bottlenecks (which holds up other production activities).

(b) Operations done repetitively.

(c) Operations having a great amount of manual work.

(d) Operations where materials are moved for a long distance.

(b) Human Factors

The method study will be successful only with the co-operation of all people concerned
viz., workers, supervisor, trade unions etc.

Workers may resist method study due to

1. The fear of unemployment.

2. The fear of reduction in wages.

3. The fear of increased work load.

then if they do not accept method study, the study should be postponed.
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(c) Technical Factors

To improve the method of work all the technical details about the job should be available.
Every machine tool will have its own capacity. Beyond this, it cannot be improved. For example,
a work study man feels that speed of the machine tool may be increased and HSS tool may be
used. But the capacity of the machine may not permit increased speed. In this case, the
suggestion of the work study man cannot be implemented. These types of technical factors
should be considered

2. Record

All the details about the existing method are recorded. This is done by directly observing
the work. Symbols are used to represent the activities like operation, inspection, transport,
storage and delay. Different charts and diagrams are used in recording. They are:

1. Operation process chart: All the operations and inspections are recorded.

2. Flow process chart

(a) Man type All the activities of man are recorded

(b) Material type All the activities of the material are recorded

(c) Equipment type All the activities of equipment or machine are recorded.

3. Two-handed process chart: Motions of both lands of worker are Right hand-Left
hand chart recorded independently.

4. Multiple activity chart: Activities of a group of workers doing a single job or the activities
of a single worker operating a number of machines are recorded.

5. Flow diagram: This is drawn to suitable scale. Path of flow of material in the shop is
recorded.

6. String diagram: The movements of workers are recorded using a string in a diagram
drawn to scale.
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3. Examine

Critical examination is done by questioning technique. This step comes after the method
is recorded by suitable charts and diagrams. The individual activity is examined by putting a
number of questions.

1. Purpose – To eliminate the activity, if possible.

2. Place – To combine or re-arrange the activities.

3. Sequence – To find the list of activities.

4. Person – To identity the capable person.

5. Means – To simplify the activity.

The following sequence of questions is used:

1. Purpose – What is actually done?

Why is it done?

What else could be done?

What should be done?

2. Place – Where is it being done?

Why is it done there?

Where else could it be done?

Where should it be done?

3. Sequence – When is it done?

Why is it done then?

When could it be done?

When should it be done?

4. Person – Who is doing it?

Why does that person do it?

Who else could do it?

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Who should do it?

5. Means – How is it done?

Why is it done that way?

How else could it be done?

How should it be done?

By doing this questioning

 Unwanted activities can be eliminated

 Number of activities can be combined or re-arranged

 Method can be simplified.

All these will reduce production time.

4. Develop

The answer to the questions given below will result in the development of a better method.

1. Purpose – What should be done?

2. Place – Where should it be done?

3. Sequence – When should it be done?

4. Person – Who should do it?

5. Means – How should it be done?

5. Define

Once a complete study of a job has been made and a new method is developed, it is
necessary to obtain the approval of the management before installing it. The work study man
should prepare a report giving details of the existing and proposed methods. He should give his
reasons for the changes suggested. The report should show

(a) Brief description of the old method.

(b) Brief description of the new method.

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(c) Reasons for change.

(d) Advantages and limitations of the new method.

(e) Savings expected in material, labour and overheads.

(f) Tools and equipment required for the new method.

(g) The cost of installing the new method including.

1. Cost of new tools and equipment.

2. Cost of re-layout of the shop.

3. Cost of training the workers in the new method.

4. Cost of improving the working conditions.

Written standard practice: Before installing the new method, an operator‘s instructions
sheet called written standard practice is prepared. It serves the following purposes:

1. It records the improved method for future reference in as much detail as may be
necessary.

2. It is used to explain the new method to the management foreman and operators.

3. It gives the details of changes required in the layout of machine and work places.

4. It is used as an aid to training or retraining operators.

5. It forms the basis for time studies.

6. Install

This step is the most difficult stage in method study. Here the active support of both
management and trade union is required. Here the work study man requires skill in getting
along with other people and winning their trust. Instal stage consists of

(a) Gaining acceptance of the change by supervisor.

(b) Getting approval of management.

(c) Gaining the acceptance of change by workers and trade unions.

(d) Giving training to operators in the new method.

(e) To be in close contact with the progress of the job until it is satisfactorily executed.
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7. Maintain

The work study man must see that the new method introduced is followed. The workers
after some time may slip back to the old methods. This should not be allowed. The new method
may have defects. There may be difficulties also. This should be rectified in time by the work
study man. Periodical review is made. The reactions and suggestions from workers and
supervisors are noted. This may lead to further improvement. The differences between the new
written standard practice and the actual practice are found out. Reasons for variations are
analysed. Changes due to valid reasons are accepted. The instructions are suitably modified.

13.4 Work Measurement

Work measurement is a technique to establish the time required for a qualified worker to
carry out a specified job at a defined level of performance.

Objectives of Work Measurement

1) To determine the time required to complete a job. Also to compare various alternate
method and to select the most economical and efficient method.

2) To reduce or to eliminate non productive time

3) To fix the standard time.

4) To develop standard data for future reference

5) To determine the requirement of manpower

6) It helps in estimating the cost.

7) It helps to plan the work load of man and machine

8) It helps to prepare the schedule

9) It provides information for effective production planning and control.

10) It helps to control the cost of production

11) It helps to fix the delivery date to the customer.

13.4.1 Stop Watch Time Study : It is one of the most commonly used work measurement
techniques. Here we use a stop watch for measuring the time.
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The various equipments used in conduct of stop watch time study are:

a) Stop watch

b) Study board

c) Time study sheets

d) Pencils, Calculators, reliable clock with seconds measuring tape, steel rule,
micrometer spring balance and tachometer.

1. Stop Watch: Stop watch is a device used for measuring the time in time study. Generally
a decimal minute stop watch is used in time study. We can read up to an accuracy of 0.021 mt
in this stop watch. This stop watch has a big dial and a small dial. The big dial is divided into
100equal divisions. The large hand makes one complete revolution per minutes. So each
division of large dial represents 0.01mt. The small dial has 30 divisions. The small hand makes
on complete revolution in 30mts. So each division is the small hand represents 1mt.

Starting and stopping of the watch are done by moving the slide A. We can stop the hand
at any position and start it again from that position by moving the slide A. when the knob B is
pressed down both the hands return to zero. When the knob is released the hands will start
moving. This stop watch can be used for measuring the time both in fly-back method and
continuous method.

2. Study Board: This is made up of plywood of plastic sheet. It is flat and light in weight.
The board is made slightly larger than the size of the study sheet. A clip is provided to hold the
study sheets. There is an arrangement for fixing a stop watch rigidly at the right hand top
corner.

3. Time Study sheet: The study sheet is in a printed form. This is used to record the
details about the study. The information usually recorded in the form is follow:

i) Description of the operator, operation, machine tools etc.

ii) Details about date, time and place of a study.

There are columns for recording the description of elements and the stop watch reading
(WR) Rating is recorded fro each element. The subtracted time and basic time are calculated.
A specimen of the time study sheet is shown in Figure.
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4. Other Equipments
Calculator for doing calculator
Steel rule for measuring distances
Tachometer to find rpm
Clock is required in the study office to record elapsed time.
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Procedure for conducting stop watch time study

i) Selection of the Job: Time study is always done after method study. A Job is selected
for time study.

a) A new job, a new component or a new operation

b) When new time standard is required

c) To check the correctness of the existing time standard

d) When the cost of operation is found to be high

e) When two methods are to be compared.

ii) Record: The following information are recorded such as

a) About the product name, product number, specifications.

b) About the machine and equipments and tools.

c) About the working conditions

d) About the operator.

iii) Breakdown operation in to elements: Each operation is divided into a number of

elements. This is done for easy observation and accurate measurement. The elements
are grouped as constant element, variable element, occasional element, man element,
machine element etc.

iv) Examine each element: The elements are examined to find out whether they are effective
or wasteful. Elements are also examined whether they are done in the correct method.

v) Measure using a stopwatch: The time taken for each element is measured using a stop
watch. There are two methods of measuring (viz) fly back method and cumulative method.
Cumulative method is preferable. The time measured front he stopwatch is known as
observed time. Time for various groups of elements is recorded separately.

vi) Assess the rating factor: Rating is the measure of efficiency of a worker. The operator
rating is found out by comparing his speed of work with standard performance. The
rating of an operator is decided by the work study. The standard rating is taken as 100. If
the operator is found to be slow his rating is less than 100 say 90. If the operator is above
average, his rating is more than 100 say 120.
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operators rating
vii) Calculate the basic time: Basic time  observed time 
s tan dard rating For
example: Assume that observed time for an operation is 0.7 mt. The rating of an operator
120
is found to be 120. then Basic time  0.7   0.84mts Basic time is also
100
known as Normal time.

viii) Determine the allowances: A worker cannot work all the day continuously. He will require
time for rest, going for toilet, drinking water etc., Unavoidable delays may occur because
of tool breakage. Some extra time is added to the basic time. This extra time is known as
allowance.

ix) Compile the Standard time: The standard time is the sum of the basic time and
allowances. The standard time is also known as allowed time.

Allowances: It is not possible for a worker to do his job continuously without any break.
There are many interruptions (stoppage of work) taking place. Extra time is added to the basic
time to compensate this interruption. This extra time given is known as allowance.

Generally interruptions occur due to the following:

a) Personal factors – going for drinking water, toilet etc.

b) Nature of work – Taking rest after hard work.

c) Other factors – Tool breakage, listening to supervisor, tool setup inspection etc.

Various types of allowances are:

a) Rest and personal allowances: This is the allowances given for the personal needs of
the worker (viz.) Going to toilet, drinking water, taking rest etc.

b) Process allowances: This is also known as unavoidable delay allowances. The delay
may be due to process, machine operation, waiting for work, waiting for material etc. To
compensate this delay allowance is given.

c) Contingency allowances: In a shop, there may be small delays due to:

i. waiting for the inspector

ii. consulting the supervisor

iii. Obtaining special tools etc

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These delays are very short durations. The allowances given to compensate those delays
are called contingency allowances. Generally 5% of basic time is given as contingency
allowances.

d) Special Allowances: In this shop floor some activities takes place occasionally. These
activities will not be a part of the production cycle. But these are necessary for production
work. Examples of these activities are:

i. Tool re-setting

ii. Cleaning

iii. Tool maintenance

iv. Shut down

For these activities an allowance known as special allowance is given.

e) Policy allowance: this is an allowance given according to the policy of the management.
This is an extra benefit given by the management to workers.

Calculation of standard time

Standard time of allowed time is the total time permitted to complete a job. It is the sum
of the normal time (basic time) and allowances.

Where

Number of cycle to be studied

The number of cycles to be studied depends upon the following factors:

i. the required accuracy of the time study

ii. cycle time longer or shorter

iii. amount of variations in the timings due to operators behaviour, operator efficiency and
skill of the work study man

iv. type of operation.

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If more accuracy is needed we have to take the readings more number of times.

For short time operations at-least 50cycles should be studied and for longer time operations,
at least 10 cycles should be studied.

13.4.2 Production Study

By stop watch time study, time standards set. But there may be complaints from the
operator that the time given for a job is not sufficient. So it is necessary to check the original
time study. Production study is a technique of work measurement to check the accuracy of the
original time study. This study is done to find out the time delay due to occasional elements.
Occasional elements may occur at irregular intervals (e.g.) tool grinding, tool setting etc. There
are chances of missing these elements in the stop watch time study. Production study is
conducted for a longer period at-least for half a day or one shift.

Uses of Production study

i. To check the accuracy of time standards

ii. To make sure that all ineffective elements are included in the time study

iii. To observe the waiting time and other delays of the operator

iv. To get data for contingency allowances

Procedure for conducting production study

This study is just like ordinary stop watch time study. But here the time for occasional
elements alone is observed. This is done for a long period say 1 shift. Repetitive or routine
activities are not timed. The timings for occasional elements are compared with the allowances
already included in the standard time.

The differences in the timings may be due to the following reasons:

i. Error in the original time study

ii. Changes in conditions of material, tools and equipments

iii. In-experienced operator

iv. Changes in the method of doing work

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v. Changes in the layout

vi. Incorrect machine speed

The exact reasons for the error are found out and rectified

13.4.3 Work Sampling

This study is also known as work sampling or activity sampling. Here the ratio of the
delay time and working time to the total time of an activity is found out. This is done by random
irregular) observations. This study is applied to

i. Long cycle operations

ii. Activities where time study is not possible (e.g.) office work, activities in stores
and warehouse.

iii. Estimate the percentage utilization of machine tools, cranes, trucks etc.,

iv. Estimate the percentage ideal time of men in group activities

v. Estimate the standard time for manual task.

Procedure

1. Define the objectives

Decide the element to be studied. State whether idea time of men or machine is to be
studied. Decide the shop floor. Decide the nature of activity. Indicate the location of men and
machine.

2. Select the sampling technique

Decide the number of observations to be made. Decide the length of time of observations.
Referring to the random number tables, decide the schedule of observations (i.e.) at what time
each observation has to be made.
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3. Prepare the forms for recording

4. Make observations: visit the work sport as per this timing noted in the form. Note
down whether men or machine is working or idle in the form.

5. Process the date: analyze the observed data and calculate the percentage
utilization or idle time for men or machine.

Ex: No. of observations made = 150

No. of time machine found working = 120

No. of time machine found idle = 30

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% Utilization of machines =

% idle time of machine =

Advantages:
i. Activities which cannot be studied by stop watch time study can be observed by this
method.

ii. Cost of the study isles. A single study man can observe several machine’s and operated.

iii. This study is not a continuous study. So lesser time is spent on the study

iv. The study will not interrupt the production

v. The operators do not feel that they are closely watched by study man. So they work
freely.

vi. Trained study man is not required

vii. Calculation is easy

viii. No equipment – stopwatch or other devices are not needed.

Limitations:
i. This is economical only when the study is made in a wide area i.e. group of machines
(or)_ group of operators.

ii. This is not suitable for short cycle repetitive operations

13.4.4 Synthesis from Standard Data

Synthesis is a work measurement technique to work out standard time for a job by totaling
the elemental times already obtained from previous time studies.

Time for all constant elements and variable elements are collected from time studies
previously made. These are stored in a file. This is called time standard data bank.
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Data bank contains data in the form of:

1. Tabulated standard time for constant elements

2. Charts and graphs

3. Formula

Procedure:
i. Break the operations in to elements. The operations are broken into a number of elements
variable and constant elements are separated.

ii. Collect the elemental time for constant elements from the standard data bank.

iii. For variable elements, the elemental time can be found out by using the charts and
graphs.

An example of graph takes from a databank in given in fig. In the graph, time for machining
is plotted in Y axis. The length is cut is plotted in X-axis. The graph gives the time for machining
various length of cut for different diameters., For example, for the job with a diameterD1, the
machining time for a length of cut l1 is T1.similarly for a job with a diameter D2 the machining
time for a length of cut l2 is T2.
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iv. Add all the elemental times for constant and variable elements. With this add the
allowances such as rest allowance, interference allowances, process allowances, special
allowance, contingency allowances, etc. to get the standard time. The time for various
allowance are also available in the standard data bank.

Advantages
1) The time calculated using standard data is more accurate than the stop watch time study.

2) The process is very quick

3) It is a cheaper method

4) It is useful for estimating the cost of production before actually producing

5) It is useful for planning team work such as assembly work.

Limitations
6) Collection of data bank is a costly affair

7) It is applied only in larger industries

8) The data bank should be updated periodically.

13.4.5 Analytical Estimation

It is technique of work measurement done by an experienced foreman. Based on his

experience he works out the time for a job. This technique is applied for finding out the time for
non – production work. (e.g.) Maintenance, Repair work, Job order work construction work etc.

Procedure

1. Selection of the Estimate: Here the time estimation is done by the foreman. The
foreman should have sufficient knowledge and experience depends upon the ability of the
foreman. Only an experienced foreman can make reasonable estimate of time acceptable by
workers.

2. Collection of details: The foreman collects all the details about the work to be estimated.
He gets than from concerned supervisor. He consults with the supervisor and selects the
sequence of operations to be done for completing the job.
 207

3. Breaking down the job in to elements: As done in the stop watch time study. The
foreman breaks the operations in to various elements. Here the elements are of much longer
durations. These elements are grouped in to constant elements, variable elements, man elements
and machine elements.

4. Estimating elemental times: The foreman collects the elemental standard time from
available data. For some elements , the data may not be available. For these elements, the
foreman estimates the time from this experience and knowledge.

5. Estimating the standard time: The foreman adds all the elemental times. To this, he
also adds the allowance to get the standard time.

Applications
1. Maintenance work.

2. Repair work.

3. Construction work.

4. Fabrication work.

5. Erection work.

6. Inspection work.

Disadvantage
1. This method is best suited for non repetitive.

2. Target time for maintenance work can be easily fixed.

13.4.6 Predetermined Motion Time System

Predetermined motion time system (PMTS) is a work measurement techniques used to

build up standard time for manual work. This is done by using predetermined time standards for
basic human motions available from standard data. The following are the few types of PMTS.

Work Factor systems (WFS)

Method time Measurement (MTM)

Motion time Analysis (MTA)

208

Dimensional Motion times (DMT)

Basic Motion times (BMT)

Among the above, Methods time measurement is widely used.

1. Time Measurement involves the following steps;

2. Analyze the given manual operations or method

3. Divide them in to basic motions which can be easily recognized.

4. Note down the nature of motion and the conditions under which it is made

5. Allot to each basic motion a predetermined time standard (from standard data tables)
taking in to account the nature of motion and the condition, under which it is made,

6. Add the timings of basic motion to get elemental time. Add all the elemental time to get
the operation time and job time.

The basis motions considered in this system are

a) Reach

b) Move

c) Grasp

d) Position

e) Turn

f) Apply pressure

g) Release

h) Disengage

i) Eye motion

j) Body, leg of foot motions

Collection of Basic work data

Accurate observations of different basic motions are made using camera at 16 frames/
sec, these observations are made in different types of operators of different ages. These data
are tabulated mentioning the different variable factors. The times are measured in time
measurement unit.
 209

One time measurement unit = 0.00001 hr

Or

Advantages of method time Measurement:

a) The standard time is worked out before the job is done
b) Alternate methods are compared without experimentations
c) This method helps in designing of tools and products
d) It is effectively used for giving training to the operators
e) It is a effective method for improving the existing method

Limitations:

MTM is applicable only for timing the manual operations.

13.5 Examples
1. The mean observed time and rating factor for five elements of a job are given below.
Find out the allowed time where fatigue allowance, personal allowance and contingency allowance
are 5%, 10% and 15% of basic time respectively.

Element Mean observed time in minutes Rating factor

1 0.3 120

2 0.6 120

3 2.2 80

4 1.5 110

5 1.4 90

Solution:

Formula used:
210

Element Mean observed Rating factor Basic time

time in minutes

1 0.3 120 0.360

2 0.6 120 0.720

3 2.2 80 1.76

4 1.5 110 1.65

5 1.4 90 1.26

Total Basic time 5.75mts

Fatigue allowance = 5% of basic time

5
= ( 5.75 )  0.2875 mts
100

Personal Allowance = 10% of BT

10
= ( 5.75 )  0.575 mts
100

Contingency allowance = 15% of BT

 211

15
= ( 5.75 )  0.8625 mts
100

total allowance = [Fatigue allowance + Personal

allowance + contingency allowance]

[0.2875+0.575+0.8625]

= 1.725 mts

Standard time = Basic time + Allowances

= 5.75 + 1.725

Standard time = 7.475 mts

2. In a printing press, the time study of a printing operation is carried out. The observed
worker is rated at 90 percent. It recorded cycle times of 12,10, 9, 11, 8, 12 minutes. The press
uses a 5 percent allowance fraction compute the standard time?

Solution

Average cycle time 

12  10  9  11  8  12  
62
6 6
 10.33 min utes
Normal time  average cycle time  wor ker rating
 10.33  0.90
 9.3 min utes
Normal time
S tan dard time 
( 1  allowance fraction )
9.3
  9.75 min utes
( 1  0.05 )

The average cycle time of printing operation is more than the allowed standard time.
Efforts should be made to bring down the average cycle time.
212

3. In an Aavin automated vending machine direct time study was made on the operation
of the vendor – from the milk. One experienced and two trainee industrial engineers made the
study simultaneously. They agreed precisely on the cycle times, which is given below, but
varied on rating of the vendor. The experienced engineer rated the vendor at100 percent,
where as the trainees rated thevendorat90 and 105 percent. The firm uses 10% allowance
fraction.

Cycle time (minutes) No.of times observed

4 3

5 1

6 2

7 3

a. Determine the standard time using the experienced Engineers worker rating?

b. Find standard times using the worker rating given by trainees?

Solution

sum of cycle time recorded

Average cycle time 
no.of cycles observed
Normal time  ( Average cycle time  Wor ker rating )
Allowance fraction  Fraction of time for personal needs , fatigue etc
Available fraction of time  ( 1  allowance fraction )
Normal time
S tan dard time 
Allowable fraction of time

Experienced Engineer as a basis (worker rating 100%)

4( 3 )  5( 1 )  6( 2 )  7( 3 )
Normal time   100
( 3 1 2  3)
50
  5.56 min
9
5.56
S tan dard time  6.18 min utes
( 1  0.10 )
 213

Trainee1 (worker rating 90%)

50
Normal time   100
9
 5.56  0.9
 5.00 min

5
S tan dard time  5.56 min utes
( 1  0.10 )
Trainee 2 (worker rating 105%)

50
Normal time   100
9
 5.56  105
 5.83 min

5.83
S tan dard time  6.48 min utes
( 1  0.10 )

Comparison of Trainees

The following table will give us a comparative statement about the performance of the
trainees vis-à-vis the Engineer.

Engineer Trainee – I Trainee – II

Standard time (in minutes) 6.18 5.56 6.48

13.6 Summary
In this lesson, techniques such as work study, method study and work measurement
discussed were. The main objective of work study is to improve productivity of men, machines
and materials. The aim of work study is to determine the best method of performing each
operation and to eliminate wastage so that production increases with less fatigue. The role of
conducting work study is mainly to standardise the method of doing a work and standard time
214

for doing a task, Further conducting work study helps to eliminate unnecessary human
movements, Work study helps to choose the fastest method to do a job and ensure higher
productivity and better services to customers,

Method study is the technique of systematic recording and critical examination of existing
and proposed ways of doing work and developing an easier and economical method. Method
study is basically conducted to simplify the work or working methods and must go towards
higher productivity. The main objective to conduct method study is to standardize the method
abd improving the manufacturing processes and procedures. The basic procedure for conducting
method study is to select the work, Record and examine the facts critically using suitable tools
and techniques , examine the above facts and develop the most efficient and economic method.
Once the method is developed, it has to be installed and maintained .

Work measurement is a technique to establish the time required for a qualified worker to
carry out a specified job at a defined level of performance. The main objective of work
measurement is to determine the standard time required to complete a job and to eliminate the
non productive time. The different techniques used in work measurement are: Stop watch time
study, Production study, Work sampling or ratio delay study, Synthesis from standard data ,
Analytical estimating and Predetermined motion time system

13.7 Keywords
Method Study

Work Measurement

Work Study

13.8 Review Questions

1. Define Work Study.

2. What are the Objectives of work study?

3. Explain the basic procedure of Method study.

4. Discuss the various charts and diagrams used in method study

5. Discuss various techniques of work measurement.

6. Explain the procedure for conducting stop watch time study

7. Explain the method of synthesis from standard data.

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LESSON - 14
JOB SEQUENCING AND SCHEDULING
Learning Objectives

After studying this lesson, the learners must be able to

 Define job sequencing and scheduling

 List out characteristics of floor shop scheduling

 Know how to process n jobs through two machines

 Explain Johnson algorithm

 Discuss advantages of scheduling

Structure
14.1 Introduction

14.2 Characteristics of Floor Shop Scheduling

14.3 Johnson’s Algorithm

14.4 Processing N Jobs through Three Machines

14.5 Scheduling.-Definition

14.6 Use of Gantt Chart

14.7 Master Scheduling

14.8 Part Scheduling

14.9 Summary

14.10 Keywords

14.11 Review Questions

14.1 Introduction
In flow shop scheduling problems, there are n jobs each requires processing on m different
machines. In order in which the machines are required to process a job is called process sequence
of that job [A series in which a few tasks are performed by following an order in different machines
is called sequencing]. In such a situation, the effectiveness measure [time, cost, distance etc] is
216

a function of the order or sequence of performing a series of jobs. The processing for various
jobs on a machine may differ. If an operator is absent in a job, then, the processing time of the
operation of that job is assumed as zero.

14.2 Characteristics of Flow Shop Scheduling

The flow shop scheduling problem can be characterized as follows:

1. A set of multiple operation jobs is available for processing at time zero. [Each job
requires m operations and each operation requires a different machine].

2. Set-up times for the operations are sequence independent, and are included in
processing times.

3. Job descriptions are known well in advance.

4. m different machines are continuously available.

5. Each individual operation of jobs is processed till its completion without break.

14.3 Johnson's Algorithm

 The sequencing problem, with n jobs through two machines can be solved easily.
The procedure was developed by S.M. Johnson. The problem can be stated as
follows:

i) only two machines are involved, A & B

ii) Each job is processed in the order AB

iii) The exact of expected processing times A1, A2, ……..An, B1, B2……………Bn,
are known

A decision has to be arrived to find the minimum elapsed time from the start of the first job
to the completion of the last job. It has been established that the sequence that minimizes the
elapsed time are the same for both machines.

Step1:

Select the smallest processing time occurring in the list, A 1, A 2, ……..A n, B 1 ,

B2……………Bn. If there is a tie, break the tie arbitrarily.
 217

Step2:

If the minimum processing time is Ai do the ith job first. If it is Bj do the Jth job last. This
decision is applicable to both the machines A & B

Step 3:

Having selected a job to be ordered, there are now n – 1 jobs left which has to be
ordered in sequence. Remove the assigned job and apply the steps 1 and 2 until all positions
in sequence are filled. (Ties may be broken randomly).

Step 4:

Continue in this manner until all the jobs have been ordered. The resulting ordering will
minimize the elapsed time.

Example 1:

There are five jobs each of which must go through the two machines A and B in the
order AB processing times in hours are given in the table below.

Determine a sequence for the five jobs that will minimize elapsed time.

Solution:
Applying the algorithm, of Johnson we observe that the smallest processing time
is 2 hours for Job 2 on machine A. Hence Job 2 have to be scheduled first
218

The optimal squence is

The calculation of the elapsed time corresponding to the optimal ordering is carried out
suing the individual processing times given in the example. The working is given in the following
table

Thus the minimum elapsed time is 60 hours

Idle time for machine A is 4 Hrs [i.e. 60 – 56]

Idle time for machine B is 6 hrs

14.4 Processing in Jobs through Three Machines

Three machines A, B and C are involved in this method. The jobs are processed in the
order ABC. The optimal sequence in these problems are determined by S.M. Johnson’s method,
but before that the problem has to be converted into a “n” jobs through two machines problem.
If any one or both of the below conditions are satisfied then the n x 3 machines problem can be
converted into n x 2 machines problem.
 219

Conditions:

[Minimum processing time on machine A]  [Maximum processing time on Machine B]

[Minimum processing time on machine A]  [Maximum processing time on Machine B]

 When one or both of the conditions is satisfied, assume two imaginary machines X & Y
with processing time as defined below:

[Processing time on machine X] = [Processing time on machine A + Processing time on machine B]

[Processing time on machine Y] = [Processing time on machine B + Processing time on machine C]

Example 2 :
1. There are five jobs and each of which has to go through the machines A, B and C in
the order ABC processing times are given below.

Determine the sequence for the five jobs that will minimize the elapsed time T.
220

Solution:
 To convert this (n x 3 machines) problem to a (n x 2 machines) problem determine
the optimal sequence, for which any one or both of the following conditions should
be satisfied.

[Minimum processing time on machine A]  [Maximum processing time on machine B] 40  60

[Minimum processing time on machine C]  [Maximum processing time on machine B] 60  60

 Since condition 2 is satisfied, the problem can be converted in to (n x 2 machines)

problem for finding the optimal sequence.

 Hence let us assume two imaginary machines X & Y with processing time as defined
below

[Processing time on machine X] = [Processing time on machine A + Processing time on machine B]

[Processing time on machine Y] = [Processing time on machine B + Processing time on machine C]

 The smallest processing time occurs for jobs 3 in machine B. Hence job 3 is
scheduled as later as possible to the right has side of the display box.
 221

DISPLAY

 Now strike out the row 3

 In the remaining table the smallest processing time occurs for Job 1, job 4 and Job

5. Since there are ties, there are several optimal orderings.

 Any of these ordering may be used to sequence the jobs through machines A, B
and C.

To calculate elapsed time T:

 Now by using the optimal sequence and the processing time of various jobs on machines
A, B and C, the elapse time is calculated. The calculation of elapsed time is shown in
table
222

i. Minimum elapsed time = 510 minutes

ii. Idle time for machines A = [510 – 320] = 190 minutes

iii. Idle time for machines B = [40 +10+20++50+20+(510 – 340)] = 310 minutes

iv. Idle time for machines C = 90 minutes

Example 2 :
2. A machine shop has one shearing, one punching and one deburring operations are given
for each job. Determine the order in which the jobs are to be processed in order to
minimize the total time required to process all the jobs. Find the total time required to
process all the jobs and the idle time of each machines.
 223

The sequence is

To calculate elapse time

 Now by using the optimal sequence and the processing time of various jobs on
machine A, B and C the elapse time is calculated. The calculation of elapse time is
shown in table
224

Minimum lapse time = 500 minutes

Idle time of machine A = 500 – 250 = 250 minutes

Idle time of machine B = [20+10+40+(500 – 270) = 300 min

Idle time of machine C = 80 minutes

14.5 Scheduling
Scheduling can be defined as preparing a detailed schedule (time table) to allocate the
jobs for different machines. Scheduling is done to get the required output in time without any
delay.

Objectives of Scheduling
i) To deliver the goods to the customer in time.

ii) To make men, material and machine readily available for the production.

iii) To make maximum use of man power and machine capacity.

iv) To prevent overloading and underutilization of men and machines.

v) To keep minimum material in process.

vi) To help in controlling production activities.

Advantages of Scheduling
(i) Minimum Production Cost.

(ii) Less Investment on material in process.

(iii) Minimum of material storage cost (i.e) Cost of inventory would be minimum)

(iv) Customer satisfaction due to timely delivery of the goods as per the schedule.

(v) No overloading of men and machines.

(vi) No under utilization of men and machines.

(vii) Good control over production.

(viii) Good will of the company would be improved.

(ix) High level of job satisfaction for the employees.

 225

14.6 Use of Gantt Chart

Gantt Chart is first designed by Mr.Henri L.Gantt. Gantt chart is a graphical representation
of scheduling. Gantt charts can be prepared for

o Master scheduling

o Parts scheduling

o Machine load scheduling

Gantt chart for Master schedule gives a time table for the production of various products
for one year. Gantt chart for parts schedule gives a time table for the production of various parts
of product for a period of one month. Gantt Chart for machine loading schedule. The main aim
of Master schedule is to plan the products of the products to meet the demand in the market.

Master schedule is the first step in production planning. On the basis of master schedule,
different departments prepare their own plans. Part schedule is prepared from the master
schedule. A specimen of the master schedule in the form of Gantt Chart is shown in fig. This
Gantt chart gives the schedule for three different products. It shows the schedule for production
for 3 months. (IT can be prepared for one year also. In the chart, the planned output is shown
by hatched strip. The actual output is recorded by dotted strip. Different colours can be used.

The chart shows the actual output of the products at the end of February. Output of
product X is lesser than the planned output. The reason for shortfall was found to be break
down of machine. This is shown by letter D.Similar reasons for shortfall such as raw material
shortage, absence of operator, power failure etc. can be indicated by different letter symbols.
The actual output of product Y is slightly more than the planned output. The actual output of Z
is exactly equal to planned output gives a time table for the working of various machines for a
week. Gantt chart is also used for production control. It is also called as control chart.

14.7 Master Scheduling

 On the basis of sales forecast the production quantities of various products are
decided for a year.

 The product to be produced are given in terms of number of units (say 750 units of
gear box, 200 units of electric motor).
226

 A list of products to be produced in different months is prepared. This is called

Master schedule.

14.8 Part Scheduling

A product may consist of number of parts. These parts undergo different manufacturing
process before it outcomes as a finished product. A part schedule have to be prepared for
different parts for a month. A part schedule have to be prepared based on Master Schedule.
Parts schedule gives the quantity of various parts to be produced to assemble the products.
Parts Schedule gives the detail time table for production of different parts for a month. Parts
schedule also known a production schedule. A specimen of parts schedule in the form of Gantt
Chart is shown in the fig.

The chart gives the schedule for three different parts X1, X2, X3 of the product X. It shows
the schedule of the production period of one month. In the chart, the planned output is shown
by hatched strip. The actual output is recorded by dotted strip. Different colour can also be
used. The chart shows the actual output at the end of the third week of January output of X2 is
 227

less than the planned output. The reason for the shortfall is found to be power failure. This is
indicated by the letter P. The actual output of the parts X1 is exactly equal to the planned output.
The output of X3 is more than the planned output.

14.9 Summary
In this lesson concepts such as Job sequencing and scheduling are discussed. In flow
shop scheduling problems, there are n jobs each requires processing on m different machines.
In order in which the machines are required to process a job is called process sequence of that
job [A series in which a few tasks are performed by following an order in different machines is
called sequencing]. Job sequencing means sequencing of jobs based on smallest processing
time . If a j processing time of the job is minimum , then that job should be machined first ,
followed by other jobs which take next minimum processing time and so on jobs has to be
sequenced . In job sequencing Johnson algorithm is used for processing n jobs through two
machines , processing n jobs through three machines and processing n jobs through m machines

Scheduling of parts , machines and preparing master scheduling is very important for
production engineers .Scheduling can be defined as preparing a detailed schedule (time table)
to allocate the jobs for different machines. Scheduling is done to get the required output in time
without any delay. The main objective of scheduling is to utilize the resources effectively and to
deliver the goods to customers in time . Gantt chart designed by Mr.Henri L.Gantt is used for
preparing Master scheduling , Parts scheduling and Machine load scheduling. Gantt chart for
228

Master schedule gives a time table for the production of various products for one year. Gantt
chart for parts schedule gives a time table for the production of various parts of product for a
period of one month. Gantt Chart for machine loading schedule is the process of allocating
work load for various machines. It is a detailed time table for the working of various machines.

14.10 Keywords
Gantt Chart

Job sequencing

Scheduling

14.11 Review Questions

1. Seven Jobs are to be operated on machine M1 and M2 in that order. The time
duration in hours is given below.

Determine the sequence for minimum elapse time for completing all jobs.

2. There are six jobs, each of which must go through the two machines A and B in the
order AB processing time in hours are given in table.
 229

Determine the sequence for the six jobs which will minimize the elapse time and idle time.

3. State the rules to converter a ‘n’ jobs 3 machines problem to ‘n’ jobs – 2 machines
problem.

4. Find the sequence in which the 5 jobs are to be processed through 3 machines
given the processing times as below

Also computer the idle time of each machine.

230

5. Provide the optimal job sequence involving three machines in the order M1, M2, M3
for the following 5 jobs J1, J2, J3, J4, & J5.

6. Define scheduling

7. What are the objectives of scheduling?

8. What are the advantages of scheduling?

9. What are the uses of Gantt chart?

 231

LESSON - 15
QUALITY CONTROL
Learning Objectives

After studying this lesson, the learners must be able to

 Discuss the meaning of Inspection

 list the objectives of Inspection

 Differentiate inspection and Quality control

 Classify the types of Inspection

 Draw and explain Operating characteristic curve

 Distinguish control chart for variables and attributes

Structure
15.1 Introduction

15.2 Quality Control

15.3 Meaning of Inspection

15.4 Differences between Inspection and Quality Control

15.5 Types of Inspection

15.6 Acceptance Sampling

15.7 Operating Characteristic Curve

15.8 Control Chart for Variables and Attributes.

15.9 Summary

15.10 Keywords

15.11 Review Questions

15.1 Introduction
Quality of a product is defined as “its fitness for the use” for which it has been made.
Many characteristics of the product determine the quality. They are called Quality characteristics.
232

Some of the quality characteristics are size, shape, weight , strength, colour, hardness , surface
finish, reliability and appearance. In a manufacturing process , all the products will not be
exactly alike. Quality will vary from piece to piece. That is , there will be variation in the quality
characteristics of the products. The causes for these variations are found and analysed. Suitable
corrective actions are taken to minimize the variations with in certain limits. This is done to
maintain quality.

15.2 Quality Control

Quality control aims at prevention of producing defective products. For this , statistical
methods like sampling plans and control charts are used. In present days Quality control is
known as ‘Statistical Quality Control” (S.Q.C). Quality control consists of the following activities.

1. Fixing the Quality standards : Quality standards for incoming material, parts in the
manufacturing process and the finished products are fixed.

2.Evaluation of measurement of Quality : This is the inspection function. Here the quality
of incoming material, parts in the manufacturing process and the finished products are inspected.
Different inspection methods are used.

3.Comparing the measured quality with the standard quality.

4.Finding out the deviation or process variations.

5. Reasons for the variations that lead to defects are examined.

6.Taking corrective action to prevent process variation that leads to defective items.

15.3 Meaning of Inspection

Inspection is a function of quality control . It is the art of comparing the quality of materials,
product or performance with the standards fixed. That is , inspection finds out whether the
products manufactured are as per specifications. Inspection rejects bad products and accepts
good products.

Objectives of Inspection
 To find out and remove faulty material before it is machined. This is to avoid wastage
of material.
 233

 To remove defective products as soon as the defects occurs. This is to prevent

further working on the defective products.

 To discover defects for corrective action before thay become serious.

 To ensure that the defective products do not reach the customer.

 To earn goodwill of the customer.

 To ensure proper functioning of assembled products.

 To ensure safe working of the products.

 To locate defects in product design.

15.4 Differences between Inspection and Quality Control

S.NO INSPECTION QUALITY CONTROL

1 It is one of the functions of It is a system of Integrating quality

quality control development, quality maintenance and
quality improvement

2 It finds out whether the products It aims at production of quality products

manufactured are acceptable or not.

3 It is concerned with detection of It is concerned with prevention

defects of products already made. of defects

4 It does not deal with any It finds out the causes of poor quality. It
corrective action takes suitable corrective action

5 It does not control production It controls production process

process

15.5 Types of Inspection

The following types of inspection are generally done in Industries.
1. First piece (or) first off inspection.
2. Floor inspection – a) Stationary inspection
b) Roaming or Patrol inspection
3. Centralised inspection.
234

1. First piece (or) First off inspection

This inspection is used for products made in automatic and semiautomatic machines.
This inspection is done before starting the production run. After the machine is set up, the first
work piece is machined. The first piece is checked carefully. If the dimensions are correct then
the machine is handed over to the operator. Then the routine production is started. If the first
piece is defective , then the machine is reset. Only after a correct work piece is produced, the
machine is handed over to the operator. This type of inspection prevents production of defective
products. Thus wastage of material, time and effort is avoided.

2. Floor inspection

Inspection is done at the place of actual production (i.e) shop floor . The inspectors go to
the shop floor and carry out the inspection there. Inspectors may be stationed in a particular
location or moving around.

a) Stationary inspection

When the inspector is stationed at one place then it is called stationary inspection. This
type of inspection is done in an assembly line or production line. In mass production, product
layout is used. The material will move in a particular path. The path is called production line.
Inspection is done in the line itself in between two production processes ( Machines). By this
inspection, the defects in the product are found out before it goes to the next process. This
inspection removes defective pieces as and when the fault occurs. So further working on the
defective piece is avoided.

b) Patrol (or) Roaming inspection

When the inspector is moving around the shop floor and carry out the inspection then it
is called as patrol or roaming inspection. The inspector checks the work pieces as and when
they are being made. He stops the machine if the defective pieces are due to machine fault. He
arranges for resetting of machine. By this roaming inspection, the machines are not allowed to
go out of specification limits. As a result, defective products are not produced.

The inspection is preventive in nature. It helps worker to earn more incentive ; prevents
wastage of material, time and effort.
 235

Advantages of floor inspection

 The defects are found out then and there; corrective action is taken immediately.

 Suitable for heavy and light work pieces.

 Material handling is less. Therefore there is less chance of damage to work pieces.

 Production is not delayed as corrective action is taken immediately.

 Worker is satisfied because the inspection is done in his presence.

 Time is not wasted in transporting work piece to a central inspecting room.

 There is no possibility of mixing defective and good parts.

 Further checking and resetting of machine is possible.

Disadvantages of floor inspection

 The machine operators are disturbed.

 The inspectors may do inspection with a bias, as inspection is done in the presence
of operators.

 Finished products may pile up near the machine due to inspection delay.

 Precision and costly instruments cannot be brought to the shop floor for use.

 Maintenance of inspection records is difficult.

 Rejection of workpiece on the spot may create friction between workers and quality
control inspectors.

 Supervision of inspectors is difficult.

 Inspection of work is disturbed due to noise, vibration created in shop floor.

 Inspectors has to carry the tool kits to the place where inspection is carried out

3. Centralized inspection

This is also known as view room inspection or lab inspection. Inspection is done in
inspection booths located at convenient places. The products are brought to inspection booths
from the production centers. The products are inspected there and after inspection they are
sent back to the production centers. The inspection booths will be maintained at the required
temperature and humidity to maintain the accuracy and precison of measuring instruments.
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Advantages of centralized inspection

 The operators are not disturbed.

 The inspectors do inspection without bias.

 No piling of work pieces near the machine.

 Inspection will be accurate.

 Costly and precision instruments can be used.

 Maintenance of inspection record is easy.

 Rejection of workpiece will not create friction between workers and inspectors.

 Inspectors can be supervised easily.

 Inspectors become sophisticated in their work.

Disadvantages of centralized inspection

 Increased Material handling.

 More chance for occurrence of defects due to handling.

 Centralized inspection is costlier.

15.6 Acceptance Sampling

Acceptance sampling uses statistical sampling to determine whether to accept or reject
a production lot of material. It has been a common quality control technique used in industry. It
is usually done as products leaves the factory, or in some cases even within the factory. Most
often a producer supplies a consumer a number of items and a decision to accept or reject the
items is made by determining the number of defective items in a sample from the lot. The lot is
accepted if the number of defects falls below where the acceptance number or otherwise the lot
is rejected.

In general, acceptance sampling is employed when one or several of the following hold:[2]

 testing is destructive;

 the cost of 100% inspection is very high; and

 100% inspection takes too long.

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A wide variety of acceptance sampling plans are available. For example, multiple sampling
plans use more than two samples to reach a conclusion. A shorter examination period and
smaller sample sizes are features of this type of plan. Although the samples are taken at random,
the sampling procedure is still reliable.

Sampling provides one rational means of verification that a production lot conforms with
the requirements of technical specifications. 100% inspection does not guarantee 100%
compliance and is too time consuming and costly. Rather than evaluating all items, a specified
sample is taken, inspected or tested, and a decision is made about accepting or rejecting the
entire production lot.

Plans have known risks: an acceptable quality limit (AQL) and a rejectable quality level,
such as lot tolerance percent defective (LTDP), are part of the operating characteristic curve of
the sampling plan. These are primarily statistical risks and do not necessarily imply that defective
product is intentionally being made or accepted. Plans can have a known average outgoing
quality limit (AOQL).

15.7 Operating Characteristic Curve

The operating characteristic (OC) curve depicts the discriminatory power of an acceptance
sampling plan. The OC curve plots the probabilities of accepting a lot versus the fraction defective.
When the OC curve is plotted, the sampling risks are obvious. You should always examine the
OC curve before using a sampling plan. O.C. curves quantifies manufacturer’s (producer’s)
risk and consumer’s (purchaser’s) risk. This is a graph of the percentage defective in a lot
versus the probability that the sampling plan will accept a lot. Graph used in quality control to
determine the probability of accepting production lots when using different sampling schemes.
It shows percentage-defectives along the horizontal (‘X’), axis and probability of acceptance
along the vertical (‘Y’) axis. Lots having more than the acceptable percentage of defectives are
rejected.

An O.C. Curve drawn for sampling plan of n = 300 and C = 10 at Fig. 60.1 indicates the
following:
AQL = 0.02 or 2%
Manufacturer’s risk = 0.05
Consumer’s risk = 0.10
LTPD = 0.05 or more defectives.
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Figure: O.C. Curve indicating sampling risks.

All practical sampling plans have an operating characteristics curve, briefly called O.C.
curve.
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For example, you sample 52 pens from a shipment of 5000. If the actual % defective is
1.5%, you have a 0.957 probability of accepting this lot based on the sample and a 0.043
probability of rejecting it. If the actual % defective is 10%, you have a 0.097 probability of
accepting this lot and a 0.903 probability of rejecting it.
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Following points need emphasis regarding O.C. curves:

(i) There is some chance that good lots will be rejected.

(ii) There is some chance that bad lots will be rejected.

(iii) These risks can be calculated by the theory of probability and depends on the number of
samples inspected, the acceptance number, and the percent defectives in the lot offered
for sample inspection. Given the amount of risks which can be tolerated, a sampling plan
can be devised to meet these requirements.

(iv) The larger the sample used for inspection, the nearer the O.C. curve approaches the
ideal. However beyond a certain point, the added cost in inspecting a large number of
parts far exceeds the benefit derived.

In any acceptance sampling plan, three parameters are specified. The first parameter is
number of articles N in the lot from which sample is to be drawn. The second parameter is the
number of articles n in the random sample drawn from the lot, and the third is the acceptance
number C. This acceptance number C is the maximum allowable number of defective articles in
the sample. If more than C defectives are found in a sample the lot is liable to be rejected. Since
the lot size has little affect on the probability of acceptance, therefore lot size is generally
ignored in deriving a sampling plan.

15.8 Control chart for variables and attributes

 A control chart, invented by Walter A. Shewhart, is the most widely used tool in
statistical process control (SPC).

 A control chart is a graph that displays data taken over time and the variations of
this data.

 A histogram gives a static picture of process variability, whereas a control chart

illustrates the dynamic performance (i.e., performance over time) of the process.

 The control chart is based on a series of random samples taken at regular intervals.

 The general form of the control chart is shown in the previous page.

The chart consists of three horizontal lines that remain constant over time: a center a
lower control limit (LCL), and on upper control limit (UCL). The center is usually set at the
normal design value. The UCL and LCL are generally set at +3 standard deviations of the
sample means.
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If a sample drawn from the process lies inside these (UCL and LCL) limits, it means the
process is in control. On the other hand, if the sample lies outside these limits, then the
process is said to be out of control. So appropriate corrective action is necessary to eliminate
the condition.

Type of Control Charts

The two basic types of control charts are:

Control charts for variables* - for measurable data such as time, length, temperature,
weight, pressure, etc.

Control charts for characteristics*- for quantifiable data such as number of defects,
typing error in a report, etc.

When do we use it?

The purpose of a control is to identify when the process has gone out of statistical control,
thus signaling the need for some corrective action to be taken.

Procedure for constructing control charts

A detailed generic sequence for construction of control charts can be developed, which
can be useful when working with control charts in practice.

Step 1. Select the characteristic and type of control chart

First, the decision must be made regarding the characteristic (effect) of the process or
product that is to be checked or supervised for predictability in performance. Then the proper
type of control chart can be selected.

Step 2. Determine the sample size and sampling interval

Control charts are, in most cases, based on samples of a constant number of observations,
n. For continuous data, it is common to use two to six observations. However, there are also
charts for subgroup sizes of one, x (individual observation) chart and Rs (moving range) chart.
For discrete data, n could be as large as 100 or 200.
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Step 3. Calculate the control lines and center line

All control charts have control limits, UCL and LCL, showing when the process is affected
by special cause variation. A CL is drawn between the control limits. The distance from CL to
UCL/LCL is 3 standard deviations of the characteristic.

For example, for n individual observations,

the following formulae apply to the calculation of CL, UCL and LCL for the –x (average)
chart.

Here, A2 and d2 are the frequently used constants for control charts,. Table 4.1 contains
CL, UCL and LCL for the respective control charts.

Step 4. Draw the control chart and check for special causes

The control chart can now be drawn, with CL, UCL and LCL. The samples used for
calculating the control limits are then plotted on the chart to determine if the samples used to
calculate the control limits embody any special causes of variation. Special causes exist if any
of the following alarm rules apply:

• A single point falls outside the ± 3 s control limits.

• Two out of three consecutive points fall outside the ± 2 s ?limits.

• Seven or more consecutive points fall to one side of the center line.
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• Arun of eight or more consecutive points is up (in increasing trend), or down (in
decreasing trend).

• At least 10 out of 11 consecutive points are on one side of the center line.

• At least eight consecutive points make a cycle movement, which means if a point is
on one side of the center line, and the next point is on the other side of the center
line.

UCL and LCL for each control chart

There are various types of control charts, depending on the nature and quantity of the
characteristics we want to supervise. The following control charts are the most often used ones
depending on whether the data are continuous or discrete. These charts are called Shewhart
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control charts. Note that for continuous data, the two types of chart are simultaneously used in
the same way as a single control chart.

For continuous data (variables):

x -R (average and range) chart

x -s (average and standard deviation) chart

x - Rs (invididual observation and moving range) chart

For discrete data (attributes):
p (fraction of nonconforming items) chart
np (number of nonconforming items) chart
c (number of defects) chart
u (numbre of defects per unit) chart

15.9 Summary
In this lesson concepts like Quality, Quality control, Inspection, objectives of Inspection,
types of Inspection, Acceptance sampling, Operating characteristic curve, and control chart for
variables and attributes are discussed. Quality of a product is defined as “its fitness for the use”
for which it has been made. Many characteristics of the product determine the quality. They are
called Quality characteristics. Some of the quality characteristics are size, shape, weight, strength,
colour, hardness, surface finish, reliability and appearance. Quality control is the procedure that
is followed to achieve and maintain the required quality. Quality control aims at prevention of
producing defective products. For this , statistical methods like sampling plans and control
charts are used. In present days Quality control is known as ‘Statistical quality Control” (S.Q.C)

Quality control consists of the following activities. Fixing the Quality standards, Evaluation
of measurement of Quality, Comparing the measured quality with the standard quality, Finding
out the deviation or process variations, Reasons for the variations that lead to defects are
examined and Taking corrective action to prevent process variation that leads to defective
items. Inspection is a function of quality control . It is the art of comparing the quality of materials,
product or performance with the standards fixed. That is, inspection finds out whether the products
manufactured are as per specifications. Inspection rejects bad products and accepts good
products. The main objective of inspection is to find out and remove faulty material before it is
machined. This is to avoid wastage of material. The following types of inspection are generally
done in Industries. They are . First piece (or) first off inspection, Floor inspection – a) Stationary
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inspection and b) Roaming or Patrol inspection , and 3. . Centralised inspection . Acceptance

sampling uses statistical sampling to determine whether to accept or reject a production lot of
material. The operating characteristic (OC) curve depicts the discriminatory power of an
acceptance sampling plan. A control chart, invented by Walter A. Shewhart, is the most widely
used tool in statistical process control (SPC). A control chart is a graph that displays data taken
over time and the variations of this data. The control chart is based on a series of random
samples taken at regular intervals. The two basic types of control charts are: Control charts for
variables* - for measurable data such as time, length, temperature, weight, pressure, etc. Control
charts for characteristics*- for quantifiable data such as number of defects, typing error in a
report, etc. The purpose of a control is to identify when the process has gone out of statistical
control, thus signaling the need for some corrective action to be taken.A detailed generic
sequence for construction of control charts can be developed, which can be useful when working
with control charts in practice.

15.10 Keywords
Control charts

Acceptance sampling

Inspection

Quality Control

15.11 Review Questions

1. Define Quality.

2. What do you mean by Quality control ?

3. Define Inspection.

4. What are the objectives of Inspection ?

5. Differentiate inspection and Quality control.

6. Classify the types of Inspection.

7. Explain Acceptance sampling.

8. Draw and explain Operating characteristic curve.

9. Explain control chart for variables.

10. Explain control chart for attributes.

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LESSON - 16
SERVICE OPERATIONS MANAGEMENT
Learning Objectives

After studying this lesson, the learners must be able to

 Discuss services

 Explain the components of service management

 Classify the types of services

 Classify the types of service encounters

 Identify the factors to select the service location

 Design a service facility layout

 Know the meaning of service blueprinting

 Define service processes

 Classify the types of service process

Structure
16.1 Introduction to Services Management

16.2 Service Management

16.3 Components of Service Management

16.4 Features of Services

16.5 Types of Services

16.6 Service Encounter

16.7 Designing Service Organizations

16.8 Service Facility Location

16.9 Service Facility Layout

16.10 Service Blueprinting

16.11 Waiting Line Analysis for Service Improvement

16.12 Service Processes

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16.13 Service Delivery

16.14 Benefits of Service Management

16.15 Summary

16.16 Keywords

16.17 Review Questions

16.1 Introduction
In simple words, services are deeds, processes, and performances. But, the increasing
interest in the services sector has been accompanied by considerable disagreement and debate
as to what constitutes a service and whether service marketing is a distinctive subject area. In
order to develop clarity on service as a concept, it is desirable to look at the way various
researchers and scholars have defined it over the years. One of the first to define services was
the American Marketing Association which as early as in 1960 defined services as “activities,
benefits, or satisfactions which are offered for sale, or provided in connection with the sale of
goods”. This definition took a very limited view of services as it proposed that services are
offered only in connection with the sale of goods.

The other definition which was proposed in 1963 by Regan suggested that “services
represent either intangible yielding satisfactions directly (transportation, housing etc.), or
intangibles yielding satisfactions jointly when purchased either with commodities or other services
(credit, delivery, etc.)”. For the first time services were considered as pure intangibles - capable
of providing satisfaction to the customer and can be marketed like tangible products.

Robert Judd defined service as “a market transaction by an enterprise or entrepreneur

where the object of the market transaction is other than the transfer of ownership of a tangible
commodity”.

In 1973 Bessom proposed that “for the consumer , services are activities offered for sale
that provide valuable benefits or satisfactions; activities that he cannot perform for himself or
that he chooses not to perform for himself”.

Another definition given by Blois in 1974 says that, “a service is an activity offered for sale
which yields benefits and satisfactions without leading to a physical change in the form of a
good”.
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Stanton proposed a definition in 1974 and defined service as “Separately identifiable,

intangible activities which provide want satisfaction when marketed to consumers and/or industrial
users and which are not necessarily tied to the sale of a product or another service”

Philip Kotler defined services as “Any activity or benefit that one party can offer to another
that is essentially intangible and does not result in the ownership of anything”

Grönroos defined services as “A service is an activity or series of activities of a more or

less intangible nature that normally, but not necessarily, take place in interactions between the
customer and the service employees and/or physical resources or goods and/or systems of the
service provider, which are provided as solutions to customer problems”

We may conclude service as, “an activity or series of activities rather than things which
has some element of intangibility associated with it, which involves some interaction between
the customer and the service provider, and does not result in a transfer of ownership. Customer
has a vital role to play in the production process as the services are provided in response to the
problems of customers as solution. The production of the service may or may not be closely
associated with a physical product”.

16.2 Service Management

Service management in the manufacturing context, is integrated into supply chain
management as the intersection between the actual sales and the customer point of view. The
aim of high performance service management is to optimize the service-intensive supply chains,
which are usually more complex than the typical finished-goods supply chain. Most service-
intensive supply chains require larger inventories and tighter integration with field service and
third parties. They also must accommodate inconsistent and uncertain demand by establishing
more advanced information and product flows. Moreover, all processes must be coordinated
across numerous service locations with large numbers of parts and multiple levels in the supply
chain.

Among typical manufacturers, post-sale services (maintenance, repair and parts) account
for less than 20 percent of revenue. But among the most innovative companies in service,
those same activities often generate more than 50 percent of the profits.
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16.3 Components of Service Management

Generally, service management comprises six different capabilities that companies should
consider for optimization:

 Service strategy and service offerings

o Service strategy definition

o Service offerings definition & positioning

o Go-to-market strategy

o Service portfolio management

 Spare parts management

o Parts supply management

o Inventory management

o Parts demand management

o Fulfillment operations & logistics

o Service parts management

 Returns, repairs, and warranties

o Warranty & claims management

o Reverse logistics

o Returns processing

o Remanufacturing

 Field service management or field force effectiveness

o Technician enablement

o Mobility

o E-learning

o Activity scheduling

o Service billing

 Customer management
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o Order management & availability

o Channel & partner management

o Customer insight

o Technical documentation

 Assets, maintenance, task scheduling, event management

o Remote monitoring

o Diagnostics & testing

o Asset management/optimization

o Configuration management

16.4 Features of Services

The definition of service is “any intangible product, which is essentially a transaction and
is transferred from the buyer to the seller in exchange for some consideration (or no
consideration). Let us take a look at some of the characteristics of a service.

 Intangibility: A service is not a physical product that you can touch or see. A service can
be experienced by the buyer or the receiver. Also, you can not judge the quality of the
service before consumption.

 Inconsistency: There can be no perfect standardization of services. Even if the service

provider remains the same, the quality of the service may differ from time to time.

 Inseparability: One unique characteristic of services is that the service and the service
provider cannot be separated. Unlike with goods/products the manufacturing and the
consumption of services cannot be separated by storage.

 Storage: The production and consumption of services are not inseparable because storage
of services is not possible. Being an intangible transaction there can never be an inventory
of services.

 Perishability: Perishability refers to the fact that services cannot be saved, stored, resold,
or returned. Since services are deeds, Performances or acts whose production and
consumption takes place simultaneously, they tend to perish in the absence of consumption.
Goods can be stored and sold at a later date in the absence of a customer. Services, on
the other hand, go waste if they are not consumed. A seat on an airplane or in a restaurant,
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an hour of a professor’s time, or telephone line capacity not used cannot be reclaimed
and used or resold at a later time.

 No Transfer of Ownership: When we buy a product, we become its owner-be it a pen,

book, shirt, TV or Car. In the case of a service, we may pay for its use, but we never own
it. By buying a ticket one can see the evening film show in local cinema theatre; by paying
wages one can hire the services of a chauffeur who will drive his car; by paying the
required charges we can have a marketing research firm survey into the reasons for our
product’s poor sales performance, etc. In case of a service, the payment is not for purchase,
but only for the use or access to or for hire of items or facilities; and transfer of ownership
does not take place.

16.5 Types of Services

There are basically three types of classification of services.

1] Business Services

The first type of service is business services. The most basic definition would be services
that support the daily functioning and activity of any business but is not a commodity. Take for
example IT services. In this day and age, every business will require technological setup. The
people who provide IT support to a business are providing a service in exchange for consideration.

There are other similar services that any business enterprise may require for the smooth
functioning and management of its activities. Some such services are Banking, warehousing,
insurance, communication, transport etc.

2] Personal Services

Personal services are commercial activities that are provided to individuals according to
their individualistic needs. The service here is extremely personalised to the customer. So there
can be no uniformity in the services. The service provider will alter his service according to the
personal needs of each customer.

Some examples of personal services are catering, hotel and accommodation, medicine,
any kind of artistic endeavour (like painting, sculpting etc). As you will notice all these services
fulfil personal needs of the customers.
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3] Social Services

And when talking about types of services, we come to social services. These are essential
public services. They are provided by the government or other such non-profit organisations.
These services aim to achieve social equality in the society by providing the backward sections
with the help they need. The service is not provided for a profit motive but as a social cause.
Social services include services in the sector of education, sanitation, medical facilities, housing
etc

16.6 Service Encounter

The concept of service encounter was put forth by Richard Norman, taking the metaphor
from Bull Fighting. Most services are results of social acts, which take place in direct contact
between the customer and the service provider. At this stage the customer realizes the perceived
service quality. The encounter cascade refers to a series of encounters right from the time a
customer comes to take the service. The encounter cascade can be important as any encounter
can be critical, as it determines customer satisfaction and loyalty. If it’s the first interaction of the
customer then the initial interaction will be the first impression. So, these interactions have to be
given importance, as they are critical and influences customer’s perception of the organization.

It is suggested that not all encounters are equally important in building long-term relations.
For every organization, certain encounters can act as a key to customer satisfaction. For example,
in a hospital context, a study of patients revealed that encounters with the nursing staff were
more important in predicting the customer satisfaction.

Types of Service Encounters

A service encounter occurs every time a customer interacts with the service organization.
There are three general types of service encounters – remote encounters, phone encounters,
and face-to-face encounters. A customer may experience any of these types of service
encounters, or a combination of all three in his/her relations with a service firm.

1. Remote Encounter: Encounter can occur without any direct human contact is called as
Remote Encounters. Such as, when a customer interacts with a bank through the ATM
system, or with a mail-order service through automated dial-in ordering. Remote encounters
also occur when the firm sends its billing statements or communicates others types of
information to customers by mail. Although there is no direct human contact in these
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remote encounters, each represents an opportunity for a firm to reinforce or establish

perceptions in the customer. In remote encounter the tangible evidence of the service
and the quality of the technical process and system become the primary bases for judging
quality. Services are being delivered through technology, particularly with the advent of
Internet applications. Retail purchases, airline ticketing, repair and maintenance
troubleshooting, and package and shipment tracking are just a few examples of services
available via the Internet. All of these types of service encounters can be considered
remote encounters.

2. Phone Encounters:- In many organizations, the most frequent type of encounter between
a customer and the firm occurs over the telephone is called as phone encounter. Almost
all firms (whether goods manufacturers or service businesses) rely on phone encounters
in the form of customer-service, general inquiry, or order-taking functions. The judgment
of quality in phone encounters is different from remote encounters because there is greater
potential variability in the interaction. Tone of voice, employee knowledge, and
effectiveness/efficiency in handling customer issues become important criteria for judging
quality in these encounters.

3. Face-to-Face Encounters: A third type of encounter is the one that occurs between an
employee and a customer in direct contact is called as Face-to-Face Encounter. In a
hotel, face–to–face encounters occurs between customers and maintenance personnel,
receptionist, bellboy, food and beverage servers and others. Determining and
understanding service equality issues in face–to–face context is the most complex of all.
Both verbal and non-verbal behaviors are important determinants of quality, as are tangible
cues such as employee dress and other symbols of service (equipment’s, informational
brochures, physical settings). In face–to–face encounters the customer also play an
important role in creating quality service for herself through his/her own behavior during
the interaction. For example, at Disney theme parks, face-to-face encounters occur
between customer and ticket-takers, maintenance personnel, actors in Disney character
costumes, ride personnel, food and beverage servers, and others. For a company such
as, IBM, in a business-to-business setting direct encounters occur between the business
customers and salespeople, delivery personnel, maintenance representatives, and
professional consultants.
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16.7 Designing Service Organizations

A real design exercise involves the complex interactions of a variety of technical and
nontechnical factors that affect the quality of the design. In order to design a product, it is
important to employ a methodology that integrates the technical aspects of the design with the
marketing and management principles that are required to ensure the commercialization of the
product. Such a methodology is referred to as total design.
Step 1: To involve the customer in designing process.
Step 2: To determine the specifications of the design from these customers.
Step 3: To determine the technical aspects of the design from these customer as per the
specifications. The technology should be a derivative of the customers need and not the other
way around.
Step 4: To design the service using a multi-function team .
Step 5: To test the design in the marketplace, and not in the laboratory. A successful
design should not only be one that creatively applies the latest technology, but should also be
one that customers like, purchase, and use.

16.8 Service Facility Location

Facility location decision is a very important strategic decision for any kind of service
organizations. The facility location decisions are considered where service organization seek
for new sites or regions with sufficient demand from their existing low demand facilities. . Any
service organization first takes decision on locating a facility followed by the decisions on design
of the service and service delivery systems.

Facility Location decision can be seen at macro level and micro level. At macro level the
location decision is based on decision about in which country, region in the country within which
facility can be located . At micro level facility location decision is based on selection of sites
within a region , cost factor , availability of resources etc., To remain competitive service
organizations consider the following points while deciding about potential facility location.
 Create entry barriers
 Generate and manage demand
 Flexibility
 Competitive Positioning
 Focus
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Create entry barriers : Locate facilities in prime markets where competitors cannot enter.
It can be the most expensive area. Example : Locate hotels in near the airports.or near railway
stations or near educational institutions .

Generate and manage demand : Facility should be located so as to control quantity,

quality and timing of demand.

Some of the service facilities have fixed capacity like hotels (fixed number of rooms)
which cannot reduce the capacity during poor demand time periods. To have stable demand, so
that the capacity is efficiently utilized, locate the facility near a diverse set of market generators
that supply steady demand. Example: Locate service apartments near Universities or near
railway stations.

Flexibility : Facility location is one of the strategic and can be capital intensive decision
which cannot be changed frequently. At the same time the facilities are expected to be responsive
to future economic, demographic, social and competitive changes over a period of time. Flexibility
is the ability of any service organization to react to changing economic, market and environmental
changes. Example: Locating service facilities at multiple sites can reduce the risks of economic
downturn at some specific site. The losses at one site can offset by the good market conditions
at some other site.

Competitive positioning : Locate the facilities at strategically important sites. It may

help to create entry barriers and hence a preventive strategy to restrict the competition. Example:
Locate hotels near the beach or own a private beach like Taj Exotica

Focus : Catering to the needs and wants of some specific group of customers. Same ,
small and specific menu of services provided at multiple sites. Example : KFC, McDonald’s

Many factors go into facility location decision, which are given below

1. Customer based : Convenience & close proximity to the customers. for example
General grocery shops.

2. Cost based : Less operating costs for example Wholesale markets .

3. Competition based : Locate near the competition clusters as travel agents do

4. Support system based: Availability of support systems for example 24 hrs electricity
requirements for research labs
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5. Information and communication based : Fast & smooth communication with whole
world. For example Banks provide financial services

16.9 Service Facility Layout

Layout is the way or arrangement in which service facility is organized. The arrangement
could be of service facility area, equipment, workstations or any physical entity. ... It increases
the capacity of service facility and hence reduces the customer waiting and service time.

The major factors considered for service providers, is an impact of location on sales and
customer satisfaction. Customers usually look about how close a service facility is, particularly
if the process requires considerable customer contact. Hence, service facility layouts should
provide for easy entrance to these facilities from the freeways. Well-organized packing areas,
easily accessible facilities, well designed walkways and parking areas are some of the
requirements of service facility layout.

Service facility layout will be designed based on degree of customer contact and the
service needed by a customer. These service layouts follow conventional layouts as required.
For example, for car service station, product layout is adopted, where the activities for servicing
a car follows a sequence of operation irrespective of the type of car. Hospital service is the best
example for adaptation of process layout. Here, the service required for a customer will follow
an independent path. The layout of car servicing and hospital is shown in Figs.

Service layout for car servicing

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Layout for hospitality service

16.10 Service Blueprinting

Blueprinting is a technique that helps to understand the totality of a service as a process,
so that “fail points,” those stages of the service that have a high statistical probability of generating
problems, can be identified and properly understood. The blueprint is an objective, graphical
depiction of the service.

Service companies who wish to achieve high levels of service quality and customer
satisfaction need to understand all the factors which may influence customer perception.
‘Blueprinting’ or service process analysis is a concept which breaks down the basic systems
and structures of an organization in order to develop a greater understanding of the service
process. The approach requires the identification of all of the points of contact between the
customer and the service provider. Possible breakdowns in the service encounter can then be
identified. These can then be acted upon and improved, thereby improving service quality.

The key steps in preparing the service blueprint as follows:

1.To identify the activities involved in delivering the service and present these in a
diagrammatic form. The level of detail will depend on the Complexity and nature of the service.
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2.To identify the critical points. These are stages where things may go wrong. The corrective
measures at this stage must be determined, and systems and procedures should be developed
to reduce the occurring in the first instance.

3.To set standards against which the performance should be measured.

4.To analyze the profitability of the service delivered, in terms of the number of customers
served during a period of time.

16.4 Waiting Line Analysis for Service Improvement

The waiting line or queue management is a critical part of service industry. It deals with
issue of treatment of customers in sense reduce wait time and improvement of service. Queue
management deals with cases where the customer arrival is random; therefore, service rendered
to them is also random.

A service organization can reduce cost and thus improve profitability by efficient queue
management. A cost is associated with customer waiting in line and there is cost associated
with adding new counters to reduce service time. Queue management looks to address this
trade off and offer solutions to management.

Waiting in line is common phenomena in daily life, for example, banks have customers in
line to get service of teller, cars queue up for re-filling, workers line up to access machine to
complete their job. Therefore, management needs to work on formulae, which will reduce
wait time and create delighted customers without incurring an additional cost. Generally,
queue management problems are trade off’s situation between cost of time spent in waiting v/
s cost of additional capacity or machinery.

Finite and Infinite Population

In a waiting line scenario, there are cases of finite population of customers and infinite
population of customers.

A finite population scenario considers a fixed or limited size of customers visiting the
service counter. It also assumes that customer once served will leave the line thus reducing
overall population of customers. However finite population model also considers a scenario
where the customer after getting served will re-visit the service counter for re-service, leading
to increase in finite population.
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An infinite population theory looks at a scenario where subtractions and addition of customer
do not impact overall workability of the model.

Queuing System

To solve problems related to queue management it is important to understand

characteristics of the queue. Some common queue situations are waiting in line for service in
super-market or banks, waiting for results from computer and waiting in line for bus or commuter
rail. General premise of queue theory is that there are limited resources for a given population
of customers and addition of a new service line will increase the cost aspect to the business. A
typical queue system has the following:

Arrival Process: As the name suggests an arrival process look at different components
of customer arrival. Customer arrival could in single, batch or bulk, arrival as distribution of
time, arrival in finite population or infinite population.

Service Mechanism: this looks at available resources for customer service, queue
structure to avail the service and preemption of service. Underlining assumption here is that
service time of customers is independent of arrival to the queue.

Queue Characteristics: this looks at selection of customers from the queue for service.
Generally, customer selection is through first come first served method, random or last in first
out. As a result, customers leave if the queue is long, customer leave if they have waited too
long or switch to faster serving queue.

Service Configuration

Another aspect of waiting line management is the service configuration. There are four
types of service configuration, and they are as follows:

 Single Channel, Single Phase (e.g. ship yards and car wash)

 Single Channel, Multi Phase (e.g. bank tellers)

 Multi Channel, Single Phase (e.g. separate queue of man and women for single
ticket window)

 Multi Channel, Multi Phase (e.g. Laundromat, where option of several washers and
several dryers)
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16.12 Service Processes

Customers of service organization obtain benefits and satisfactions from the services
themselves and from how those services are delivered. The way in which service systems
operate is crucial. Service systems which operate efficiently and effectively can give marketing
management considerable marketing leverage and promotional advantage. It is clear that a
smooth running service operation offers competitive advantages, particularly where differentiation
between service products may be minimal.

In service systems the marketing implications of operational performance are so important

that the two functions have to co-operate. In services, marketing must be just as involved with
the operational aspects of performance as operations managers; that is, with the ‘how’ and the
‘process’ of service delivery.

The Service Process Defined

We can define the service process as the way in which a company works so that a
customer receives service. To standardize this in line with the company’s identity and aims,
managers will work on:

 Determining procedures which contribute to the process

 Allocating tasks and responsibilities

 Formulating effective schedules and routines

 Defining service mechanisms and process flows

The shape that the service process will assume will depend on two primary factors:

 The type of service process

 The degree of customer contact

Types of Service Process

There are three broad types of service process namely:

 Line operations

 Job shop operations

 Intermittent operations
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1. Line operations

Line operations progress in a linear fashion. Thus, the client passes through a sequential
experience beginning at point A, when they first enter the store or contact the business. Now,
service delivery passes through a number of processes before finalizing the transaction.

Although this is perhaps the simplest of the service processes to understand, it has several
drawbacks. If one element in the linear operation is flawed or bottlenecked, the client will judge
the service as a whole based on this weak area.

It’s also not a service process that allows for much flexibility. That does make controlling
it easier, but it would only suit a standard offering that implements repetitive processes with little
or no variation. This type of service process is the easiest to automate because it is so
standardized. Every customer has a similar customer experience, and the service process
does not vary.

2. Job Shop Operations

This type of service model provides customer satisfaction by tailoring the service to the
client’s needs. For example, a professional organization such as a law firm or a bespoke service
such as that which a carpenter may provide is only open to a limited level of standardization.
Each client’s needs will vary to some degree, and the service process must, therefore, vary
accordingly. Being able to offer flexibility makes this model attractive, but it can complicate
scheduling and workflows.

3. Intermittent Operations

Some service projects are unique and seldom repeated. For example, construction projects
or branding initiatives would fall under this category. In most instances, the projects themselves
are of a relatively large scale. They will involve bringing together several elements so that they
can work harmoniously.

Planning will be key, and managers would evaluate each project independently in order to
determine what process flows would contribute to the final result: providing the desired service
to its clients. Critical path analysis is often used in this context.
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Degree of Contact

Managing service operations with a high level of customer contact with the service delivery
process presents different challenges compared with those systems where there is a low level
of customer contact. The human element of contact with the client influences the complexity
and variability of the service process. When there is little customer contact, it is easier to adopt
a linear approach. However, high contact service processes will require greater flexibility, and
managers and operational staff can expect a degree of disruption. These kinds of systems
(high contact or low contact) have an effect upon service operations and have implications for
managers of service systems. Some of these are

(a) High contact systems are more difficult to control since the customer can make an
input to the process or even disrupt the process;

(b) In high contact systems the customer can affect the timing of demand and it is more
difficult to balance the capacity of the system to meet demands placed upon it;

(c) Workers in high contact systems can have a great influence upon the customers’ view
of the service provided;

(d) In high contact systems production scheduling is more difficult;

(e) It may be more difficult to rationalize high contact systems (e.g. by substituting
technology);

(f) It may be beneficial to separate high contact and low contact elements of a service
system and encourage staff specialization in these different functions because of the varying
skills required.

In high contact service processes, clients will:

 Expect some input into the business processes that affect the service

· Expect similar service levels regardless of current demand

 Judge the quality of the business based on their experience of the people with
whom they interacted
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High contact systems are the most demanding for businesses to manage effectively
because:

 Scheduling becomes more complicated

 The processes can be difficult to standardize or automate

 They may need to coordinate low and high contact service systems simultaneously

Developing and Maintaining the Service Process

Developing a service process may sound easy. After all, you merely need to map the
process that employees will follow when serving their clients. A low contact, linear service would
be the easiest to map. For example, when entering a self-service restaurant, clients would
collect a tray at the door, collect a plate and eating utensils, select the foods they want, and
proceed to the checkout. Or, it can also be extremely complex, with multiple, completely different,
interactions with the client throughout the lifetime of the relationship. Mapping every step of
interaction with the customer using a workflow diagram can be extremely helpful in designing
the right service process.

16.13 Service Delivery

A service delivery framework (SDF) is a set of principles, standards, policies and
constraints to be used to guide the designs, development, deployment, operation and retirement
of services delivered by a service provider with a view to offering a consistent service experience
to a specific user community in a specific business context. An SDF is the context in which a
service provider’s capabilities are arranged into services.

The term service delivery framework (SDF) has been used interchangeably with the
term service delivery platform (SDP), which is a set of technology components that provide
capabilities. An SDF governs and guides the use of SDP capabilities.

The four key elements for successful service delivery system are service culture, service
quality, employee engagement and customer experience.

Delivering excellent service

Running a successful service company should be synonymous with delivering excelling

service. If not, then why consider running a service business at all? Yet, if all companies which
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perform services effectively compete on providing the service, then the key differentiator lies in
the service management model and the ability to execute it. Designing the service delivery
system should focus on what creates value to the core organisations and how to engage frontline
employees to deliver the ultimate customer experience.

The four key elements in such a system are:

1. Service Culture is built on elements of leadership principles, norms, work habits and
vision, mission and values. Culture is the set of overriding principles according to which
management controls, maintains and develops the social process that manifests itself as
delivery of service and gives value to customers. Once a superior service delivery system
and a realistic service concept have been established, there is no other component so
fundamental to the long-term success of a service organization as its culture.

2. Employee Engagement includes employee attitude activities, purpose driven leadership

and HR processes. Even the best designed processes and systems will only be effective
if carried out by people with higher engagement. Engagement is the moderator between
the design and the execution of the service excellence model.

3. Service Quality includes strategies, processes and performance management systems.

The strategy and process design is fundamental to the design of the overall service
management model. Helping the client fulfil their mission and supporting them in the
pursuit of their organizational purpose, must be the foundation of any service provider
partnership.

4. Customer Experience includes elements of customer intelligence, account management

and continuous improvements. Perception is king and constantly evaluating how how
both customer and end-user perceive service delivery is important for continuous
collaboration. Successful service delivery works on the basis that the customer is a part
of the creation and delivery of the service and then designs processes built on that
philosophy – this is called co-creation.

16.14 Benefits of Service Management

The main drivers for a company to establish or optimize its service management practices
are varied:

 High service costs can be reduced, i.e. by integrating the service and products
supply chain.
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 Inventory levels of service parts can be reduced and therefore reduce total inventory
costs.

 Customer service or parts/service quality can be optimized.

 Increasing service revenue.

 Reduce obsolescence costs of service parts through improved forecasting.

 Improve customer satisfaction levels.

 Reduce expediting costs - with optimized service parts inventory, there is no need
to rush orders to customers.

· Minimize technician visits - if they have the right part in hand, they can fix the problem
on the first visit.

16.15 Summary
It is now obvious that most economies, the world over, are increasingly becoming service
economies and, therefore, there is a need to manage services in the best possible way. Services
are activities which are intangible in nature, therefore, standardization is one of the major issues
in services. Also, services are typically delivered by employees of the service providers, therefore,
there is also a need to manage the human resources. In addition, unlike in the manufacturing
sector where production, distribution and consumption are separate activities, in service sector
these three are simultaneous processes. In fact services are so varied and diverse that one
needs to classify them to identify selected areas which need to be managed strategically.

16.16 Keywords
Semicas

Blue Print

Service encounter

Facility Layout
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16.17 Review Questions

1. Explain service management in detail with examples.

2. Discuss the components of service management.

3. List the types of service industries.

4. Discuss the features of services.

5. Classify and explain various types of services.

6. What do you mean by service encounter?

7. Discuss the steps in designing service organizations.

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Model Question Paper

MBA Degree Examination
Second Year – Third Semester
Paper - XIII
OPERATIONS MANAGEMENT
Time : 3 Hours Maximum : 80 Marks

SECTION - A

Answer any TEN out of TWELVE Questions (10 x 2 = 20 Marks)

1. Define Quality.

2. What is Plant Location ?

3. What is Plant Layout ?

4. What are services ?

5. Define Scheduling.

6. What do you mean by Service encounter ?

7. Define Material handling

8. Define Job design.

9. What are the reasons for replacement of existing facilities to new location?

10. What do you mean by Material requirement planning ?

11. What is plant maintenance ?

12. What are the causes of breakdown maintenance ?

SECTION - B

Answer any FIVE out of Seven Questions ( 5 x 6 = 30 Marks)

13. Discuss the role of ergonomics in Job design.

14. Discuss the various stages in facilities location decisions.

15. Discuss the need for Capacity planning.

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16. Define supply chain. What are the objectives of supply chain.

17. Explain various types of plant maintenance.

18. What are the causes of breakdown maintenance ?

19. Discuss various techniques of work measurement.

SECTION - C

Answer any THREE out of FIVE questions (3 x 10 = 30 Marks)

20. Find the optimal job sequence involving three machines in the order M1, M2, M3 for the
following 5 jobs J1, J2, J3, J4, & J5.

21. Annual demand for an item is 8000 units ordering cost is Rs. 400 per order. Inventory
carrying cost is 20% of the purchase price per unit per year. The price breaks are as
shown below:
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i) Find the optimal order size

ii) If the order cost is changed to Rs. 350 per order, find the optimal order size.

22. An XYZ company intends to select one of the three locations – both tangible and intangible
factors collected by the expert is given below

Using ROI method select the best site

23. Explain the concept of JIT System.

24. Discuss the steps in Method Study.