DBA 1651 PRODUCTION MANAGEMENT

UNIT - I NOTES

INTRODUCTION TO PRODUCTION AND

OPERATION MANAGEMENT
1.1 In
Intr
trod
oduc
ucti
tion
on
1.2 Le
Learn
arnin
ing
g ob
objec
jectiv
tives
es
1.3 System
1.3.1 Bus
Busine
iness
ss Sys
System
tem
1.3.2 Pro
Produ
ducti
ction
on System
System
1.3.3 Produc
Production
tion and Operati
Operations
ons Managem
Managements
ents
1.4 His
Histor
tory
y of opera
operatio
tions
ns Manag
Manageme
ement
nt
1.5 Types of opera
operation
tion syst
system
em
1.5.1
1.5.1 Fl
Flow
ow Sho
Shop
p
1.5.1.1Continuous Production
1.5.1.2Mass Production
1.5.1.3Batch Production
1.5.2
1.5.2 Job Sho
Shop
p
1.5.3 Proj
Project
ect Pro
Produc
duction
tion
1.6 Prod
Producti
uction
on activit
activities
ies and
and commun
communicati
ication
on link
link
1.7 Com
Comput
puter
er Integrat
Integrated
ed Manufa
Manufactu
cture
re ring (CIM)
(CIM)
1.7.1
1.7.1 CIM sub
sub syste
systems
ms
1.7.2 Fun
Functio
ctional
nal Area
Areass of CIM
1.7.2.1 Computer aided production planning
1.7.2.2 Computer aided process planning
1.7.3 Conc
Conceptu
eptual
al frame
frame work of CIM
1.7.4 Grou
Group
p Tech
Technolo
nology
gy
1.7.4.1 Definition
1.7.4.2 History of GT
1.7.4.3 Advantages
Advantages of GT
1.7.4.4 Organizational Suitability
Suitabilit y for GT
1.7.4.5 Group technology in CIM
1.8 Gl
Glob
obal
al Sup
Suppl
ply
y Chai
Chain
n
1.8.1 Glo
Global
bal Compl
Complex
exitie
itiess
1.8.2 How to transfo
transform
rm into Global
Global Supply
Supply Chain
Chain
DBA 1651 PRODUCTION MANAGEMENT

NOTES UNIT - I

INTRODUCTION TO PRODUCTION AND

OPERATION MANAGEMENT

1.1 INTRODUCT
INTRODUCTION
ION

This unit starts with a definition of a system. In this unit production system and
its objectives are explained along with the components of a system. The history of 
operations management is portrayed. The various functions of production system and
their interlinking are
ar e explained through a flow chart. The components of computer,
integrated manufacturing and
and their purpose are dealt. Finally
Finally,, the recent trend in the
operations, namely, Global Supply Chain is introduced in this unit.

1.2 LEARNING OBJECTIVES

• To know the importance of the production system in an organization.

• To understand the link between various activities of the production system.

• To comprehend the history of operations management.

• To understand the components of computer integrated

integrat ed manufacturing
manufacturin g

1.3 SYSTEM

 It consists of elements or components. The elements or components are

interlinked together to achieve the objective for which it exists. Eg: human body,
body,
educational institutions, business organizations.

Components of a system:

The input, processing, output and control of a system are called the components
of a system.
DBA 1651 PRODUCTION MANAGEMENT

Figure 1.1 - Components of a system NOTES

Input Output

Processing

Feedback
Control

Control:

There are two types of control, namely  Proactive Control and Reactive
Control.

Proactive Control:

When an operation is carried out on a product in a workstation, the quality

inspector goes to the workstation and inspects the product.
product . When the samples that he
has taken for the inspection are not confirming to the quality, he stops the machine and
identifies the reason for the deviation and corrects the problem, so that the produced
product thereafter conform to the specification
specifications.
s. This type of control prevents any
major quality setback after the production. This is an example for proactive control.

Reactive Control:

In a planning period, usually the quality target is fixed. Suppose, an organization

feels to fix 5% defective is safe in
i n the targeted production quantity and assumes that at
the end of the planning period it finds
f inds that the defective output exceeds the targeted
defective products. Then, it has to find
fi nd out the reason for the deviations, namely,
namely, whether
the problem is due to the method of doing the work or the resources used in the process.
Then the planner uses this knowledge
knowl edge to prevent any problem in the future.
fut ure. Thus a
Reactive Control is a post morterm case.

1.3.1 Business System:

The business organization is classified into different subsystems based on the

functions like marketing, production/operation, finance and human resource etc.
DBA 1651 PRODUCTION MANAGEMENT

Figure 1.2 – Business System

NOTES
Marketing Finance

Human Resource Production/Operation

Each subsystem will have more sub subsystems.

1.3.2 Production / Operation System

Figure 1.3 – Production / Operation System

Input Transformation Output Objectives

Process
1. To produce the required quantity.
Capital
Man Power Goods 2. To achieve the required quantity.
Material
3. To meet the delivery time.
Information Services
4. Economical way of doing

Operations Management

Operation system is either manufacturing sector or service sector. The input

requirements are shown in figure1.3 The transformation process, in which part of the
value addition takes place to get the required quantity of the product or services with
the targeted quality within the specified time period, is carried out in a most economical
way. Operation Management Plan coordinates and controls all the activities in the
operation system to achieve the stated objectives.

Thus (the activities listed in the diagram) the Operations Management activities,
ensure the objective of quantity, quality, delivery time and economical way of doing
work. The communication link between the various activities are shown in the figure1.3.

Each activity is dealt in detail in different sections of this material. This figure
(figure1.3) will be very much appreciated after getting a clear understanding of all the
activities.
DBA 1651 PRODUCTION MANAGEMENT

1.3.3 What is operation management (OM)?

NOTES
Operation Management is a way or means through which the listed objectives
of an operating system is achieved. There is always a confusion between the word OM
& PM (Production Management). It is accepted norm that OM includes techniques
which are enabling the achievement of operational objectives in an operation system.
The operation system includes both manufacturing sector as well as service
sector, but when you use the word PM, you should be careful to note that it refers to
the manufacturing sector but not the service sector. Suppose, you are designing a layout
for the hospital you should say that you are applying Operations Management Technique
not the Production Management Technique.

When you design a layout for a manufacturing sector you can say that you are
applying Production Technique or Operation Technique or vice versa.
From, the above discussion we can come to a conclusion that production
management is a subset of Operations Management.
Review questions –

1. What are the components of a system?

2. What are the differences between the Production Management and the Operations
Management?
3. List the objectives to be fulfilled by an Operation System.

1.4 HISTORY OF OM

Table 1.1 – History of OM

 Year / 
 Period of Concept/Tools and System Used Developers/  
Concept Originators

 (14-16) Evolution of Production system

 Century

 18 th New Technology for Production Process Adam Smith and

 Century Management harles Babbage

1895 Scientific Management Principles (Work Study) F.W.T. Taylor

Motion Study for Psychological Factors Frank & Lillian
Activity Scheduling Chart Gilbreth Henry
Gantt

 1935 Hawthrone Studies of Worker Motivation Elton Mayo

1950’s Operation Research for Decision Making Long Many Researcher

term Medium term, Short term decision by
DBA 1651 PRODUCTION MANAGEMENT

NOTES Critical Path Method (CPM), Program Evaluation

and…… Technique (PERT), Waiting-Line Theory

1970’s Computers for Inventory Control Material IBM, Joseph

Resource Planning (MRP) Orlicky,
Oliver Wieght

1980’s Just In Time (JIT), Total Quality Control (TQC) Toyota

Kanban System, CAD/CAM, Computer
Integrated Manufacturing (CIM) Flexible
Manufacturing System (FMS)

1990’s 1.Total Quality Asqc(U.S.). IOS

Management (TQM), Concurrent (CIM), (England),
Engineering, Value Engineering Michael Hammer
2. Business Process Engineering Oracle, SAP
3. Supply Chain Management (German y)

2000’s Logistics, Enterprise Resource Planning (ERP),

E-Commerce, E-Business
Review questions -
1. What is the contribution of GANTT?
2. Who is the father of Scientific Management?

1.5 TYPES OF OPERATION SYSTEM

The type of Operation System to be adopted should be known to the people,

and then only you may choose the system based on the nature of the product that you
are going to manufacture. The types of operation system are classified based on the
following criteria.

Product flow pattern in conversion system

Output of the product
Specification of the output

Figure 1.5 - Types of Operation System

Production Flow Pattern Output of the product Specification of the output

Customized Standard

Flow shop Job shop Flow shop

Continuous Batch Mass Goods

Production Production Production Services
DBA 1651 PRODUCTION MANAGEMENT

1.7.2 Functional areas of CIM NOTES

CIM system has emerged as a result of the development in manufacturing and
computer technology. The computer plays an important role integrating the following
areas of CIM system.
• Part (component) and product design
• Tool and fixture design
• Process planning
• Programming of numerically controlled (NC) machines, material
handling system (MHS), etc.
• Production planning
• Machining
• Assembly
• Maintenance
• Quality control
• Inspection
• Storage and retrieval

To emphasis the computer aspects, the terms Computer Aided Design (CAD),
Computer Aided Process Planning (CAPP), Computer Aided Manufacturing
(CAM), Computer Aided Quality Control (CAQC), Automatic Storage Retrieval
(ASR), have used. Each term refers to one or more of the listed functional areas. CAD
refers to the part and product design and tool and fixture design, CAPP refers to Process
Planning, CAM refers to the programming of manufacturing hardware, production
planning machining, assembly and maintenance, CAQC refers to the quality control
and inspection and ASR involves the storage and retrieval of raw materials, f inished
products work in process inventory.
The computer plays a leading role in the automation and integration of hardware
component i.e. machines, material handling carriers and the software components of 
manufacturing systems. In order to understand the CIM subsystems and the importance
of integrating them, it is first necessary to explore the functional areas by these subsystems.
1.7.2.1 Computer Aided Production Planning

Production planning involves establishing production levels for a known length

of time. This forms the basis for the following two functions:
1. Material requirement planning
2. Loading and scheduling
Based on the information regarding the type and quantity of parts or products
to be manufactured, the materials required to produce the parts or products must be
ordered with an appropriate lead time to ensure their availability for production. This
function constitutes material requirement planning. Based on the material required,
capacity- for example, machine hours and labor hours can be calculated.
DBA 1651 PRODUCTION MANAGEMENT

NOTES Machine loading involves assignment of parts and products to machines and
machine cell in order to distribute the production loads. Scheduling determines the
sequence in machines perform the operations.

1.7.2.2 Computer Aided Process Planning

Process planning for a part involves the preparation of a plan that outlines the
routes, operations, machines and tools required to produce the component. Since the
process is a tedious task, there has been a trend to automate it. As a result, a number
systems have been developed. There are three basic approaches to the automated
process planning. They are -

a. Variant Approach
b. Generative Approach
c. All based Approach

CIM Subsystems
Intelligent Manufacturing

Development in artificial intelligence has had an impact on the manufacturing

systems. All most all the areas of the computer integrated manufacturing have been
effected by the artificial intelligence. Researchers and engineers are developing the
intelligent systems ranging from application in machining and assembly to long term
planning.

1.7.3 Conceptual framework of CIM

The conceptual framework of CIM is shown in Figure.1.6 are six major being
integrated by computing technology. Note that one of these is Group Technology (GT).

Figure 1.6 – Conceptual framework of CIM

GROUP
TECHNOLOGY
[GT]

MANUFACT.
COMPUTER
PLANNING &
AIDED CONTOL
DESIGN
COMPUTER [MPC]
[CAD]
TECHNOLOGY

AUTOMATED
ROBOTICS MATERIALS
HANDLING
[AMH]
COMPUTER
AIDED
MANUFACT.
[CAM]
DBA 1651 PRODUCTION MANAGEMENT

According to Arthur D.Little and Co., GT is the important technology among NOTES
the others and it will play a major role in the factory of the future. The GT concept is
considered a center road towards a higher level of CIM.

1.7.4 Group Technology

Group technology (GT) is a concept that is currently attracting a lot of attention

from the manufacturing community. GT offers a number of ways to improve productivity
in the batch manufacturing. The essence of GT is to capitalize on similarities on recurring
tasks. GT is, very simply, a philosophy to exploit similarities and achieve efficiencies
grouping like problems.

1.7.4.1 Definition of GT 

“Group technology is the realization that many problems are similar and that,
by grouping similar problems, single solution can be found to a set of problems, thus
saving time and effort”

1.7.4.2 History of GT 

Prior to 1913, the era of Henry Ford and his model T, all machining models
were similar to our present job shop techniques with machines laid out usually in lines or
blocks of similar machines. The work was loaded onto the machines usually by the
manual progress control system. Ford introduced the assembly line and that, in turn, led
to automated transfer machines. However, the majority of engineering do not produce
items in quantity that justify such methods and so the jobbing shop philosophy continued.
GT is mainly a coordination of normal good engineering practices. It is impossible to
say who first practiced GT. There are reports of it having been used in Germany in the
1930s.

In an international Conference held in Stockholm in 1947, the basic groups

were explained by C.B.Nanthorst. In Italy M. Patrignany was an early exponent of this
technology. However, little of this appears to have been in English. First published
work was from the USSR by S.P.Mitrofanov in 1959 and there after subsequent books
were published by F.S.Denyanyuk and E.K. Ivanov.The first reported work o n GT
outside Russia was done by a French Forges et Ateliers de Construction Electriques de
Jeurmont - and this was about in Machinery in 1962. Subsequently, several British
companies conducted considerable work in this field. There have also been considerable
studies done by various consultants in the Universities. The significant contribution by
J.L.Burbidge in the 1 960s led to GT as A total Manufacturing Philosophy.
DBA 1651 PRODUCTION MANAGEMENT

NOTES objectives of an organization play, therefore, a vital part in determining how quickly the t he
structure should be developed, what it should look like, its operating cost and
permanency.. What we want to accomplish should be kept
permanency kept clearly in mind while
determining and setting up its structure. Obviously, the organization structure of a large
corporation is much more complex,
complex, and therefore, slowly developed.
developed. Here too,
objectives affect the structure. Once the objectivesobjectives are clearly
clearly determined, the
development of structure will follow
foll ow the natural path dictated by the desire to reach
these objectives. An organization structure should never hinder the achievement
achievement of 
these objectives; instead it should facilitate the mechanism that will enable the organization
to accomplish things more easily and effectively than when left in unorganized things
more easily and effectively than when left in an unorganized fashion. Thus, if it is decided
that the company should add to a new line of product, and therefore, expand its marketing
marketi ng
territory, such an objective and its concomitant Materials
Material s Management activities would
necessarily affect the final structure of the organization.

2. Determination of the areas of activity:

Organization itself is nothing but the application of the universal law of 
specialization. Through organization, a person’s
person’s actions and responsibilities are narrowed
to one or a few functions, specializing
speciali zing in these few and thereby, increasing efficiency.
effici ency.

Specialization by division of work into functional areas enables one to understand

his job more thoroughly. Therefore, effective organization
organizati on must include specialization
specializati on
as an element of efficiency for the performance of one or a very few leading functions.
As far as possible, similar functions should be combined into one position. Although its
advantages are universally
universally recognized, yet it has its limits which should not be exceeded.
exceeded.

3. Determination of the ideal structure to accomplish the desired activities:

Physical listing of activities will in itself suggest possible areas within which it
needs to consolidate work.
work. Each of the groupings will then lead to an ‘ideal’ organization
structure to carry out the functions. Products, tools and processes may be considered
as possible areas of functional activities. This ‘ideal’ structure may then represent the
long range or ultimate organization with available
avail able personnel, funds, etc., so as to reconcile
the ‘ideal’ with the ‘working’ organization.

4. Authority and Responsibility:

Authority is the right to give orders and the power to exact

exact obedience. Authority
is not to be conceived apart from responsibility, that is, apart from sanction – reward or
penalty,, which goes with the exercise of that power. Delegation of authority is the key
penalty
point of organization. Without delegation there would be no organization and this is the
core of all formal processes of organization. A major task of top management
management is the
delegation of authority to proper individuals in order to secure appropriate actions. But
often, we hear of responsibility being delegated without power to command or act.
DBA 1651 PRODUCTION MANAGEMENT

Such an organization set-up makes for ease and efficiency in determining responsibility NOTES
and delegating necessary authority
authorit y. Since it would not be just to hold a person responsible
for performance of a task without first giving him the authority, responsibility should
always be coupled with commensurate authority.
authority. Here, authority can be delegated,
responsibility cannot.

5. Span of Control:

By span of control, we mean the number of individuals

indivi duals one supervises and
directs. There is a definite limit to this number and this, to a great extent, determines the
units of an organization. There may be a tendency to over supervise and this may, may, in
effect, mean scant or ineffective supervision.

On the other hand, when too few report to one supervisor, his time is not
effectively used. However, no hard and fast rule can be established and it depends
upon the type of work performed.

6. Personal Ability:

Simply assigning jobs to individuals does not mean that they will be accomplishe
accomplished.
d.
Individuals differ in capacity and ability and these differences as well as personal
limitations should be considered
considered before placing an individual
individual in an organization. In
developing an organization, therefore, properpr oper regard should be paid to the personal
ability of individuals assigned to various components. An organization is referred to the
people and its structure reflects the ability of its members which again largely determines
the structure.

7. Unity of Command:

For any action whatsoever, an employee should receive orders from

fr om one superior
only.. Such is the rule of unity of command. No one in any organization should report
only
to more than one line supervisor and everyone should know to whom he reports and
who reports to him. In fact, receiving directions from more than one one individual may
easily result in confusion, conflict, lack of action and poor morale. Each member of an
organization, therefore,
theref ore, should receive directions from only one boss, his immediate
superior and should be responsible to him alone.
al one.

8. Job Assignment:

Logical groupings or related functions should be made in developing the

organization structure. It is often desirable to have the responsibility for each of these
functions assigned to specific individuals
indivi duals with these persons turning to the leader charged
with the accomplishment of the overall function.

9. Regulations:

Rules and regulations aid improper

improper operation of an an enterprise. A complete
statement of the operating objective of an enterprise as well as the responsibility and
DBA 1651 PRODUCTION MANAGEMENT

NOTES the authority of each individual should be formulated and should be made available in
writing to all personnel in the organization. They may be broad and specific. Even
detailed methods manuals to describe how the tasks are to be carried out may be
valuable. They define the authority which certain individuals have over particular functions.

10. Two way communicatio

communicationn:

Despite the fact that line of authority provides channels downward and upward,
they are often used only to pass directives downward and never as a means of 
communicating attitudes, feelings or ideas upward. Such blocks in communication
occur in a great many organizations. In fact, one of the most immediate and costly
results of poor organization is the breakdown of intra-organizational communication.
In as much as an organization is developed to aid in accomplishing an objective, good
communication is necessary if all employees are to know what to do to reach this
objective.

11. Flexibility:

The environment in which an organization exists and the individuals who make
it up are constantly changing. Organizations change
change because of technological,
technological, economic
or personnel changes or changes in the objectives. An organization possessing
possessing flexibility
withstands minor pressures, but gives way to the demand for genuine change permitting
permitti ng
their expansion or contraction without seriously altering the basic functions of various
segments of the structure.

12. Line and Staff activity:

Line and staff functions should not be combined in one individual where
separation of functions is possible. Line functions, as has been said before, are those
which directly affect the product or service. Staff functions are those that aid the line or,
or,
are auxiliary to the line function. Because confusion may result, line and staff functions
should be separate wherever possible. Staff specialists are useful and there will always
be a need for them. Especially in large materials
materials organizations, where materials
management is treated as an integrated activity, there should be less need for staff 
experts in a variety of functions. Among the major staff services value analysis, economic
forecasting and administrative planning may be essential. A staff
staff expert on ‘trade relations’
is also a common feature in large-scale industrial purchasing.

Leadership Question:

Leadership is obviously more than personal ability ability and skill. Leadership is
important to the effective
effect ive set up and operation of every organization because leadership
is the one force that charts and makes possible the economic accomplishment of the
objectives. A ‘weak’
‘weak’ organization
organization structure with
wi th effective leaders will
wil l probably accomplish
more than a so called ‘strong’ organization with weak leaders.
l eaders.
DBA 1651 PRODUCTION MANAGEMENT

Structural balance:
NOTES
An organization conceived and developed along the principles detailed above,
will more than reward its leaders, as well as its members. In the process of forming a
new organization structure or of reorganizing an existing one, these principles should be
considered. But the consideration of these principles, rules and types will not in itself 
result in the development of a new organization. Instead a new organization structure
must be visualized and developed step by step. Although no series of rules can assure
an effective organization, this objective can be approached in a systematic fashion without
much difficulty. In a balanced organization, each function of the structure should be
large enough, but not overly developed in relation to other functions of the organization.
Without such a balance, the objective of the organization cannot be achieved
economically.

Review Questions:

1. List any two Primary functions.

2. List any two Secondary functions.

2.4 MATERIAL HANDLING

2.4.1 Introduction

For an ideal operation system, material handling is not a desirable activity.

The reason is it does not add any value to the product but it adds only cost to the
product. So when you design a layout you should see that the movement of materials
should be minimum. The material handling equipment used mostly depends upon the
type of production system to be adopted. In the case of flow line production system,
the following material handling equipments are used.

Conveyors

1. Slat conveyor
2. Pusher bar conveyor
3. Roller conveyor
4. Belt conveyor
5. Wheel conveyor
6. Screw conveyor
7. Pivoted bucket conveyor
8. Apron conveyor
9. Spiral chute
10. Pneumatic conveyor
11. Trolley conveyor
DBA 1651 PRODUCTION MANAGEMENT

NOTES In the case of  job

 job order/intermittent type production systems, the material
handling equipment used are

1. Fork Truck 
2. Pl
Plat
atfo
form
rm Tru
ruck 
ck 
3. In
Indu
dust
stri
rial
al Tru
ruck 
ck 
4. St
Stra
radd
ddle
le ca
carr
rrie
ierr
5. Ha
Hand
nd op
oper
erate
ated
d veh
vehic
icle
less

In addition, CRANES and HOISTS are also used in the production system.
Thus is not specifically related to particular system. All types of production system
uses/this kind of material handling equipment.

The types of CRANES and HOISTS are :

1. Ove
Overhe
rhead
ad tra
travel
veling
ing bri
bridge
dge cra
cranes
nes
2. Jib crane
3. Gantry cr
crane
4. Air hoist
5. Ele
lect
ctri
ricc Ho
Hois
istt
6. Chain hoist

There is no hard and fast rule that particular material handling

handli ng system used only
by the particular production system. But you can find that the trucks used in the flow
ıline. Production as well as the conveyors used in the job order and intermitted production
system.
Diagram 2.1 – Material handling equipments
DBA 1651 PRODUCTION MANAGEMENT

NOTES
DBA 1651 PRODUCTION MANAGEMENT

NOTES

2.4.2 Robot

The word “robot” is also used in a general sense to mean any machine that
mimics the actions of a human, in the physical sense or in the mental sense. It comes
from the word robota, labor or work. The word robot first appeared
appear ed in Karel Capek’s
science fiction play R.U.R.
R.U .R. (Rossum’s Universal Robots) in 1921.
1921 . The word was brought
into popular Western use by famous science fiction
f iction writer Isaac Asimov.
Asimov.

 Arobot is an electro-mechanical
electro- mechanical or bio-mechanical
bio-mech anical device or group of devices
that can perform autonomous or preprogrammed tasks. A robot robot may act under the
direct control of a human or autonomously under the control of a programmed computer.
computer.
Robots may be used to perform tasks that are too dangerous or difficult for humans to
implement directly, such as radioactive waste clean-up, or may be used to automate
mindless repetitive tasks that should be performed with more precision by a robot than
by a human, such as automobile production.
produc tion. Robot can also be used to describe
descri be an
intelligent
intellig ent mechanical device in the form of a human, a humanoid robot.

 The word robot is used to refer to a wide range of machines, the common
feature of which is that they are all capable of movement and can be used to perform
physical tasks. Robots take on many different forms,
for ms, ranging from humanoid, which
mimic the human form and way of moving, to industrial, whose appearance
appearance is dictated
by the function they are to perform.
DBA 1651 PRODUCTION MANAGEMENT

Asimov proposed three ‘laws’ which for many years were recognized as NOTES
principles in the use of robotics:

A robot must not harm a human being or, through inaction, allow a human to
come to harm.

A robot must always obey human beings unless this is in conflict with the first
law.

A robot must protect itself from harm unless this is in conflict with the first or
second law.

Robots can be grouped generally

Mobile robots (e.g. autonomous vehicles)
Manipulator robots (e.g. industrial robots)
Self reconfigurable robots, which can conform themselves to the task at hand.

An industrial robot has been defined as:

“A reprogrammable multifunctional manipulator designed to move material,

 parts, tools, or specialized devices through various programmed motions for the
 performance of a variety of tasks”.

The definition says the robot is a reprogrammable and multifunctional. The

reprogrammability means, through computer the programmed instructions can be written
fed and also can be edited. Multifunctional is in the sense of its versatility. It can perform
various activities.

 2.4.2.1 Advantages of Robots in Industry:

We can analyze the various advantages of robots in three perspectives.

Technical factors:

When comparing robot and human performance it is generally considered that

humans cannot match the speed, quality, reliability, endurance and predictability of 
robotics systems. However, robots cannot compete with hard automation if the cycle
times are short and flexibility is not an important factor. Robots therefore provide a link 
between the rigidity of dedicated automation and the flexibility of the human operator,
in that they offer:

High flexibility of product type and variation.

Lower preparation time than hard automation.
Better product quality.
Fewer rejects and less waste than labor-intensive production.
DBA 1651 PRODUCTION MANAGEMENT

NOTES Economic factors:

Major factors in considering the possible implementation of robotics systems

include:
• The need to increase production rates to remain competitive.
• Pressure from the marketplace to improve quality.
• Increasing costs.
• Shortage of skilled labor.
In general, robotics can increase profitability by:
• Providing maximum utilization of capital-intensive production facilities for
up to 24 hours per day, seven days per week;
• Reducing production losses due to absenteeism and skilled labor shortage,
reducing the amount of inventory which is being processed with resulting
savings in work in progress.
• Reducing the manufacturing lead time of the product or processes;
• Reducing scrap and increasing product quality, with resulting reduction in
the number of customer complaints.
Social factors:
• Robots are employed to do mindless, repetitive tasks so that the human
capital can be utilizied in more interesting work.
• Many low-level tasks can be carried out by robots.
• Robots can be utilized to perform undesirable work in dangerous or
hazardous environments and work requiring heavy physical effort.
E.g.: spot-welding car bodies, applying spray paint.
• Robots are successfully implemented in the nuclear industry for carrying
out the maintenance work on reactors and for the handling of dangerous
waste products.
 2.4.2.2 Components of a robot:
A robot has many components which include:
A base- fixed or mobile.
A manipulator  with several degrees of freedom (DOF).
An end-effector or gripper  for holding a part or a tool.
 Drives or actuators causing the manipulator arm or end-effector move in a space.
Controller  with hardware and software support for giving commands to drivers
Sensors to feed back the information for subsequent actions of the arm as well as to
interact with the environment in which the robot is working.
 Interfaces connecting the robotic subsystems to the external world.
DBA 1651 PRODUCTION MANAGEMENT

Figure 2.2 – Movements of a Robot NOTES

 2.4.2.3 Industrial applications of robotics:

Material handling:

Depalletizing/palletizing
Transporting components
Transfer of components/tools
Bottle loading
Parts handling

Machine loading and unloading components:

Loading parts to CNC machine tool

Loading a punch press
Loading a die casting machine
Loading electron beam welding and laser beam welding machines
Loading/orientating parts to transfer machines
Spray painting
Loading parts on the test machine
Painting of trucks/automobiles
Painting of agricultural equipment
Painting of appliance components
Arc welding
Spot welding
Arc welding
Seam welding of variable width
Machining
Drilling
DBA 1651 PRODUCTION MANAGEMENT

NOTES Deburring
Sanding
Grinding
Cutting
Forming
Assembly
Mating components
Riveting small assemblies
Inspection
In-process measuring and quality control, searching the missing parts
Others
Heat-treatment, applications of adhesives etc.

 2.4.2.4 Applications of robotics in other fields:

1. Hazardous environments

Mining
Exploration
Search and rescue
Tunneling for main roadways
Operations in short passages
Municipal services

Fire fighting
Underground (dangerous gas-filled)
Sewer clearing
Maintenance of atomic reactors
Space
Space vehicles
Undersea
Oil/mineral exploration
Salvage operations

2. Medical
Rehabilitation engineering for handicapped
Non-invasive diagnostics
Surgery

3. Distribution
Warehousing
Retailing (for food industry or for retail industry)
DBA 1651 PRODUCTION MANAGEMENT

4. Agriculture
NOTES
5. Hobby/household purposes

6. Military applications of robots may be in both manufacturing and non-manufac-

turing areas.

 2.4.2.5 Dangers and disadvantages:

Although robots have not developed to the stage where they pose any threat or
danger to society, fears and concerns about robots have been repeatedly expressed in
a wide range of books and films. The principal theme is the robots’ intelligence and
ability to act could exceed that of humans that they could develop a conscience and a
motivation to take over or destroy the human race.

Currently, malicious programming or unsafe use of robots may be the biggest

danger. Although industrial robots may be smaller and less powerful than other indus-
trial machines, they are just as capable of inflicting severe injury on humans. However,
since a robot can be programmed to move in different trajectories depending on its
task, its movement can be unpredictable for a person standing in its reach. Therefore,
most industrial robots operate inside a security fence which separates them from human
workers.

Even without malicious programming, a robot, especially a future model mov-

ing freely in a human environment, is potentially dangerous because of its large moving
masses, powerful actuators and unpredictably complex behavior.

Designing and programming robots to be intrinsically safe and exhibit safe be-
havior in a human environment is one of the great challenge in robotics. Some people
suggest that developing a robot with a conscience may be helpful in this regard.
2.4.3 Automated Storage and Retrieval System (AS/RS)

An integrated FMS, AGVS, and AS/RS system provides an efficient and ef-
fective production system for manufacturing. Receiving, identification and sorting, dis-
patching, placing in storage, retrieving from storage, packing, shipping, and record
keeping have traditionally been considered the functions of storage systems. An AS/RS
attempts to achieve these functions by automating most of these procedures in a cost-
effective and efficient manner.
An automated storage and retrieval system is defined as:
A combination of equipment and controls, which handles, stores and retrieves materials
with precision, accuracy and speed under a defined degree of automation.
Different operations of AS/RS:
• Automatic removal of an item from a storage location
• Transportation of this item to a specific processing or interface point
DBA 1651 PRODUCTION MANAGEMENT

NOTES • Automatic storage of an item in a predetermined location, having received an

item from a processing or interface point.
An automated storage and retrieval system comprises the following:
• A series of storage aisles having storage racks.
• Storage and retrieval (SIR) machines, normally one machine per aisle, to
store and retrieve materials
• One or more pickup and delivery stations where materials are delivered for
entry to the system and materials are picked up from the system.

 2.4.3.1 Types of AS/RS

Several types of AS/RSs are distinguished based on certain features and

applications.
Some of the important categories include:

1. Unit load
2. Miniload
3. Person-on-board
4. Deep-lane
5. Automated item retrieval system

1. Unit Load AS/RS

The unit load AS/RS is used to store and retrieve loads that are palletized or
stored in standard-size containers. In general, a unit load system is computer con-
trolled; having automated machines designed to handle unit load containers. Each ma-
chine is guided by rails in the floor. These are the load-supporting mechanisms that
moves loads to and from storage locations and the pickup-and-deposit stations.

2. Miniload AS/RS:

A miniload system is designed to handle small loads such as individual parts,

tools, and supplies. The system is suitable for use where there is a limit on the amount of 
space that can be utilized and where the volume is too low for a full-scale unit load
system and too high for a manual system. Asmaller investment and flexibility of handling
small items make it a popular choice in industry.

3. Person-on-Board Systems

The person-on-board system allows storage of items in less than unit l oad
quantities. A person rides on a platform with the S/R machine to pick up individual
items from a bin or drawer. This provides in-aisle order-picking ability, which can reduce
the time it takes to fill an order. The operator can select the items and place them in a
tote or module, which is then carried by the S/R machine to the end of the aisle or to a
conveyor to reach its destination.
DBA 1651 PRODUCTION MANAGEMENT

NOTES 3. What is meant by wait time?

4. What is meant by queue time?
5. What does KANBAN stand for?
2.6 ABC ANALYSIS (ALWAYS BETTER CONTROL)

Any organization usually deals with lots of items. It is very difficult to

exercise control over all the items. Controlling means transactions related to
inventory, degree of control, type of records to be maintained, lot sizes, frequency
of review, size of safety stock to be maintained etc.
ABC analysis helps to classify the thousands or even millions of individual
items into three groups namely items belonging to A group, B group, C group
items respectively. ABC analysis is done based on the Pareto’s principle.
Consumption value is the basis for ABC classification. Consumption value is the
product of unit price and consumption.
Mechanism of doing ABC classification:

Steps involved:
1. Collect previous year consumption and unit price for each item.
2. Multiply the consumption and unit price for each item to get the consumption
value.
3. Rank the items corresponding to the consumption value.
4. Calculate cumulative consumption value against each item.
5. Find the percentage of cumulative consumption value.
Usually to classify the items into ‘A’class there is leverage available. The
leverage is 60 to 70 percentage of the consumption value. This means the cut-off 
value can be fixed in between 60 to 70 percentage of consumption and the
corresponding items which contribute up to the cut-off value are classified as a
class items.
Similarly, to classify the items into B class, there is a leverage of the
consumption value to the extent of 10 to 20 percentage of the consumption value.
To classify the items into C class, there is a leverage of the consumption
value to the extent of 10 to 20 percentage of the consumption value.

Table 2.1

Class of items Cut-off % of Consumption Value

A 60-75
B 10-20
C 5-10
DBA 1651 PRODUCTION MANAGEMENT

Illustrated Example: 2.1

NOTES
1. Bulchand & Co. company inventories 20 items. The company decides to setup
an ABC inventory system with 10 % of A items, 20% of B items and 70% of C
items. The company records provides the information, which is as follows:

Table 2.2

Item Code Annual usage in units Cost per unit (Rs)

G 2,500 150

H 15,000 90

I 12,000 100

J 8,000 50

K 1,00,000 50

L 25,000 300

M 80,000 500

N 2,000 300

O 3,000 70

P 6,500 60

Q 10,000 75

R 6,000 20

S 20,000 50

T 40,000 90

U 1,20,000 350

V 20,000 200

W 1,500 350

X 4,000 100

Y 4,500 200

Z 7,000 40

Analyze the above items into ABC categories on the basis of the information and
prepare a report showing your findings with comments.
DBA 1651 PRODUCTION MANAGEMENT

Solution
NOTES Table 2.3

 Item code Annual usage Cost per unit Consumption Ranking

in units (Rs.) Value

G 2,500 150 3,75,000 17

H 15,000 90 13,50,000 7
I 12,000 100 12,00,000 8
J 8,000 50 4,00,000 14
K 1,00,000 50 50,00,000 4
L 25,000 300 75,00,000 3
M 80,000 500 400,00,000 2
N 2,000 300 6,00,000 12
O 3,000 70 2,10,000 19
P 6,500 60 3,90,000 16
Q 10,000 75 7,50,000 11
R 6,000 20 1,20,000 20
S 20,000 50 10,00,000 9
T 40,000 90 36,00,000 6
U 1,20,000 350 420,00,000 1
V 20,000 200 40,00,000 5
W 1,500 350 5,25,000 13
X 4,000 100 4,00,000 15
Y 4,500 200 9,00,000 10
Z 7,000 40 2,80,000 18

Table2.4

Ordered Item Consumption Cumulative Percentage of 

Ranking Code Value consumption Cumulative Class
  value consumption value
1 U 420,00,000 420,00,000 37.90 A
2 M 400,00,000 820,00,000 74.14
3 L 75,00,000 895,00,000 80.92 B
4 K 50,00,000 945,00,000 85.44
DBA 1651 PRODUCTION MANAGEMENT

5 V 40,00,000 985,00,000 89.05 NOTES

6 T 36,00,000 1021,00,000 92.31
7 H 13,50,000 1034,50,000 93.53 C
8 I 12,00,000 1046,50,000 94.62
9 S 10,00,000 1056,50,000 95.52
10 Y 9,00,000 1065,50,000 96.33
11 Q 7,50,000 1073,00,000 97.01
12 N 6,00,000 1079,00,000 97.55
13 W 5,25,000 1084,25,000 98.03
14 J 4,00,000 1088,25,000 98.39
15 X 4,00,000 1092,25,000 98.75
16 P 3,90,000 1096,15,000 99.10
17 G 3,75.000 1099,90,000 99.44
18 Z 2,80,000 1102,70,000 99.70
19 O 2,10,000 1104,80,000 99.89
20 R 1,20,000 1106,00,000 100

Table2.5
Class No. of items % of items Consumption Cut-off % of  
Value in Lac Rs. Consumption
  value

A 6 30 450 73.48

B 7 35 120 19.59

C 7 35 42.25 6.9
DBA 1651 PRODUCTION MANAGEMENT

Figure 2.6 - Graphical representation of ABC analysis

NOTES

92

74

% of
Consumption
value

C
A B

10 30
% of items

2.6.1 Kinds of Control

Purpose of classifying the items into ABC is to control over each item. The degree
of control required for A class is not same for B and C class items. The following table
helps the material manager in the kind of control to be exercised on these items.
Advantages of ABC Analysis :

1. Better exercise of control over all materials.

2. The capital invested in inventory can be reduced to minimum levels.
3. Warehouse and storage costs can be reduced.
Limitations of ABC Analysis:
• ABC analysis mainly provides a guideline for inventory management. It needs
to be supplemented by basic understanding and judgment as there are certain
items which may fall into category C or category B due to their low usage value
but are otherwise very critical for the production process of the firm. Their
inventory levels have to be carefully monitored.
• The ABC analysis, to be effective, needs to be constantly undertaken and pe-
riodically reviewed by the management, as the number of items and value of 
items keep on undergoing changes.
• The practical problem in the usage of ABC analysis is that generally, thousands
of items fall in category C, as a result, a lot of time is spent on managing inventory
of items of this category (even if it needs simple control). The time left for
controlling the inventory stocks of categories A is therefore much shorter than
that required for their effective management.
 DBA 1651 PRODUCTION MANAGEMENT

Review Questions: NOTES

What is consumption value?

2.7 INVENTORY MODELS

Inventory:

Organizations spend lot of money in materials. Material cost represent 20 to

60 percent of the cost of production, even a small saving in material will reflect in profit.
Idle scarce material resource is called inventory. Since we invest lot of money in materials
and if materials are idle for long time, it is not good for the health of the organization. So
it is a must to exercise a control over Idle Scarce Resources, otherwise, lot of money
is tied in inventory. So had you not invested this money on material, it would have
fetched return from the other source. Therefore, an opportunity of earning the return is
lost by investing in the inventory, you can see now how can you control the inventory.
Figure 2.7 – Inventory System

Constraint
Inventory Policy
- Demand
Objective
- Inventory Costs Minimize Cost
2.7.1 Need for Inventory Decision
- Lead time 1. How much to
Inventory is required for taking care of uncertainty
order ? in business, Ex: raw material
inventory is required because of the uncertainty of supply
2. When to order?.i.e. .supplier may not be
prompt in supplying goods or the supply may also be lesser than expected. Therefore,
to take care of these, you need raw material inventory.

2.7.2 Types of inventory

1. Raw material inventory.

2. Work in process inventory.
3. Finished goods inventory.
4. Supplies.
5. Pipeline inventory.
6. Buffer stock or Safety stock.
7. Decoupling inventory.
DBA 1651 PRODUCTION MANAGEMENT

Figure 2.16 – Graphical Calculation of EOQ

NOTES

2.7.4.2 Economic Batch Quantity Model:

1. Demand:
-It is known and constant.
-It is nothing but the annual production requirement.
2. Production rate:

-It is known and is estimated based on the capacity of the plant.

3. Lead time:

It is known and constant.

4. Cost:

Setup/ordering cost:  Since there is no purchase there is no ordering cost. Only setup
cost comes into picture in the place of ordering cost .this is known.
Carrying cost: It is known and constant.
 Product cost: assume that product cost per unit does not vary with the production i.e.
unit is irrelevant of the quantity of production.

Decision

How much to produce?

When to produce?

The inventory model for this case will be as shown in the figure2.16.
DBA 1651 PRODUCTION MANAGEMENT

Figure 2.17 – Inventory Model (Economic Batch Quantity)

NOTES

tp - It is the production period.

t - It is the time interval between the two productions.

From the fig. it is concluded that up to the period, both production and consumption
take place and inventory is built up at the rate of (p-d). Where ‘d’ is the demand rate.

Once the tp period is reached there is no production, there is only consumption at the
rate of ‘d”. Next production starts after ‘t th’ period.

To find the quantity of production ‘Q’, production time period t p and time interval
between production ‘t’. The following procedure is carried out.
Total inventory cost= setup cost+ carrying cost + production cost + shortage cost.
Total relevant inventory cost= setup cost + carrying cost.
Shortage and production costs are zero because no shortage is allowed and the pro-
duction cost becomes an irrelevant cost.

From the fig. the average inventory is calculated as follows:

Avg.inventory = (Imax +Imin)/2.

= (Imax+0)/2
= Imax/2.
DBA 1651 PRODUCTION MANAGEMENT

NOTES To find Imax , from the fig.

Imax/tp = (p-d).
So, Imax=(p-d)tp.

To find tp,
tp×p=Q
tp=Q/p
Imax = (p-d) Q/p
Imax = (1-d/p) Q.
Total relevant inventory cost =setup cost + carrying cost
Setup cost = (number of setup ) × setup cost per setup
= (D/Q) Co
Carrying cost = (Average inventory)× carrying cost per unit
 = [(Imax+Imin)/2 ]×Cc
 =(1-d/p)×(Q/2) Cc

Total relevant inventory cost = (D/Q)Co+(1-d/p)(Q/2)Cc

For cost minimization, differentiate w.r.t. Q and equate it to zero.

DC0 /Q2=(1-d/p)Cc

  Q=?[2DCo/Cc(1-d/p)
Total annual relevant inventory cost = D/v [2DCo/ (1-d/p) Cc] +
v [2DCO/ (1-d/p] Cc)/2

=v [DCoCc(1-d/p)/v2 + v[DCoCc(1-d/p)]/v2
= (2/v2) v[DCoCc(1-d/p)]
  =v[2DCoCc(1-d/p)]
Total annual inventory cost =v2DCcCo(1-d/p)+CpD

Deducing EOQ from EBQ model

It is known that in case of EOQ model, the production rate is infinity i.e. there
is an instantaneous replenishment.
Now

EBQ=v [(2DCo)/(1-d/p)Cc]
So when p = 8
  EBQ=EOQ
DBA 1651 PRODUCTION MANAGEMENT

Example 2. 5
NOTES
ABC Power Company has planned to cover the demand for electricity using
coal. Annual demand for the coal input is estimated to be 8lakh tones. It is used uni-
formly throughout the year. Coal can be strip mined at the rate of 5000 tonnes per day.
The setup cost for mining is 200 rupees per run. The inventory holding cost is 5 rupees
per tone per day. The total numbers of working days are given as 250. Determine.

1. EBQ.
2. Duration of mining run.
3. Time between runs.
4. Minimum relevant inventory cost.
5. Plot graph showing whole inventory fluctuation Vs time.

Solution:

To find EBQ,
EBQ = v[2DCo/Cc(1-d/p)]
  Where
D = 8.00,000 tones per year
D = 8, 00,000/250
= 3200 tones per day
p = 5000 tones/day
Co = Rs2000 /run
Ch = Rs 5 /tones/day

(i) EBQ = v[(2×8,00,000×2500)/(5×(1-3200/5000))]

(ii)Duration of each mining run Q/p = tp

tp = 42164/5000
= 8.43
= 8.5 days (approx)

(iii) Time between runs

Q=t*d
T = Q/d
= 42164/3200
= 13.17 days.

(iv) Minimum relevant inventory cost = v [2DCoCc (1-d/p)

= v [2×8,00,000×2500×5×(1-3200/5000)]
= Rs. 84853
DBA 1651 PRODUCTION MANAGEMENT

Figure 2.18 – Graphical representation of above the example

NOTES

 2.7.4.3 Quantity Discount Model 

As it is mentioned already, the purchase cost becomes relevant with respect to

the quantity of order only when the supplier offers discounts.

Discounts means if the ordering quantity exceeds particular limit supplier offers
the quantity at lesser price per unit.

This is possible because the supplier produces more quantity. He could achieve
the economy of scale, the benefit achieved through the economy of scale, he wants to
pass it onto the customer. This results in lesser price per unit if the customer orders
more quantity.

If you look at in terms of the customer’s perspective, the customer should also
see that whether it is advisable to avail the discount offered. This is done through a
trade off between his carrying inventory by the result of acquiring more quantity and the
benefit achieved through purchase price.
DBA 1651 PRODUCTION MANAGEMENT

Figure 2.19 – Quantity Discount Model

NOTES

Solution:

Start with the lowest price i.e. Rs 9 and to find whether Q is more than or equals to
5000.

 EOQ= v(2DCo/ Cc)

= v(2×25000×60)/ 2.7)
= 1054.06 approx. 1055 units
This is not a feasible solution because we expected that Q will be more than or equals
to 5000 but the EOQ came as 1055.
By taking the next least value i.e. Rs 11 and to find whether Q is more than 1000 and
less than 5000.
 EOQ=v (2×25000×60)/ 3.3)
=956 units

This is also not a feasible solution because we expected Q will be more than 1000 and
less than 5000 but the EOQ came as 956.
By taking the next least value i.e. Rs 12 and to find whether Q is equals to 1000.
DBA 1651 PRODUCTION MANAGEMENT

NOTES For financial planning, MRP II treats cash flow almost like materials. The MPS
is first exploded into component parts requirements; the system then calculates the cost
and payment dates of all planned order releases, effectively creating a cash flow forecast.
This includes not just payments to suppliers, but also wages, power and other
consumables associated with production. Cash outflows may be projected for a year
or more by expense category, work centre or department, making budgeting much
simpler than it would be without an MRP II system.

Figure 2.31 - Framework of MRP II

2.9.3 Master Production Schedule

The MPS is a statement of the planned production of finished products that will
meet the demand on time, within the organization’s capacity. The master production
DBA 1651 PRODUCTION MANAGEMENT

schedule expresses. What we intend to make, how much we intend to make and when
we intend to make.
NOTES
The demand for end items is scheduled over a number of time periods and recorded
on a master production schedule (MPS).The MPS is developed from forecasts and
firm customer orders for end items, safety stock requirements and internal orders. MRP
takes the master schedule for end items and translates it into individual time-phased
component requirements.

Overview of Master Production Schedule:

Figure 2.32 - Overview of Master Production Schedule

Forecasted
Demand

Capacity Master
Planning Production
Schedule

Customer Order
(Delivery Time)

Capacity Planning:

Capacity planning essentially involves the following categories.

Resource Requirements Planning:

Resource requirements planning refers to the planning of the overall capacities

of the firm. This planning is done to validate the aggregate production plans of the firm.

Rough Cut Capacity Planning (RCCP):

Rough cut capacity planning (RCCP) involves planning capacities at key / 

bottleneck work centers and broadly balancing workloads. It thus validates the MPS.
Material requirements planning (MRP) uses a master production schedule (MPS) of 
end items to determine the quantity and timing of component part production. MRP is
capacity insensitive; it implicitly assumes that sufficient capacity is available to produce
components at the time they’re needed.

A problem commonly encountered in operating MRP systems is the existence

of an overstated MPS. An overstated master production schedule is one that orders
DBA 1651 PRODUCTION MANAGEMENT

NOTES more production to be released than production can complete. An overstated MPS
causes raw materials and WIP inventories to increase because more materials are
purchased and released to the shop than are completed and shipped. It also causes a
buildup of queues on the shop floor. Since jobs have to wait to be processed, actual
lead times increase, causing ship dates to be missed. As lead times increase, forecast
accuracy over the lead-time gets affected because forecasts are more accurate for
shorter periods than for longer ones. Thus, overstated master production schedules
lead to missed due dates and other problems. Validating the MPS with respect to
capacity is an extremely important step in MRP. This validation exercise has been termed
rough cut capacity planning (RCCP).

For example: consider the man hour requirement for three components over a three
week period as follows:
Table 2.15

Week 1 Week 2 Week 3

Component A 70 70 70
Component B 100 100 120
Component C 80 75 80

Let us now check the total man hours required to produce this master produc-
tion schedule. From the above illustrated resource requirements, a rough cut analysis
can be done as follows:

Table 2.16

Week 1 Week 2 Week3

Required standard hours 250 245 270
Available standard hours 250 250 250
Negative deviation -20
Positive deviation +5

RCCP DECISIONS

In this section, we discuss how to determine the amount of capacity that is

available, how to compare the capacity available to the capacity required and the options
that exist for adjusting the capacity available and/or the capacity required.
DBA 1651 PRODUCTION MANAGEMENT

Determining the Capacity Available NOTES

The plastic molding department of Al’s Lamps, presented in the previous sec-
tion, has three plastic molding machines. Since Al’s works one eight-hour shift each day
and there are 21 working days in an average month, it might seem that the capacity
available to the plastic molding department is 504 hours per month (3 machines times 8
hours/day/machine times 21 days/month).

However, two additional factors must be considered. First, the plastic molding
machines may not be available all the time. The machines may break down, the worker
may be absent, and the mold needed or the material needed may not immediately be
available. Second, there must be an adjustment between the time standard average and
the actual average production rate of the department. The first adjustment factor is
known as utilization. Utilization is a number between 0 and 1 that is equal to 1 minus the
proportion of time typically lost due to machine, worker, tool, or material unavailability.
The second adjustment factor is known as efficiency. Efficiency is formally defined to
be the average of standard hours of production per clock hour actually worked. If a
time standard is exactly right, efficiency is 1. If the time actually required to perform the
work is less than the standard, efficiency is more than 1. If the time actually required to
perform the work is more than the standard, efficiency is less than 1. As mentioned
previously, time standards tend to be slightly pessimistic due to continual improvement
in production methods.

Capacity available is found by multiplying time available times utilization and times time
efficiency:

Capacity Available = Time Available x Utilization x Efficiency

Assume that for the plastic molding department of Al’s Lamps, utilization is 0.756 and
efficiency is 1.05. The time available in a month having 168 working hours (21 eight-
hour days) is 504 (3 machines times 168 hours/month/ machine). Thus,

Capacity Available = 504 x 0.756 x 1.05 = 400 hours (rounded to the nearest hour).

When capacity is inadequate, four basic options are available to increase capacity:
overtime, subcontracting, alternate routing, or adding personnel. If no combination of 
the four options can provide sufficient capacity, the MPS will have to be reduced.
Options to adjust capacity required or available are discussed next.

• Increase Capacity

– Additional shifts
– Overtime
– Additional resources
DBA 1651 PRODUCTION MANAGEMENT

NOTES • Reduce Load

– Subcontract
– Reduce lot sizes if possible

• Redistribute Load

– Use alternate work centers or routings if possible

– Shift production to earlier periods that have additional capacity
– Temporarily use safety stocks and shift load to later period

• If all else fails, revise MPS

2.9.4 Capacity Requirements Planning

Capacity requirements planning (CRP) is a computer-based extension of the MRP

process that uses the results of MRP along with detailed production information and
labor information to calculate planned workloads. It is a detailed capacity analysis that
helps in validating the MRP schedule. CRP arises mainly due to batching of production
work orders in the course of MRP. It is thus a computerized system that projects load
from material requirements plan.

CRP Inputs & Outputs

Figure 2.33
MRP planned
order
releases

Capacity Open
Routing requirements orders
file planning file

Load profile for

each machine center
DBA 1651 PRODUCTION MANAGEMENT

Key Inputs
NOTES
• Schedule of open orders and planned order releases (from MRP).
A typical example would be as follows:
Table 2.17

Release date Due date Planned orders Number of batches of 20

week 5 week 7 40 2
week 8 week 10 80 4

• BOM with routing data:

A typical example would be as follows:
Table 2.18

• Work center data

A typical example would be as follows:

Table 2.19
Work centre 201
Queue time 2.5 hours
Available capacity 440.0 hours

• Work order status

Key Outputs
• Work center load report.
• Possible revised schedule of planned order releases.
DBA 1651 PRODUCTION MANAGEMENT

Now we use backward scheduling .The inspection has a lead time of 61.34 hours and
NOTES hence is loaded for the due date, which is week 7.Therefore the previous operation
(painting) is scheduled for the previous week (week 6).Painting only has a lead time of 
46.9 hours, which means the assembly operation can be scheduled for completion in
week 6.

These load projections can be represented as follows:

Figure 2.34
Load projection for assembly work center

18.4

week1 week2 week3 week4 week5 week6 week7

Figure 2.35 -

load projection for painting work center

27.6

week1 week2 week3 week4 week5 week6 week7

DBA 1651 PRODUCTION MANAGEMENT

Figure2.36
NOTES
Load projection for inspection work center

18.04

week1 week2 week3 week4 week5 week6 week7

Shop floor control

The system is provided with information on how many units were sent onwards
and the date as each work centre completes a job. This information enables the MRP
system to provide each work centre with daily notices of priority changes. After
rescheduling, new due dates and quantities go out to the factory and supplier companies,
who must act on them so that the previous schedule, with the jobs in progress, is
updated. The shop floor control thus provides information on the reschedules with the
help of which the existing schedules can be updated.

Production Activity Control (PAC)

PAC, Production Activity Control, is concerned with converting plans into action,
reporting the results achieved and revising plans and actions as required achieving desired
results. Thus, PAC converts plans into action by providing the required direction. This
requires the appropriate prior master planning of orders, work force personnel, materials,
and capacity requirements. They are useful in the management of lead-time, queue
length, work center idle time, and scheduled order completion. The three primary
functions of PAC
 Order release

 Dispatching

 Progress reporting
DBA 1651 PRODUCTION MANAGEMENT

Order Release
NOTES
Order release initiates the execution phase of production; it authorizes production
and/or purchasing. The planned order becomes a released (open) order. Placement of 
a purchase order or the initiation of manufacturing follows shortly. Order release planning
may take place until the moment of order release.

Authorization of order release is based on the planned orders in the MRP

output, the current priority, the availability of materials and tooling, and the loads specified
by I/O planning. Release of an order triggers the release of the following:

1. Requisitions for material and components required by the order. If some of 
these items are not required immediately and have not been allocated previously, they
are allocated now.

2. Production order documentation to the plant. This documentation may include

a set of both engineering drawings and manufacturing specifications and a manufacturing
routing sheet.

3. Requisitions for tools required in the first week or so of production. Tooling,

including tapes for numerically controlled machines, required in later operations is
reserved for the appropriate period. Tooling can be included in the master production
schedule and the bill of material. Its availability is thus coordinated with material and
equipment availability.

The time required to deliver production order documentation, tooling and

materials to the first operation is included in the normal planned lead time for the order.
An order is released by adding it to the dispatch list.

Dispatching

Dispatching informs first-line supervision of the released orders and their priority,
that is, the sequence in which orders should be run. This information can be transmitted
via a hard copy (handwritten, typed, or computer printout) or via video output on a
cathode ray tube (CRT). In a job shop a dispatch list should be prepared for each
work center with the frequency of updating depending on the typical order-processing
time. If orders take a day or less to process, dispatch lists usually are prepared daily. If 
orders take a few days, lists may be prepared weekly with midweek revisions handled
on an exception basis with on-line processing.

In a flow line process environment, a single list indicating the rate of flow (or in
a batch flow line, the sequence in which orders are to be started) will control work on
the entire line, which may be viewed as a single work center. An example of simple
dispatch list information identifies the date, the plant, and the work center; it includes
the work center capacity; and it lists the orders, their quantity, their capacity requirements,
and their priority. Orders usually are listed in descending priority for a specified period.
DBA 1651 PRODUCTION MANAGEMENT

The list also may include jobs at upstream work centers to provide the supervisor NOTES
with information concerning orders that will arrive shortly and an indication of their
priority upon arrival. A computerized system may produce relative rankings on the
basis of criteria such as critical ratio and earliest due date, as described earlier, but
review by a planner is required to determine if other considerations are overriding.

The planner determines the final dispatch list ranking of orders on the basis of 
the multiple criteria including a formal priority index such as, the critical ratio or the due
date, input control at downstream work centers, the availability of tooling, the status of 
other parts required in the same assembly, energy consumption patterns, and sequencing
and assignment criteria.

Production Reporting

Reports describing the actual production status are necessary for control.
Dynamic response to the changing conditions is possible only if timely, accurate, and
adequate information is available. The information must enable management to take
meaningful corrective action concerning production schedules.

The production environment influences the design of the production reporting

system. Reporting in a line flow environment with long production runs, may take place
on an exception basis with feedback occurring only when the output rate falls below an
acceptable level. All reporting systems should have an exception reporting capability to
inform management whenever machine failure, material shortages, or similar events
threaten planned output.

2.9.6 Benefits of MRP II

In the narrow sense, the main benefit of MRP II is its ability to generate valid
schedules and keep them valid. But valid schedules have broader benefits for the whole
organization. These include, more or less in order of importance:

1. Improved on-time completion

A typical manufacturing organization using MRP II should be able to achieve

on-time completion rates of 95 per cent or more, because completion of a parent item
is less likely to be delayed for lack of a component. On-time completion helps improve
customer service.

2. Reduced inventories

Inventory falls - typically by 20-35 per cent - because parts are not ordered
until needed.
DBA 1651 PRODUCTION MANAGEMENT

NOTES 3. Capacity requirements planning data

Work centre capacity requirements can be planned for many periods into the
future.

4. Improved direct labour productivity

Fewer shortages mean significantly less lost time and overtime, and less disruption
to accommodate shortage-list jobs.

5. Improved productivity of support staff 

MRP II cuts expediting (or ‘firefighting’) and allows more time for planning.
For example, purchasing can start looking for alternative or better suppliers; materials
management can plan inventory needs better.

6. Total business planning

The ability to use one common set of data to help plan and control the whole
business.

2.9.7 Drawbacks of MRPII

Though Manufacturing Resource Planning has a number of benefits, it has a

few limitations too. They are:-

· MRP II system is complex.

· MRP II implementation programmer, takes a lot of time, effort and commitment

at all levels of the organization to set up a successful MRP II system.

The benefits, however, should very quickly make the exertion worthwhile.

Review Questions:

1. MRPII stand for?

2. List the various phases of evaluation of MRPII

3. Discuss the input requirement of the capacity requirement planning.

4. What is dispatching?

5. List any two benefits of MRP

2.10 ENTERPRISES RESOURCE PLANNING

It is a system which integrates all the procesess and data of an organization.

It uses the hardware and software to integrate the activities of manufacturing, supply
chain, Financials, Customer Relationship Management (CRM), Human Resources and
Warehouse Management.
DBA 1651 PRODUCTION MANAGEMENT

2.10.1 Need for ERP NOTES

In the past, then available software applications that don’t talk to each other
and do not effectively interfaces, so the organizations were in the pursuit of identifying a
new software to eliminate the above limitation that result in the invention of ERP system.

ERP acts as a single database that includes all data for the software modules,
which would include manufacturing, supply chin management, finance, projects, customer
relationship management, data warehouse. This is shown in figure 2.36.

Manufacturing:

Engineering, Bills of Material, Scheduling, Capacity, Workflow Management,

Quality Control, Cost Management, Manufacturing Process, Manufacturing Projects,
Manufacturing Flow.

Supply Chain Management:

Inventory, Order Entry, Purchasing, Product Configurator, Supply Chain

Planning, Supplier Scheduling, Inspection of goods, Claim Processing, Commission
Calculation etc.

Finance:

 General Ledger, Cash Management, Accounts Payable, Accounts Receivable,

Fixed Assets.

Projects:

Costing, Billing, Time and Expense, Activity Management

Human Resources:

Human Resources, Payroll, Training, Time & Attendance, Benefits

Customer Relationship Management:

Sales and Marketing, Commissions, Service, Customer Contact and Call Center
Support etc.

Data Warehouse:

Various Self-Service interfaces for Customers, Suppliers, and Employees.

The framework of ERP is shown in the figure 2.36
DBA 1651 PRODUCTION MANAGEMENT

NOTES

(Level+Seasonal+Random) (Level+Trend+Seasonal+Random)

Cycle component usually considered

considered for the long term forecasting. The cycle
means business cycle or economy cycle. The different phases of this cycle are growth,
maturity and depression. Usually each phase may prevail for at least more than three
years.
 3.2.3.1.1 Time
Time Series Analysis
For after analyzing the pattern of data, you can choose relevant method for
forecasting. In this material important and complicated time series analysis methods
are discussed.
Moving Average

The moving average technique generates the next period’s

period ’s forecast by averaging the
actual demand for the last ‘n’ time periods.

Yt Yt ......Y t n
∑ Y t  1 −

ˆ = 1 + 2 + i =1
Y t 
− − −
=
n n

Where = forecast
forecast for period ‘t ’

=
actual demand in period ‘t ’
n = Number of periods included in each average
 Moving average problem – 1
From the data below, determine the forecast for period 7 using two month moving
average technique.

Table 3.2
3 .2

Month 1 2 3 4 5 6
Demand 20 30 40 30 50 58

Solution:
Moving average period (n) = 2
50 + 58
Forecast for period 7 would be =  = 54
2
DBA 1651 PRODUCTION MANAGEMENT

 Moving Average – Problem 2 NOTES

From the data below, determine MAD for the following forecasting techniques:
techni ques:
(a) last period demand, (b) arithmetic average, and (c) three month moving average.
What is the forecast for period 13?

Table 3.3
3 .3
Period D e m a nd Per io d Demand
1. 93 7. 100
2. 105 8. 101
3. 114 9. 81
4. 111 10. 118
5. 106 11. 103
6. 116 12. 114

Last
Last Pe
Peri
riod
od De
Dema
mand
nd Ar
Arit
ithm
hmet
etic
ic Ave
vera
rage
ge Thre
Threee Mo
Mont
nth
h
Moving Average
Average
Month Demand Forecast Absolute Forecast Absolute Forecast Absolute
demand deviation demand deviation demand deviation

1 93 - - 105.16 12.16 - -

2 105 93 12 105.16 0.16 - -

3 114 105 9 105.16 8.84 - -

4 111 114 3 105.16 5.84 104.00 7.00

5 106 111 5 105.16 0.84 110.00 4.00

6 116 106 10 105.16 10.84 110.33 5.67

7 100 116 16 105.16 5.16 111.00 11.00

8 101 100 1 105.16 4.16 107.33 6.33

9 81 101 20 105.16 24.16 105.67 24.67

10 118 81 37 105.16 12.84 94.00 24.00

11 103 118 15 105.16 2.16 100.00 3.00

12 114 103 11 105.16 8.84 111.67 13.30

13 114 Total 105.16 Total 111.67 Total

139 96.00 98.97

DBA 1651 PRODUCTION MANAGEMENT

NOTES 139
=  = 12.63
11

n ˆ
Y i − Y 
i 96
 MAD = ∑ = =8
i =1 n 12

n ˆ
Y i − Y 
i 98.97
 MAD = ∑ =  = 10.99
i =1 n 9
Forecast for period 13 using last period demand = 114
Forecast for period 13 using arithmetic average = 105.16
Forecast for period
peri od 13 using three month moving
movi ng average = 111.67
111.67

 Exponentially weighted moving average

aver age

In the simple moving average technique, recent ‘n’ data have to be taken while
calculating the forecast. ‘n’ represents, ‘n’ month moving average’, exponentially weighted
moving average gives more weightage to the recent r ecent data and less weightage to the old
data moreover if you apply this technique to forecast the future, there isi s no need to store
recent ‘n’ data as you did in the moving average method. Because all the data will be in
one single value that is the previous forecast value.

Simple exponentially moving weightage average model 

Forecast for period t = α   (Actual demand of period t-1) + (1- α  ) (forecasted

value of t-1)
This model is applicable only when the past data follows a horizontal pattern with error
component.

Figure 3.5 - Simple exponentially moving weightage

weightage average model

  Sales

  Time

Where ‘ α  ’ is the exponential smoothening constant, α   varies between 0 to 1.let us

analyze why this method is called exponential weighted moving average.
 DBA 1651 PRODUCTION MANAGEMENT

Forecast for period t

NOTES
= (actual demand for period t-1) + (1- α  ) (forecasted value for t-1)

ˆ = forecast for the level component for period t

 X 
t 

ˆ
 X  = Y t  1α  + (1 − α  ) Y t  2 α  + (1 − ˆ
α  )  X 
t  − − t  − 2

= α Y t  α  (1 − α  ) Y t  ˆ
(1 − α  ) 2  X 
− 1 + − 2 + t  − 2

= α Y t  1 + α (1 − α )Y t  ˆ

(1 − α ) 2 Y t  3 α  + (1 − α ) X 
− − 2 + − t  − 3

From the above expressions, you can easily understand that the past data gets less
weightage than the recent data as follows:

DATA WEIGHTAGE FOR α  =0.4

Yt-1 α  0.4
Yt-2 α  (1-α  ) 0.24
Yt-3 α  (1-α  )^2 0.144

α  If you plot the weightage against the time data, it follows exponential pattern,
β 
ˆˆˆ =− X 
Y 
X  ˆˆ
 X  ˆ
X  t  1 α 
= Y  − α ) X 
the(1method
t −1 so+ is t called as exponentially weighted moving average.
t  t  −
t  −1

 Exponentially weighted moving average with trend correction (Level + Trend)

When you analyze the past data and if you have a feeling that the past data
contains both the level(X) and trend component (T), then the model is used for adjusting
trend and level component is
= α   Yt-1 + (1 - α  ) (  + Tt-1)
-1

Tt =  β   ( ) + (1 -  β  ) Tt-1

Tt = Trend adjustment for period‘t’.
 β   is a smoothing constant for trend. This varies between 0 and 1.
Now the forecast for period t
+ Tt
If you want to forecast for ‘n’ period from the period‘t’ where in the forecast value
ˆ and T , then the formula to be used
available are  X 
t  t
ˆ =  X 
Y  ˆ  + (n + 1) T
t  n
+ t  t

 Exponentially weighted moving average Problem - 3

Using exponential smoothing and the data in the previous problem, forecast
monthly demand if α   = 0.2 and  = 0.4. Assume that the actual demand in the first
DBA 1651 PRODUCTION MANAGEMENT

month is the same as the forecasted demand and the initial level and the initial trend for
NOTES month 1 both are 10. From these results forecast the demand for period 8.

Table 3.5
Month Yt Demand Forecast Level Tt Trend Forecast

1 20 10 10 20
2 30 20 10 30
3 40 30 10 40
4 30 40 10 50
5 50 46 8.4 54.4
6 58 53.52 8.048 61.568
7 54 60.85 7.752 68.602
8 65.68 6.583 72.263

α  = 0.2, = 0.4

Table 3.6

Month Yt Tt Trend ˆ   Forecast

Y 
t 

Demand Forecast Level

1 20 10 10 20
2 30
3 40
4 30
5 50
6 58
7 54
8
ˆ = α   Y + (1 - α  ) (
 X   + Tt-1)
t  t-1 -1

Tt =  β   ( ˆ ) + (1 -  β  ) T
- X 
t  -1 t-1

Tt = Trend adjustment for period‘t’.

ˆ  + T
=  X 
t  t

Forecast demand level for the 2nd month is obtained in the following manner
ˆ  = 0.2 * (20) + 0.8 * (10 + 10)
 X 
2

= 4 + 16
= 20
DBA 1651 PRODUCTION MANAGEMENT

NOTES Table 3.7

Quarter Demand Quarter Demand

1. 497 7. 821
2. 454 8. 1017
3. 624 9. 709
4. 764 10. 715
5. 631 11. 1794
6. 624 12. 1242

Using the data from the first eight quarters, compute the quarterly seasonal indices.

Solutions -

Table 3.8

Period Demand Average of same quarter Seasonal Index

of each year

1 497 564 0.83

2 454 539 0.793

3 624 722.5 1.064

4 764 890.5 1.311

5 631 564 0.83

6 624 539 0.793

7 821 722.5 1.064

8 1017 890.5 1.311

Total 5432 7.996

5432
Overall quarterly average =  = 679
8
Average of same quarter of each year
Seasonal Index =
Overall quarterly average

564
Seasonal Index for Quarter 1 =  = 0.83
679
539
Seasonal Index for Quarter 2 =  = 0.793
679