PRODUCTION MANAGEMENT

Unit - I

Production function – an Introduction – Definitions and types of

production systems. Strategic Management – corporate strategies,
production strategies, World class manufacturing, demand forecasting
for Operations.

PRODUCTION MANAGEMENT

Definition:

“Production Management is the process of effective planning and regulating

the operations of that section of an enterprise which is responsible for the
actual transformation of materials into finished products.

OBJECTIVES OF PRODUCTION MANAGEMENT

1. Right Quality

2. Right Quantity

3. Predetermined time

4. Pre-established cost (Manufacturing cost)

1. Right Quality:

The quality of the product is established based upon the customers’ needs.
Customer’s needs are translated in to product specifications by the design or
engineering department. The manufacturing department then translates these
specifications in to measurable objectives.

Thus the cost quality trade off decides the final quality of the product. Thus a
proper balance must be obtained such that the product quality offered to the
customer should be within the pre-established manufacturing cost.

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2. Right Quantity:

The manufacturing organisation should produce the products at the right

number.

If the products are produced in quantity excess of demand the capital will
block up in the form of inventory and if it is produced in quantity short of
demand, there will be shortages of products. Thus a decision is to be taken
regarding how much to produce. (Right quantity)

3. Manufacturing Costs:

Manufacturing costs are established before the product is actually

manufactured. The manufacturing department has to manufacture the
products at the pre-established cost. In any case, any variation between the
actual costs and the standard (pre established) should be kept at minimum.

4. Manufacturing Schedule:

Timeliness of delivery (schedule) is one of the important parameter to judge

the effectiveness of production department. There are many reasons like non-
availability of materials at right time, absenteeism, machine break down etc.
Which affect the timely completion of the products. So the manufacturing
department should organize its activities in such a way that the products will
be manufactured as per schedule.

Intermediate Objectives:

1. Machinery and Equipment’s:

The objective concerned to these areas is that the machine and equipment
should be such that they should be able to produce the products as per the
specifications and accuracy required. The total cost of procurement and
running cost should be minimum. Once the machines are procured and put to
productive use, then the next objective is to utilize these resources to the
maximum extent.

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2. Materials:

The materials should be made available when required as per the

specifications (shape, size, quality etc.) and at the most economical price. The
production department should aim at maximum utilisation of the material
with minimum wastage and scrap.

3. Manpower

Manpower is an important resource or input to production and the success of

production depends to a greater degree upon the type of manpower an
organisation possesses. Thus, there should be a perfect matching between the
workers & jobs and the manufacturing department climate should be such
that the potential skills and energies of the workers should be channelized in
to constructive outputs. The objectives are set with respect to productivity per
worker labour turnover rate, safety and industrial relations etc.

4. Supporting Services:

This helps indirectly to achieve the other objectives and adequate provision of
the services helps to utilize other inputs effectively. The objectives should be
set for each of the services like water steam, power, material handling, etc.
Thus intermediate objectives are supporting to the primary objectives. The
achievement of these objectives helps the company to satisfy the customer
needs and increase the market share resulting in increased profitability.

FUNCTIONS OF PRODUCTION MANAGEMENT

1. Selection of Product and Design

Production management first selects the right product for production. Then it
selects the right design for the product. Care must be taken while selecting the
product and design because the survival and success of the company depend
on it. The product must be selected only after detailed evaluation of all the
other alternative products. After selecting the right product, the right design
must be selected. The design must be according to the customers'
requirements. It must give the customers maximum value at the lowest cost.

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So, production management must use techniques such as value engineering
and value analysis.

2. Selection of Production Process

Production management must select the right production process. They must
decide about the type of technology, machines, material handling system, etc.

3. Selecting Right Production Capacity

Production management must select the right production capacity to match

the demand for the product. This is because more or less capacity will create
problems. The production manager must plan the capacity for both short and
long term's production. He must use break-even analysis for capacity
planning.

4. Production Planning

Production management includes production planning. Here, the production

manager decides about the routing and scheduling.

Routing means deciding the path of work and the sequence of operations. The
main objective of routing is to find out the best and most economical sequence
of operations to be followed in the manufacturing process. Routing ensures a
smooth flow of work.

Scheduling means to decide when to start and when to complete a particular

production activity.

5. Production Control

Production management also includes production control. The manager has to

monitor and control the production. He has to find out whether the actual
production is done as per plans or not. He has to compare actual production
with the plans and finds out the deviations. He then takes necessary steps to
correct these deviations.

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6. Quality and Cost Control

Production management also includes quality and cost control. Quality and
Cost Control are given a lot of importance in today's competitive world.
Customers all over the world want good-quality products at cheapest prices.
To satisfy this demand of consumers, the production manager must
continuously improve the quality of his products. Along with this, he must also
take essential steps to reduce the cost of his products.

7. Inventory Control

Production management also includes inventory control. The production

manager must monitor the level of inventories. There must be neither over
stocking nor under stocking of inventories.

If there is an overstocking, then the working capital will be blocked, and the
materials may be spoiled, wasted or misused.

If there is an understocking, then production will not take place as per

schedule, and deliveries will be affected.

8. Maintenance and Replacement of Machines

Production management ensures proper maintenance and replacement of

machines and equipments. The production manager must have an efficient
system for continuous inspection (routine checks), cleaning, oiling,
maintenance and replacement of machines, equipments, spare parts, etc. This
prevents breakdown of machines and avoids production halts.

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SCOPE OF PRODUCTION MANAGEMENT

1. Facility location: It involves selecting the right location for setting up

production facilities of business that affects its long term growth. This is an
important decision to be taken as it involves long term commitment and huge
investments in land, building and machinery. Location of facility should be
appropriate from where raw materials, labor and other factors of production
are easily accessible by business.

2. Plant layout and Material Handling: Plant layout is concerned with

physical arrangement of facilities set up by business. It involves deciding
departments, work Centre’s, machines and necessary equipment’s within the
facility for ensuring better productivity. Material handling refers to managing
the movement of materials from storeroom to machinery and from machinery
to another stage of production like packaging and storing.

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3. Product Designing: Product designing means giving shapes to ideas of
products for converting them into a reality. Every organization should come
up with innovative products in market after conceiving new ideas based on
market requirements.

4. Designing of Process: Process design is an overall route followed by

business for transforming raw materials into finished products. It is a crucial
decision to be taken as it determines the efficiency of business. It involves
choosing appropriate technology, deciding sequence of production processes
and facilities layout.

5. Production Planning and Control (PPC): It involves planning and

controlling various aspects of production activities. PPC is a process of
deciding production in advance, setting up the exact route for each item,
deciding the start and finish deadline of each product for directing production
orders to shops and following product progress in accordance with the order.

6. Quality Control: Quality control is a process of checking and maintaining

the required quality standards of production activities within the
organization. It ensures that goods produced are of high quality by setting up
check points and measuring performance from time to time.

7. Maintenance management: It refers to evaluation of all business activities

for identifying any deviations if there. Maintenance management involves
taking all corrective steps for removing these deviations. It focuses on keeping
all the processes on track in line with decided quality, pre-determined cost
schedule and time range. Taking care of all machinery repairs, replacement
and servicing are included in this.

IMPORTANCE OF PRODUCTION MANAGEMENT

1. The accomplishment of firm’s objectives:

Production management helps the business firm to achieve all its objectives. It
produces products, which satisfy the customers’ needs and wants. So, the firm
will increase its sales. This will help it to achieve its objectives.

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2. Reputation, Goodwill and Image:
Production management helps the firm to satisfy its customers. This increases
the firm’s reputation, goodwill, and image. A good image helps the firm to
expand and grow.

3. Helps to introduce new products:

Production management helps to introduce new products in the market. It
conducts research and development (R&D).
This helps the firm to develop newer and better quality products. These
products are successful in the market because they give full satisfaction to the
customers.

4. Supports other functional areas:

Production management supports other functional areas in an organization,
such as marketing, finance, and personnel. The marketing department will
find it easier to sell good-quality products, and the finance department will get
more funds due to an increase in sales.
It will also get more loans and share capital for expansion and modernization.
The personnel department will be able to manage the human resources
effectively due to the better performance of the production department.

5. Helps to face competition:

Production management helps the firm to face competition in the market. This
is because production management produces products of the right quantity,
right quality, right price, and at the right time.
These products are delivered to the customers as per their requirements.

6. Optimum utilization of resources:

Production management facilitates the optimum utilization of resources such
as manpower, machines, etc. So, the firm can meet its capacity utilization
objective. This will bring higher returns to the organization.

7. Minimizes cost of production:

Production management helps to minimize the cost of production. It tries to
maximize the output and minimize the inputs. This helps the firm to achieve
its cost reduction and efficiency objectives.

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8. Expansion of the firm:
The Production management helps the firm to expand and grow. This is
because it tries to improve quality and reduce costs. This helps the firm to
earn higher profits. These profits help the firm to expand and grow.

PROBLEMS OF PRODUCTION MANAGEMENT

1) Problem of Location of the Plant: The first and foremost problem of

production planning is to take decision about the location of the plant and
system. There may be more than one possible location out of which the best
would have to be chosen taking into account various factors like nearness of
market, nature and sources of raw material, comparative transportation costs,
availability of manpower and motive power, banking and transport facilities
etc. Cost and service factors should be well considered.

2) Problem of Plant Layout: The next problem is that of plant layout. For this
purpose, management should design the operation and equipment in such a
way that may reduce the overall material handling cost or meet the needs of
the more complicated criterion. Many detailed problems are connected with
each other so as to specify sufficiently the layout of production system. These
problems include heating, lighting and other utility needs. The allocation of
storing space and the design of the building to accommodate the layout etc.

3) Problem of Product Designing: The selection of the design of the product

is another problem of the production management. Any change in the design
of the product will affect the design of the plant and its layout that may be
costly and complex for the enterprise. So, the design problem should be
considered in advance.

4) Problem of Inventory and Production Control: The problem of

inventory and finished stock control is also very important for the proper flow
of production process. For inventory control, decisions regarding Economic
Order Quantity (EOQ), reorder level and ABC technique of inventory control
are to be taken with a view to maintain the process of production and to have
a minimum possible investment in raw materials.

5) Problem of Quality Control: It should be borne by the production

management in mind that the quality of the product should be is consistent

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with what is required by the customers. The quality of the product must be
controlled as per specification set out by the management and already
approved by the customers. Compromise in this regard should not be allowed.
For this purpose, product inspection, statistical quality control techniques
should be followed.

6) Problem of Labor Control: Controlling the labor force is also one of the
problems in production because it is a major cost-element especially in
services. So, production planning needs labor appraisal and so much effort are
needed to develop work measurement and wage payment systems.

7) Problems of Cost Control and Improvement: The aim of the production

management is to achieve the maximum production at a minimum cost. In
order to accomplish this objective, management has to take various decisions
controlling the wastages of material and labor by maintaining a fair balance
between labor, material and overhead costs.

PRODUCTION SYSTEM

Definition:

Production system may be defined as, "The methods, procedure or

arrangement which includes all functions required to accumulate (gather) the
inputs, process or reprocess the inputs, and deliver the marketable output
(goods)."

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PRODUCTION SYSTEM MODEL

1. Inputs
2. Transformation Process, and
3. Outputs

[Link]:

i) Planning: This involves forecasting, identification of alternatives and

preparation of corporate plans. The common managerial aids used are
forecasting models, decision tree, games theory, economic evaluation, and use
of computers.
ii) Manpower: This involves recruitment and training and their retention
through adequate motivation involving proper merit rating, realistic wages,
and effective administration.
iii) Materials: This involves effective material management organization, to
create conditions to generate adequate motivation and to design necessary
vendor rating and development schemes. It also involves functions such as
inventory control, purchasing, and storekeeping.

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iv) Machinery: The main consideration here is the proper selection of
machinery in order to have cost effective capital investment. Some of the
methods employed are cost benefit analysis, BE analysis, economic evaluation
and replacement analysis.
v) Money: Several managerial tools are available to carry out economic
evaluation of an investment. Some of these are - DCF, NPV, pay-back, portfolio
management, capital rationing, return on investment (ROI) analysis,
profitability index (PI) analysis, risk analysis, leverage analysis, cost benefit
analysis and ratio analysis.
vi) Technology: This important input involves acquisition, upgradation,
adaptation and improvement of technology. The R & D and engineering
division of an organization are also directly involved in this. The techniques
used are technology forecasting (TF) and product life cycle (PLC) analysis. Its
importance has given rise to the development of a separate discipline called
management of technology (MOT).
vii) Time: This is another important input to production management. Time
of delivery, operating tie, cycle time, slack time, allowed time, scheduled time
and rest time are important parameters. viii) Organization: This has a direct
impact on the efficiency of the processor and hence the output because the
philosophy and structure of an organization influence the working
environment, authority-relationship, shop floor ethos, philosophy, and
working-culture of the enterprise etc.
ix) Government Interaction: The activities of an enterprise and its outputs
are directly influenced by the government policies stipulated by various Acts
and Rules. It is also influenced by policies, political philosophy and
expectation of the Government in power. This in turn interacts and moulds
public opinion and social environment of the enterprise.
2) Transformation/Conversion Process:
i) Product-mix: The primary concern of the processor is the product-mix.
Decisions on product-mix are influenced by the market potential,
infrastructure availability and competition. The next step is the optimum
capacity utilization of the product-mix. The managerial tools generally used in
this field are market research, make or buy decision brainstorming, BE
analysis, OR techniques like LP and computer application.
ii) Plant: The conversion of resources into products takes place in a plant. The
important factors here are plant location, building and services, plant layout

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(viz. product, process or GT). Plant facilities like CAD/CAM, manual, semi-
automatic or fully automatic facilities, plant maintenance, housekeeping and
safety.
iii) Materials Handling Equipment: Selection, layout, Accounting, and
replacement are some of the activities, which come under this head.

iv) Labor Cost: Here two aspects are important, viz. number of workers and
cost of labour. Method study, work measurement ergonomies incentives, and
training are some of the managerial techniques used here

v) Production Cost: Production cost depends on the cost of production and

overhead. Cost of production depends on the product, technology, production
cycle, and delivery terms. Overhead depends on many factors like fixed cost,
supervision and other infrastructure. Tight control on production cycle and
delivery schedule optimizes production cost. Effective PPC is the essential
managerial technique used here.

vi) Material Cost: This is a major factor in production. It is estimated that

nearly 60% of the cost of production is due to the cost of material. The sources
of supplies, substitution, vendor selection and development, indigenization,
standardization, etc., are some of the major activities here.

3) Outputs: Output in the form of product/goods or services is the ultimate

objective of an industrial enterprise. The survival and success of an enterprise
depends entirely on its ability to produce the desired output. Some factors
which influence output are:

i) Price

m) Delivery

iii) Quality

iv) Profitability

4) Feedback Analysis: It is essential to ensure that the 'actual output

conforms with the planned output'. More often than not these two differ. It
may be owing to three factors, viz. objectives, constraints, and criteria of

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measurement Information about the differences between the desired output
and the actual output, are fed back to the management for taking corrective
measures. The common techniques applied for this are management
information system (MIS), special reports, milestones charts and PERT/CPM
charts. Managerial techniques like systems analysis and use of EDP are some
other tools.

5) Control: Based on the intelligence obtained, control is applied to the input

and processor wherever deviation is significant. The various techniques
applied here are:

i) Production planning and control

ii) Quality assurance and quality control

iii) Inventory control

iv) Maintenance control

v) Cost control

vi) Project control

Problems associated with production system can be divided into two types:

i) Long-Term Problems: These problems of system include selection of

production process, production design, plant location and layout, etc.

ii) Short-Term Problems: These problems can be inventory and production

control, quality, control, labor administration, cost control, etc.

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TYPES OF PRODUCTION SYSTEM:

1. Intermittent production system:

Intermittent means something that starts and stops at irregular intervals

(time intervals). In the intermittent production system, goods are produced
according to customer orders. These products are produced on a small scale.
The production flow is intermittent (irregular). In other words, the
production flows are not continuous.

In this types of production system, large varieties of products are produced.

These products are of different sizes. The design of these products keeps
changing. It keeps changing based on product design and size. Therefore, this
system is very flexible.

i. Project production flows:

Here, in the project’s production flows, the company accepts a single complex
order or contract. The order must be completed within a certain period of
time and at an estimated cost. Consider making a boat. Such products are
never manufactured in large quantities. Labor, facilities and other resources

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focus on these products. Therefore, each product can be treated as a project,
which requires the sequencing of certain activities, either in series or
simultaneously. PERT/CPM or network analysis is a useful technique to plan
and control such projects.

Examples of project production flows mainly include the construction of

airports, roads, buildings, shipbuilding, dams, etc.

ii. Jobbing production flows:

In the job production flows, the company accepts a contract to produce one or
a few units of a product strictly according to the specifications given by the
customer. The product is produced within a certain period and at a fixed cost.
This cost is fixed at the time of signing the contract.

Examples of such job production flows include services provided by clothing

workshops, repair shops, manufacturers of special machine tools, etc.

iii. Batch production flows:

In batch production flows, the production schedule is decided according to

specific orders or is based on demand forecasts. Here, the production of items
takes place in lots or lots. A product is divided into different jobs. All jobs in a
production batch must be completed before starting the next production
batch.

Examples of batch production flows include, manufacture of drugs and

pharmaceuticals, medium and heavy machinery, etc.

2. Continuous production system:

Continuous means something that operates constantly without irregularities

or frequent stops. In the continuous production system, goods are constantly
produced according to the demand forecast. The goods are produced on a
large scale for storage and sale. They are not produced at the customer’s
request. Here, the inputs and outputs are standardized together with the
production process and the sequence.

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1. Mass production flows:

Here, the company produces different types of large-scale products and stores
them in warehouses until they are demanded in the market. Products are
produced with the help of a single operation or use a series of operations.

E.g. Mass production is the production of toothpaste, soaps, pens, etc.

2. Production processes:

Here, a single product is produced and stored in warehouses until it is

demanded in the market. The flexibility of these plants is almost nil because
only one product can be produced.

Examples of production process flows include steel, cement, paper, sugar, etc.

CORPORATE STRATEGY

Definition :

The overall scope and direction of a corporation and the way in which its
various business operations work together to achieve particular goals.

TYPES OF CORPORATE STRATEGY

1. Expansion/growth strategies
These are pursued basically to accelerate the pace of growth of an
organisation. Most organisations chase expansion in order to exploit market
opportunities. Expansion helps a firm dominate the market and gain control
over competition. Organisational resources can be put to good use. Expansion
strategies are also known as growth strategies.

2. Stability strategies
A stability strategy involves maintaining the status quo or growing in a
methodi¬cal, but slow, manner. The firm follows a safety-oriented, status-quo-
type strategy without effecting any major changes in its present operations.

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The resources are put on existing operations to achieve moderate,
incremental growth. As such, the primary focus is on current products,
markets and functions, maintaining the same level of effort as at present.
Organisations might follow a stability strategy for a variety of reasons.

3. Retrenchment strategies
Retrenchment strategy is a corporate level, defensive strategy followed by a
firm when its performance is disappointing or when its survival is at stake for
a variety of reasons. Economic recessions, production inefficiencies, and
innovative break¬throughs by competitors are only three causes.

Managers choose retrenchment when they think that the firm is neither
competitive enough to succeed through a counter attack (on market forces
affecting its sales negatively) nor nimble enough (effecting fast changes) to be
a fast follower.

4. Combination strategies
Combination strategies are a mixture of expansion, stability or retrenchment
strat¬egies. They are a hybrid variety and can be applied in a firm either at the
same time in different businesses or at different times within the same
business.

Depending on requirement, a firm can choose an appropriate path. The firm

can pick up internal growth strategies such as market penetration, market
development or product development or go after external growth strategies
such as joint ventures, mergers etc. in order to achieve the chosen goals.

PRODUCTION STRATEGIES:

Definition:

Production strategies are broad long-term action plans. They are made for
achieving the main objectives of organization. Production strategies tell us
what the production department must do to achieve the top aims of the
organization. It provides a road map for the production department.
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TYPES OF PRODUCTION STRATEGIES

The types of production strategies under Business Strategies are as follows:

1. Differentiation strategy
2. Cost leadership strategy
3. Market segmentation strategy

The production strategies under Competitive Priorities are as follows:

1. Price or cost strategy

2. Quality strategy
3. Delivery strategy
4. Product mix or flexibility strategy
5. Service strategy
6. Eco-friendly products

The production strategies under Competitive Advantages are as follows

1. Flexible response strategy

2. Low cost strategy

1. Differentiation strategy

Under a differentiation strategy, the company tries to be different and unique

from its competitors. It may offer better quality, quantity, pricing, appearance,
and after sales-service, when compared to its competitors. It may offer more
features and facilities in its product. It may be more flexible while dealing with
its customers. It may also offer quick and better delivery of its products. So,
there are many ways, in which a company can remain different from its
competitors. If it maintains this uniqueness and difference in its product
quality and customer service, then it can charge higher prices.

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2. Cost leadership strategy

Under a cost leadership strategy, the company tries to reduce its cost of
production. This is done by producing goods on a very huge scale. By doing so,
the company will get the benefits of economies of large scale. Higher the scale
of production, lower will be the cost of production. This is because per unit
cost of raw materials, labour, advertising, sales promotion, R & D, etc. will
decrease.

3. Market segmentation strategy

In market segmentation strategy, the company divides the market according

to the type of customers it has to focus and target. It sells different products
and services to different types of customers. To achieve this goal, it produces
and sells goods and services as per the needs of the customers. Therefore,
market segmentation strategy is also called Focus Strategy.

4. Price or cost strategy

Under price or cost strategy, the company sells its product at a very low price.
This strategy is used when the products are homogeneous (same) in nature.
That is, when the customers cannot distinguish the company's product from
the competitors' products. In this case, the company will fix a low price. So,
the customers will purchase the company's product and not the competitors'
products.

5. Quality strategy

Under quality strategy, the company produces and sells high-quality goods
and services. The prices of such goods and services are naturally very high.
However, this strategy attracts those customers who prefer top quality
products and are ready to pay necessary appropriate prices. The company
must pay special attention to the design of its products. It must upgrade
product design and add new product features to satisfy the current needs and
demands of its customers. Products which are designed badly will naturally
fail in the market. To gain success in the market, the company must smartly
invest to make quality innovative products that are free from any defects.

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6. Delivery strategy

Here under delivery strategy, the company delivers its product and services to
their customers as early as possible that too within a fixed time period. The
company gives top priority to fast delivery of products and providing quickest
accessibility of services. Speed delivery of products and fastest accessibility of
services removes the problem of scarcity and unnecessary delays in the
market. Delivery strategy is used as a selling tactic to fight cut-throat
competition.

7. Product mix or flexibility strategy

Under this strategy, the company produces and sells a product mix. A product
mix is a group of products, which are sold by the same company. Here, the
company does not depend only on one product for its survival and growth. It
uses a product mix because it offers many advantages to the company.
However, only large companies with huge production capacity can use this
strategy.

8. Service strategy

Under this strategy, the company uses a service to attract the customers. It
gives quicker and better after-sales service. It gives around the clock, i.e. 24-
hour customer service. It may render this service directly via the company or
through the network of call centres. Service is required for both consumer
goods as well as industrial goods.

9. Eco-friendly products

Under eco-friendly strategy, the company produces and sells environment-

friendly products also called as Green Products. For e.g. producing and selling
lead-free petrol to reduce pollution, manufacturing mercury-free television
panels, etc., are some good steps to preserve nature. This is a new type of
production strategy. It is used to reduce pollution and protect the biosphere.
Companies may also recycle certain materials like plastic, metals and papers.
The properly recycled products are later used for manufacturing new
products and in packaging. Companies use biodegradable packing material to

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reduce the problem of waste disposal. Recycling reduces continuous demand
cycle of natural resources and hence somewhat minimize the exploitation of
environment. The company informs the public about their environment-
friendly manufacturing approach through advertisements.

10. Flexible response strategy

Flexible response strategy is said to be used when a company makes

necessary changes in its production plans that too in accordance with the
emerging changes in the market. Here, importance is given to speed and
reliability. That is, the company must make quick changes as per the arising
changes in the market demand. It must also be reliable. That is, it must give a
regular supply of goods to its customers. There must not be any shortage of
goods in the market. To achieve this, the company must follow a strict
production schedule.

11. Low cost strategy

Under low cost strategy, the company fights massive market competition by
selling its products at very lower prices. Simultaneously, it must also maintain
the quality of its products. A company can only sell its goods at minimum
prices if it maintains a low cost of production and distribution. This can be
done by producing and distributing goods on a large scale. That is, company
must take advantage of economies of large-scale production.

WORLD CLASS MANUFACTURING

Definition:

World class manufacturing is a collection of concepts, which set standard for

production and manufacturing for another organization to follow. World class
manufacturing is a process driven approach where various techniques and
philosophy are used in one combination or other.

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TECHNIQUES OF WORLD CLASS MANUFACTURING

1. Make to order

2. Streamlined Flow

3. Smaller lot sizes

4. Collection of parts

5. Doing it right first time

6. Cellular or group manufacturing

7. Total preventive maintenance

8. Quick replacement

9. Zero Defects

10. Just in Time

11. Increased consistency

12. Higher employee involvement

13. Cross Functional Teams

14. Multi-Skilled employees

15. Visual Signaling

16. Statistical process control

STEPS OF WORLD CLASS MANUFACTURING

1. Reduction of set up time and in tuning of machinery: It is important that

organizations are able to cut back time in setting up machinery and also tune
machinery before production.

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2. Cellular Manufacturing: It is important that production processes are
divided into according to its nature, with similar nature combined together.

3. Reduce WIP material: It is normal tendency of manufacturing

organization to maintain high levels of WIP material. Increased WIP leads to
more cost and decreased WIP induces more focus on production and fast
movement of goods.

4. Postpone product mutation: For to achieve a higher degree of

customization many changes are made to final product. However, it is
important that mutation conceived for the design stage implement only after
final operation.

5. Removal the trivial many and focus on vital few: It is important for
organization to focus on production of products which are lined with forecast
demand as to match customer expectation.

There are seven keys to becoming a world-class manufacturing.

1. Reduce lead times

2. Speed time-to-market
3. Streamline outsourcing processes
4. Cut operations costs
5. Exceed customer expectations
6. Manage the global enterprise
7. Improve business performance visibility

PRINCIPLES OF WORLD CLASS MANUFACTURING

1. Implementation of just in time and lean management leads to reduction in

wastage thereby reduction in cost.

2. Implementation of total quality management leads to reduction of defects

and encourages zero tolerance towards defects.

3. Implementation of total preventive maintenance leads to any stoppage of

production through mechanical failure.
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ASPECTS OF WORLD CLASS MANUFACTURING

1. Industrial culture area

2. Market/client area
3. Product development area
4. Operations area
5. E-Performance area

DEMAND FORECASTING FOR OPERATIONS

In the words of Cundiff and Still, “Demand forecasting is an estimate of sales

during a specified future period based on proposed marketing plan and a set
of particular uncontrollable and competitive forces.”

SIGNIFICANCE OF DEMAND FORECASTING:

i. Fulfilling objectives:

Implies that every business unit starts with certain pre-decided objectives.
Demand forecasting helps in fulfilling these objectives. An organization
estimates the current demand for its products and services in the market and
move forward to achieve the set goals.

For example, an organization has set a target of selling 50, 000 units of its
products. In such a case, the organization would perform demand forecasting
for its products. If the demand for the organization’s products is low, the
organization would take corrective actions, so that the set objective can be
achieved.

ii. Preparing the budget:

Plays a crucial role in making budget by estimating costs and expected

revenues. For instance, an organization has forecasted that the demand for its
product, which is priced at Rs. 10, would be 10, 00, 00 units. In such a case, the
total expected revenue would be 10* 100000 = Rs. 10, 00, 000. In this way,
demand forecasting enables organizations to prepare their budget.

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iii. Stabilizing employment and production:

Helps an organization to control its production and recruitment activities.

Producing according to the forecasted demand of products helps in avoiding
the wastage of the resources of an organization. This further helps an
organization to hire human resource according to requirement. For example,
if an organization expects a rise in the demand for its products, it may opt for
extra labor to fulfill the increased demand.

iv. Expanding organizations:

Implies that demand forecasting helps in deciding about the expansion of the
business of the organization. If the expected demand for products is higher,
then the organization may plan to expand further. On the other hand, if the
demand for products is expected to fall, the organization may cut down the
investment in the business.

v. Taking Management Decisions:

Helps in making critical decisions, such as deciding the plant capacity,

determining the requirement of raw material, and ensuring the availability of
labor and capital.

vi. Evaluating Performance:

Helps in making corrections. For example, if the demand for an organization’s

products is less, it may take corrective actions and improve the level of
demand by enhancing the quality of its products or spending more on
advertisements.

vii. Helping Government:

Enables the government to coordinate import and export activities and plan
international trade.

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OBJECTIVES OF DEMAND FORECASTING:

i. Short-term Objectives:

a. Formulating production policy:

Helps in covering the gap between the demand and supply of the product. The
demand forecasting helps in estimating the requirement of raw material in
future, so that the regular supply of raw material can be maintained. It further
helps in maximum utilization of resources as operations are planned
according to forecasts. Similarly, human resource requirements are easily met
with the help of demand forecasting.

b. Formulating price policy:

Refers to one of the most important objectives of demand forecasting. An

organization sets prices of its products according to their demand. For
example, if an economy enters into depression or recession phase, the
demand for products falls. In such a case, the organization sets low prices of
its products.

c. Controlling sales:

Helps in setting sales targets, which act as a basis for evaluating sales
performance. An organization make demand forecasts for different regions
and fix sales targets for each region accordingly.

d. Arranging finance:

Implies that the financial requirements of the enterprise are estimated with
the help of demand forecasting. This helps in ensuring proper liquidity within
the organization.

ii. Long-term Objectives:

a. Deciding the production capacity:

Implies that with the help of demand forecasting, an organization can

determine the size of the plant required for production. The size of the plant
should conform to the sales requirement of the organization.
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b. Planning long-term activities:

Implies that demand forecasting helps in planning for long term. For example,
if the forecasted demand for the organization’s products is high, then it may
plan to invest in various expansion and development projects in the long term.

FACTORS INFLUENCING DEMAND FORECASTING:

i. Types of Goods:

Affect the demand forecasting process to a larger extent. Goods can be

producer’s goods, consumer goods, or services. Apart from this, goods can be
established and new goods. Established goods are those goods which already
exist in the market, whereas new goods are those which are yet to be
introduced in the market.

Information regarding the demand, substitutes and level of competition of

goods is known only in case of established goods. On the other hand, it is
difficult to forecast demand for the new goods. Therefore, forecasting is
different for different types of goods.

ii. Competition Level:

Influence the process of demand forecasting. In a highly competitive market,

demand for products also depend on the number of competitors existing in
the market. Moreover, in a highly competitive market, there is always a risk of
new entrants. In such a case, demand forecasting becomes difficult and
challenging.

iii. Price of Goods:

Acts as a major factor that influences the demand forecasting process. The
demand forecasts of organizations are highly affected by change in their
pricing policies. In such a scenario, it is difficult to estimate the exact demand
of products.

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iv. Level of Technology:

Constitutes an important factor in obtaining reliable demand forecasts. If

there is a rapid change in technology, the existing technology or products may
become obsolete. For example, there is a high decline in the demand of floppy
disks with the introduction of compact disks (CDs) and pen drives for saving
data in computer. In such a case, it is difficult to forecast demand for existing
products in future.

v. Economic Viewpoint:

Play a crucial role in obtaining demand forecasts. For example, if there is a

positive development in an economy, such as globalization and high level of
investment, the demand forecasts of organizations would also be positive.

TYPES OF DEMAND FORECASTING

1. Short Period Forecasts:

Refer to the forecasts that are generally for one year and based upon the
judgment of the experienced staff. Short period forecasts are important for
deciding the production policy, price policy, credit policy, and distribution
policy of the organization.

2. Long Period Forecasts:

Refer to the forecasts that are for a period of 5-10 years and based on
scientific analysis and statistical methods. The forecasts help in deciding
about the introduction of a new product, expansion of the business, or
requirement of extra funds.

3. Very Long Period Forecasts:

Refer to the forecasts that are for a period of more than 10 years. These
forecasts are carried to determine the growth of population, development of
the economy, political situation in a country, and changes in international
trade in future.
Among the aforementioned forecasts, short period forecast deals with
deviation in long period forecast. Therefore, short period forecasts are more
accurate than long period forecasts.

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4. Level of Forecasts:
Influences demand forecasting to a larger extent. A demand forecast can be
carried at three levels, namely, macro level, industry level, and firm level. At
macro level, forecasts are undertaken for general economic conditions, such
as industrial production and allocation of national income. At the industry
level, forecasts are prepared by trade associations and based on the statistical
data.
Moreover, at the industry level, forecasts deal with products whose sales are
dependent on the specific policy of a particular industry. On the other hand, at
the firm level, forecasts are done to estimate the demand of those products
whose sales depends on the specific policy of a particular firm. A firm
considers various factors, such as changes in income, consumer’s tastes and
preferences, technology, and competitive strategies, while forecasting demand
for its products.

5. Nature of Forecasts:
Constitutes an important factor that affects demand forecasting. A forecast
can be specific or general. A general forecast provides a global picture of
business environment, while a specific forecast provides an insight into the
business environment in which an organization operates. Generally,
organizations opt for both the forecasts together because over-generalization
restricts accurate estimation of demand and too specific information provides
an inadequate basis for planning and execution.

STEPS OF DEMAND FORECASTING

1. Setting the Objective:

Refers to first and foremost step of the demand forecasting process. An
organization needs to clearly state the purpose of demand forecasting before
initiating it.

2. Determining Time Period:

Involves deciding the time perspective for demand forecasting. Demand can
be forecasted for a long period or short period. In the short run, determinants

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of demand may not change significantly or may remain constant, whereas in
the long run, there is a significant change in the determinants of demand.
Therefore, an organization determines the time period on the basis of its set
objectives.

3. Selecting a Method for Demand Forecasting:

Constitutes one of the most important steps of the demand forecasting
process Demand can be forecasted by using various methods. The method of
demand forecasting differs from organization to organization depending on
the purpose of forecasting, time frame, and data requirement and its
availability. Selecting the suitable method is necessary for saving time and
cost and ensuring the reliability of the data.

4. Collecting Data:
Requires gathering primary or secondary data. Primary’ data refers to the
data that is collected by researchers through observation, interviews, and
questionnaires for a particular research. On the other hand, secondary data
refers to the data that is collected in the past; but can be utilized in the present
scenario/research work.

5. Estimating Results:
Involves making an estimate of the forecasted demand for predetermined
years. The results should be easily interpreted and presented in a usable form.
The results should be easy to understand by the readers or management of
the organization.

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