Operation Management

Unit-I
Production is the process by which raw materials and other inputs are converted into
finished products.
Production management refers to the application of management principles to the
production function in a factory. In other words, production management involves
application of planning, organising, directing and controlling to the production process.
Operations management is the process in which resorurces/inputs are converted into more
useful products
Production management and operations management are differentiated based on
tangibilities of finished goods/services
Production system model comprises:

Operation managers are required to make a series of decisions in the production function.
he decisions made by operation managers about the activities of production systems
tend to fall into three general categories, vi!.,
". #trategic decisions
$. Operating decisions
%. &ontrol decisions
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Student HandNotes R. Sendamiztchelvan
Operation Management
Importance of Production Function
Production function can offer competitive advantage to a firm in the following areas:
#horter new'product'lead time
(ore inventory turns
#horter manufacturing lead time
)igher quality
*reater fle+ibility
,etter customer service
-educed wastage
Characteristics of Modern Production and Operations Function
". (anufacturing as &ompetitive .dvantage
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Student HandNotes R. Sendamiztchelvan
Operation Management
$. #ervices Orientation
%. /isappearance of #mokestacks
0. #mall has ,ecome ,eautiful
Recent Trends in Production/Operations management
". *lobal (arket Place
$. Production/Operations #trategy
%. otal 1uality (anagement 21(3
0. 4le+ibility
5. ime -eduction
6. echnology
7. 8orker Involvement
9. -e'engineering
:. ;nvironmental Issues
"<. &orporate /ownsi!ing 2or -ight #i!ing3
"". #upply'&hain (anagement
"$. =ean Production
ypes of Production system
Manufacturing System Service System
Continuous Production Intermittent Production
atch Production !o" Production
Mass production# F$o%& Processing Production
!o"-Shop Production
>ob'shop production are characterised by manufacturing one or few quantity of products
designed and produced as per the specification of customers within prefi+ed time and cost. he
distinguishing feature of this is low volume and high variety of products.
atch Production
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Student HandNotes R. Sendamiztchelvan
Operation Management
.merican Production and Inventory &ontrol #ociety 2.PI&#3 defines ,atch Production as a
form of manufacturing in which the ?ob pass through the functional departments in lots or
batches and each lot may have a different routing.
Mass Production
(anufacture of discrete parts or assemblies using a continuous process are called Mass
Production. his production system is ?ustified by very large volume of production. he
machines are arranged in a line or product layout. Product and process standardisation e+ists and
all outputs follow the same path.
Continuous Production
Production facilities are arranged as per the sequence of production operations from the first
operations to the finished product. he items are made to flow through the sequence of
operations through material handling devices such as conveyors, transfer devices, etc.
'$ements of operation strategy
Operations strategy comprises si+ components :
". Positioning the production system(- It involves selecting the product design, the production
system and the inventory policy for the finished goods for each product line
)&* Product Focused- *enerally employed in mass production organi!ations, where there are
groups of machine, tools and workers arranged according to their respective tasks in order to put
together a product.
,3.Process Focused-It is designed to support production departments that perform a single task
like painting or packing. hese system are highly fle+ible and can easily be modified to support
other product design.
+* Focus of factories and service faci$ities(
,* Product/Service design and deve$opment*
0. Techno$ogy se$ection and process deve$opment,' horough analysis and planning of the
production processes and facilities. ;very step in the process of production is planned in
detail. he technology to be used in the production process is selected from range of options
5. )$$ocation of resources to strategic a$ternatives- Production companies have to
continuously deal with the problem of scarce resources like capital, machine and materials
and so on. .s these resource inputs are vital to production activities, their shortages can
influence production performance significantly. )ence the operation manger have to plan the
optimal use of resources, both in terms of minimi!ing wastage, and in terms of their
allocation to the best strategic use.
-* Faci$ity p$anning*
he location of the production facilities is one of the key decisions an operation manager
has to make since it is critical to the competitiveness of the organi!ation.
#etting up production facilities with adequate capacity involves massive initial
investment.
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Student HandNotes R. Sendamiztchelvan
Operation Management
#trategically right options should be carefully weighted against all available alternatives.
hese decisions also influence the future decisions on probable capacity e+pansions
plans.
Operation managers also make decisions, i.e. decision on internal arrangement of workers
and department within the facility
Operations Competitive Priorities
". Product and service design
$. &ost
%. =ocation
0. 1uality
5. 1uick response
6. 4le+ibility
7. Inventory management
9. #upply chain management
:. #ervice
Unit-+
Forecasting .efined / 4orecasting is the first step in planning. It is defined as estimating the
future demand for products and services and the resources necessary to produce these outputs.
.emand forcasting is needed for/
@ Aew facility Planning
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Student HandNotes R. Sendamiztchelvan
Operation Management
@ Production Planning
@ 8ork force scheduling
@ 4inancial planning
Types of Forecasts
@ Techno$ogica$ forecasts/ &oncerned with rates of technological progress
@ 'conomic forecasts/ #tatements of e+pected future business conditions.
@ .emand forecasts/ Pro?ections of demand for a companyBs products or services
throughout some future period.
O"0ectives of .emand Forecasting
Short range o"0ectives of demand forecasting/
i. 4ormulation of production strategy and policy
ii. 4ormulation of pricing policy
iii. Planning and control of sales
iv. 4inancial planning
Medium or 1ong-Range O"0ectives/
i. =ong'range planning for production capacity
ii. =abour requirements 2;mployment levels3
iii. -estructuring the capital structure
Steps in the Forecasting Process
he seven basic steps
i. /etermine the purpose 2ob?ectives3 of the forecast
ii. #elect the items for which forecasts are needed
iii. /etermine the time hori!on for the forecast
iv. #elect the forecasting model 2method or technique3
v. *ather and analyse the data needed for the forecast
vi. Prepare the forecast
vii. (onitor the forecast
Forecasting Approaches : he two general approaches to forecasting are :
(i) 2ua$itative methods consist mainly of sub?ective inputs, often of non'numerical
description.
!ury of e3ecutive opinion method involves taking opinion of a small group of high'level
managers and results in a group estimate of demand.
Sa$esforce composite method is based on estimate of e+pected sales by sales persons.
Mar4et research method or consumer survey method determines consumer interest
in a product or service by means of a consumer survey.
.e$phi method is a ?udgemental method which uses a group process that allows e+perts
to make forecasts.
2ii3 2uantitative methods involve either pro?ection of historical data or the development of
association models which attempt to use causal variables to arrive at the forecasts.
5* Time series mode$s use a series of past data to make a forecast for the future. ime series is a
time'ordered sequence of observations taken at regular intervals over a period of time.
Yc C T. S. C. R multiplicative model
Yc C T D S D C D R additive model
where T is rend, S is #easonal, C is &yclical, and R is -andom components of a series.

Student HandNotes R. Sendamiztchelvan

Operation Management
Trend is a gradual long'term directional movement in the data 2growth or decline3.
Seasona$ effects are similar variations occurring during corresponding periods, e.g., /ecember
retail sales. #easonal can be quarterly, monthly, weekly, daily, or even hourly inde+es.
Cyc$ica$ factors are the long'term swings about the trend line. hey are often associated with
business cycles and may e+tend out to several years in length.
Random component are sporadic 2unpredictable3 effects due to chance and unusual
occurrences. hey are the residual after the trend, cyclical, and seasonal variations are removed.
Trend: hree methods for describing trend are: 2"3 (oving average, 2$3 )and fitting, and
2%3 =east squares.
5* MO6I78 )6'R)8'
. centered moving average 2(.3 is obtained by summing and averaging the values from a given
number of periods repetitively, each time deleting the oldest value and adding a new value.
E+
(. C
Aumber of Period
) %eighted moving average #M)%& allows some values to be emphasi!ed by varying the
weights assigned to each component of the average. 8eights can be either percentages or a real
number.
E 2Wt3X
(.wt =
EWt
+* 9)7. FITTI78
. hand fit or freehand curve is simply a plot of a representative line that 2sub?ectively3 seems to
best fit the data points. 4or linear data, the forecasting equation will be of the form:
Yc C a D b (X) 2signature3
where Yc is the trend value, a is the intercept 2where line crosses the vertical a+is3, b is the slope
2the rise, F! divided by the run, F"3, and X is the time value 2years, quarters, etc.3. he
GsignatureH identifies the point in time when X C <, as well as the X and Y units.
,* 1')ST S2U)R'S
#east s$uares are a mathematical technique of fitting a trend to data points. he resulting line o%
best %it has the following properties: 2"3 the summation of all vertical deviations about it is !ero,
2$3 the summation of all vertical deviations squared is a minimum, and 2%3 the line goes through
the means X and Y. 4or linear equations, the line of best fit is found by the simultaneous solution
for a and b of the following two normal e$uations&
EY = na IFbEX
EXY C aEXIbEX
'
':PO7'7TI)1 SMOOT9I78
;+ponential smoothening is a moving'average forecasting technique that weights past data in an
;+ponential manner so that most recent data carry more weight in the moving average.
8ith simple ;+ponential smoothening, the forecast (t is made up of the last period forecast (tJ"
plus a portion, K, of the difference between the last periods actual demand )tJ" and last period
forecast (tJ".
(t C (tJ" D 2)tJ"J (tJ"3.
)d0usted '3ponentia$ Smoothing
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Student HandNotes R. Sendamiztchelvan
Operation Management
.d?usted e+ponential smoothing models have all the features of simple e+ponential smoothing
models,
plus they pro?ect into the future 2for e+ample, to time period t D "3 by adding a trend correction
increment, Tt! to the current period smoothed average, 4t
(t*+F C (tITt
he components of a trend'ad?usted forecast that utili!es a second smoothing coefficient LF. he
LFvalue determines the e+tent to which the trend ad?ustment relies on the latest difference in
forecast amounts 2 ( t ,( t,+FF3 versus the previous trend Tt-+
. low LFFgives more smoothing of the trend and may be useful if the trend is not well'established.
. high LFFwill emphasi!e the latest trend and be more responsive to recent changes in trend. he
initial trend ad?ustment TtJ" is sometimes assumed to be !ero.
R'8R'SSIO7 )7. CORR'1)TIO7 M'T9O.S
-egression and correlation techniques quantify the statistical association between two or more
variables.
2a3 Simple regression e+presses the relationship between a dependent variable Y and a
independent variable X in terms of the slope and intercept of the line of best fit relating the two
variables.
2b3 Simple correlation e+presses the degree or closeness of the relationship between two
variables in terms of a correlation coefficient that provides an indirect measure of the variability
of points from the line of best fit. Aeither regression nor correlation gives proof of a cause'effect
relationship.
Capacity
.mount of output a system is capable of achieving over a specific period of time.
.ctual output
;fficiency C
;ffective capacity
.ctual output
Mtilisation C
/esign capacity
Capacity p$anning
&apacity planning is central to the long'term success of an organisation. &apacity plans are made
at two levels:
(i) 1ong-term capacity p$ans which deal with investments in new facilities and equipments
covering the requirements for at least two years into the future.
(ii) Short-term capacity p$ans which focus on work'force si!e, overtime budgets, inventories
etc.
1ong-Range Capacity P$anning
. long term strategic decision that establishes a firmNs overall level resources.
hree ma?or capacity decisions are:
i. )ow much capacity to be installed,
ii. 8hen to increase capacity and
iii. )ow much to increase.
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Student HandNotes R. Sendamiztchelvan
Operation Management
Types of Capacity
@ Production capacity/ (a+imum rate of production or output of an organisation.
@ .esign capacity/ he ma+imum output that can possibly be attained.
@ 'ffective capacity/ he ma+imum output given a product mi+, scheduling difficulties,
machine maintenance, quality factors, absenteeism etc.
@ Ma3imum capacity/ he ma+imum output that a facility can achieve under ideal
conditions. .lso known as peak capacity.
.eve$oping Capacity )$ternatives
o enhance capacity management, the following approaches to capacity alternatives could be
developed:
i. /esigning fle+ibility into the system
ii. /ifferentiating between new and mature products or services
iii. aking a Gbig'pictureH approach to capacity changes
iv. Preparing to deal with GchunksH of capacity
v. .ttempting to smooth out capacity requirements
)ggregate P$anning
@ .ggregate planning involves planning the best quality to produce in the intermediate'
range hori!on 2% months to one year3
@ .ggregate production planning is the process of determining output levels of product
groups over the ne+t 6 to "9 months period.
@ Ob?ectives of .ggregate Planning
i. he overall ob?ective is to balance conflicting ob?ectives involving customer
service, work force stability, cost and profit.
ii. o establish company'wide strategic plan for allocating resources.
iii. o develop an economic strategy to meet customer demand.
Inputs to and Outputs from )ggregate Production P$anning
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Student HandNotes R. Sendamiztchelvan
Operation Management
)ggregate P$anning or )ggregate Capacity P$anning
Aeed for .ggregate &apacity Planning
". It facilitates fully loaded facilities and minimi!es overloading and underloading
and keeps production costs low.
$. .dequate production capacity is provided to meet e+pected aggregate demand.
%. Orderly and systematic transition of production capacity to meet the peaks and
valleys of e+pected customer demand is facilitated.
Steps in )ggregate Capacity P$anning
". /etermine the demand 2i.e.! sales forecast3 for each product for each time period
2i.e.! weeks or months or quarters3 over the planning hori!on 26 to "$ months3.
$. /etermine the aggregate demand by summing up the demand for individual
products.
%. ransform the aggregate demand for each time period into workers, materials,
machines required to satisfy aggregate demand.
0. Identify company policies that are pertinent 2e...! policy regarding safety stock
maintenance, maintaining stable workforce etc.3.
5. /etermine unit costs for regular time, overtime, subcontracting, holding
inventories, back orders, layoffs etc.
6. /evelop alternative resource plans for providing necessary production capacity to
support the cumulative aggregate demand and compute the cost of each
alternative plan.
7. #elect the resource plan from among the alternatives considered that satisfies
aggregate demand and best meets the ob?ectives of the firm.
)pproaches to )ggregate P$anning
". op down approach
$. . bottom'up approach or subplan consolidation approach
-ough'cut &apacity Planning
his is done in con?unction with the tentative master production schedule to test its
feasibility in terms of capacity before the master production schedule 2(P#3 is finalised.
Capacity P$anning and Capacity Re;uirement P$anning #CRP&
Production capacity is defined as the ma+imum production rate of a facility or a plant.
@ ypes of &apacity
". 4i+ed capacity
$. .d?ustable capacity
%. /esign capacity
0. #ystem capacity
5. Potential capacity
6. Immediate capacity
7. ;ffective capacity
9. Aormal capacity or rated capacity
:. .ctual or utilised capacity
Capacity P$anning
@ &apacity planning involves activities such as:
". .ssessing e+isting capacity
$. 4orecasting future capacity needs
%. Identifying alternative ways to modify capacity
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Student HandNotes R. Sendamiztchelvan
Operation Management
0. ;valuating financial, economical and technological capacity alternatives
#electing a capacity alternative most suited to achieve the strategic mission of the firm. &apacity
planning involves capacity decisions that must merge consumer demands with human, material
and financial resources of the organi!ation
0 ypes of &apacity Planning are:
@ =ong term &apacity Planning
@ #hort'term &apacity Planing
@ 4inite &apacity Planning
@ Infinite &apacity Planning.
@ wo catagories of factors affecting capacity planning are:
@ &ontrollable 4actors
@ =ess &ontrollable 4actors.
@ &apacity -equirement Planning 2&-P3: . technique to determine the labour and
equipment capacities needed to meet the ob?ectives.
Capacity Re;uirement P$anning #CRP& Process
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Student HandNotes R. Sendamiztchelvan
Operation Management
Master Production Schedu$ing
@ Ob?ectives of (aster Production #cheduling
". o schedule end items to be completed promptly and when promised to
customers.
$. o avoid overloading or underloading the production facility so that production
capacity is efficiently utili!ed and low production costs result.
Functions of MPS/
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Student HandNotes R. Sendamiztchelvan
Operation Management
@ ranslating aggregate plans
@ ;valuating alternative master schedules
@ *enerating material and capacity requirements
@ 4acilitating information processing
@ (aintaining priorities
@ Mtili!ing the capacity effectively.
Master Production Schedu$e - F$o% Chart
8uide$ines for Master Schedu$ing
". 8ork from an aggregate production plan
$. #chedule common modules when possible
%. =oad facilities realistically
0. -elease orders on a timely basis
5. (onitor inventory levels closely
6. -eschedule as required
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Student HandNotes R. Sendamiztchelvan
Operation Management
MPS in Produce-to-stoc4 and Produce-to-order Firms
he elements of the (P# that are affected by the type of production system are:
a. /emand management
b. =ot'si!ing
c. Aumber of products to be scheduled 2product'mi+3.
Materia$s Re;uirements p$anning #MRP-5 or mrp&/ &omputer based information system for
ordering and scheduling of dependent demand inventories.
O"0ectives of MRP
". o improve customer service by meeting delivery schedules promised and shortening delivery
lead times.
$. o reduce inventory costs by reducing inventory levels.
%.o improve plant operating efficiency by better use of productive resources.
hree main purposes of a basic (-P system are to:
@ &ontrol inventory levels
@ .ssign operating priorities
@ .ssign capacity to load production systems.
MRP System Inputs
Master Production Schedu$e/ One of the three primary inputs in (-P, specifies what end
products are to be produced, in what quantities and when.
i$$ of Materia$s fi$e/ Provides the information regarding all the materials, parts and sub
assemblies that go into the end product.
Inventory Status fi$e/ *ives complete and up'to'date information on the on'hand inventories,
gross requirements, scheduled receipts and planned order releases for the item.
MRP System Outputs
Primary outputs of (-P #ystems:
@ Planned order schedule
@ &hanges in planned orders.
#econdary inputs of (-P system:
@ ;+ception reports
@ Performance reports
@ Planning reports
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Student HandNotes R. Sendamiztchelvan
Operation Management
Manufacturing Resource P$anning #MRP II &: ,road'based resource co'ordination system
involving other areas of a firm in the planning process, such as marketing, finance and the human
resource.
(anufacturing -esource Planning 2(-P II3 addresses the planning and control of
activities related to materials, capacity, finance, engineering, sales and marketing.
&losed'loop (-P:
. system built around material requirement planning 2(-P'I3 and also including
additional planning functions such as master production scheduling and capacity requirement
planning
'nterprise Resource P$anning
'nterprise Resource P$anning #'RP&/ . software package developed for optimum use
of resources of an enterprise in a planned manner. It integrates the entire enterprise
starting form the supplier to the customer, covering, logistics, financial and human
resources.
4eatures of ;-P
". .ccommodating variety
$. Integrated (anagement Information
%. #eamless integration
0. #upply chain management
5. -esource management
6. Integrated data model
#cope of ;-P
a. 4inancials
b. =ogistics
c. )uman resources
d. 8ork flow
.pplication of ;-P
;-P is gaining popularity in India at a rapid pace. his is mainly due to the need for reducing
costs especially when the sales are sluggish in the sub'merging markets.
Unit-,
Product .esign/ &oncerned with form and function of a product. It refers to the arrangement of
elements or parts that collectively form a product.
Process .esign/ &oncerned with the overall sequence of operations required to achieve the
design specification of the product.
Production .esign/ &oncept of designing products from the point of view of producibility.
O"0ectives of Product .esign
2i3 he overall ob?ective is profit generation in the long run.
2ii3 o achieve the desired product quality.
2iii3 o reduce the development time and cost to the minimum.
2iv3 o reduce the cost of the product.
2v3 o ensure producibility or manufacturability 2design for manufacturing and assembly3.
Factors Inf$uencing Product .esign
i. &ustomer requirements
ii. &onvenience of the operator or user
iii. rade off between function and form
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Student HandNotes R. Sendamiztchelvan
Operation Management
iv. ypes of materials used
v. 8ork methods and equipments
vi. &ost/Price ratio
vii. Product quality
viii. Process capability
i+. ;ffect on e+isting products
+. Packaging
)pproaches to Product .esign
i. /esigning for the customer
@ Industrial design
@ Ooice of the customer
@ 1uality function deployment 214/3
ii. /esigning for (anufacture and .ssembly 2/4(.3
@ GOver'the'wall approachH
@ &oncurrent engineering
@ /esign for (anufacturing 2/4(3 /esign for .ssembly 2/4.3
iii. /esigning for ease of production 2or for producibility or manufacturability3
@ #pecification
@ #tandardisation
@ #implification
iv. /esigning for 1uality
a. /esigning for robustness 2or robust design3
b. /esigning for production
i. (odular design
ii. /esigning for automation
c. /esigning for reliability
v. /esigning for ;rgonomics
vi. /esigning for environmental protection
vii. /esigning for recycling
viii. /esigning of disassembly 2/4/3
i+. /esigning for mass customisation
/elayed differentiation and modular designs are two tactics used to make mass
customisation possible.
+. Other issues in product design are 2a3 &omputer aided design 2&./3, 2b3 Oalue
engineering or value analysis which
@ &omputer aided design: Mse of computer graphics for designing the product helps
to generate a number of alternative designs and identify the best alternative which
meets the designerNs criteria.
@ Oalue engineering/Oalue analysis: &oncerned with the improvement of design
and specifications at various stages of product planning and development.
1ega$ )spect of Product .esign
(i) he imposition of rules and acts passed by #tate and &entral *ovt.
(ii) he standards related to code of practice for design, fabrication and testing of products
prepared by standards organi!ation.
(iii) he imposition of punitive damages by the courts in product liability cases.
1
Student HandNotes R. Sendamiztchelvan
Operation Management
(iv) he resistance of consumer protection forums to badly designed and manufacturing
products.
(v) he resistance of public to damage of their environment.
(vi) he most important law to consider while dealing with the product liability is the
&onsumer Protection .ct of ":96.
(vii) he sales of *oods .ct of ":56.
'nvironmenta$ Issues
Product Po$$ution
/esigner should anticipate environmental trends and design products that are clean enough for
future environmental standards.
Process Po$$ution
Product designer must avoid the process that causing pollution from solvents, combustible
products, wastes etc. or he may change the processes at the early stages.
'ase of recyc$ing product
;veryone has a moral obligation about the happens to the product after itNs useful life is overP
&an it be recycled into new even be able to profit in some manner from recycling of itNs product.
Process P$anning and Process .esign
.fter the final design of the product has been approved and released for production, the
production planning and control department takes the responsibility of process plannin.
and process desi.n for converting the product design into a tangible product.
<hat is a Process=
. process is a sequence of activities that is intended to achieve some result, for e+ample, to
create added value for the customers
Process p$anning/ &oncerned with planning the conversion processes needed to convert the raw
material into finished products.
Process design/ &oncerned with the overall sequences of operations required to achieve the
product specifications
Operations design/ &oncerned with the design of the individual manufacturing operation.
Process Se$ection
Process selection refers to the %ay production of goods or services is organised.
hree primary questions to be addressed before deciding on process selection are:
2i3 )ow much variety of products or services will the system need to handleP
2ii3 8hat degree of equipment fle+ibility will be neededP
2iii3 8hat is the e+pected volume of outputP
Process Strategy
.n organisationNs approach to selection of the process for the conversion of resource inputs into
outputs.
Qey aspects in process strategy include:
i. (ake or buy decisions
ii. &apital intensity and
iii. Process fle+ibility
Process Se$ected Must Fit %ith 6o$ume and 6ariety
1!
Student HandNotes R. Sendamiztchelvan
Operation Management
S'R6IC' OP'R)TIO7S
Planning and #cheduling service systems is different from planning and scheduling
manufacturing systems.
&ompetitive priorities for service firm:
@ =ow service product costs.
@ 4ast and on time delivery
@ )igh quality services
@ &ustomer service
@ 4le+ibility.
hree types of service operations are:
2uasi manufacturing/ In quasi manufacturing physical goods are more dominant then
service associated with the product. )ere the stress is on cost of production, technology,
products, product quality and prompt delivery. It may be either a standardi!ed or
customi!ed product.
Customer-as-participants/ )ere there is a high involvement of customer the physical
goods may not be that must sufficient. #ervices can be either customi!ed or standardi!ed.
Customer- as-product/ )ere the service is performed on customer. #ervice here is
customi!ed physical goods may or may not significant.
Schedu$ing 2uasi-Manufacturing Operations
1"
Student HandNotes R. Sendamiztchelvan
Operation Management
wo types of quasi'manufacturing operations are:
@ Product'focussed operations
@ Process focussed operations.
@ Personnel #cheduling in #ervices
hree difficulties faced in scheduled personnel in services are:
@ /emand variability
@ #ervice time variability
@ .vailability of person when they are needed.
Schedu$ing >Customer-)s-Participant? Service Operations
G&ustomer'as'participantH service operations:
@ &ustomer actually participates in service operations for eg. retailing, tourism etc.
@ )as huge invovement of customer in service operations.
Schedu$ing >Customer-)s-Product? Service Operations
G&ustomer'as'productH service operations:
@ #ervice is actually performed on the customer. for e+ample, hair dressing,, medical
treatment, surgery etc.
@ #cheduling (ultiple -esources
wo ma?or characteristics of service operations are:
@ #ervices are produced and delivered by people
@ he pattern of demand for services is not uniform
#cheduling of service system involve scheduling
@ &ustomers
@ 8ork force
@ ;quipment
Schedu$ing Strategies for Services
wo common strategies for scheduling services are:
@ #chedule for peak demand
@ &hase /emand. Other Possible #trategies
Other possible strategies for services are:
@ -eservation strategy
@ &ustomer participation
@ .d?ustable capacity
@ &ross'raining
@ #haring capacity.
Schedu$ing Mu$tip$e Resources
In some service organi!ation it is necessary to coordinate the uses of more than one resource.
he comple+ity of scheduling the resources increases with multiple resources used by the service
systems.
Cyc$ica$ Schedu$e or Rotating Schedu$e
&yclical or rotating schedule rotates employees through a series of workdays or working hours.
<or4 Study-Method Study and <or4 Measurement
@ (ethods engineering includes work simplification, ?ob design, value analysis and the
like.
@ 8ork study method was developed to improve performance of a given work.
1#
Student HandNotes R. Sendamiztchelvan
Operation Management
@ 8ork study is the body of knowledge concerned with analysis of the work methods, and
the standard of proposed work methods.
@ Ob?ective of work study is to improve operational efficiency.
@ he purpose of work study is to determine the best or most effective method of
accomplishing a necessary operation.
Re$ationship of Time and Motion Study to <or4 Study
@ ime study and motion study are results of practices developed by 4.8. aylor, 4rank
and =illian *ilbreth.
@ ime study: ;+ercising control over the output in respect of a ?ob by setting standards for
performance.
@ ime study may be used to compare the effectiveness of alternative work methods.
Steps Invo$ved in <or4 Study
Method Study or Methods )na$ysis
@ (ethod study is also known as methods improvement.
@ Prime ob?ectives of method study are to eliminate wasteful and inefficient motions.
Steps in method study
2$
Student HandNotes R. Sendamiztchelvan
Operation Management
". Se$ect' select the work to be studied.
$. Record'record all the relevant facts of the present method of direct observation.
%. '3amine'e+amine the facts critically in sequence, using special critical e+amination sheet.
0. .eve$op'develop the best method 2i.e3 the most practical, economic and effective method,
under prevailing circumstances.
5. Insta$$'install that method as standard practice
6. Maintain' maintain the standard practice by regular routine check.
Motion Study
Motion study is the science of eliminating wastefulness resulting from using unnecessaryR ill'
directed and inefficient motion. he aim of motion study is to find and perpetuate the scheme of
least waste methods of labour.
Micro motion study provides a valuable technique for making minute analysis of those
operations that are short in cycle, contain rapid movements and involve high production over a
long period of time.
(icro'motions are also known as SherbligsN.
'3amp$es of Ther"$igs
". #earch 2#r3
$. #elect 2#t3
%. *rasp 2*3
0. ransport empty 2;3
5. ransport loaded 2=3
6. )old 2)3
7. -elease load 2-=3
9. Position 2P3
:. Pre'position 2PP3
"<. Inspect 2I3
"". .ssemble 2.3
"$. /isassemble 2/.3
"%. Mse 2M3
"0. Mnavoidable delay 2M/3
"5. .voidable delay 2./3
"6. Plan 2Pn3
"7. -est for overcoming fatigue 2-3
"9. 4ind 243
Princip$es of Motion 'conomy
Principles of motion economy are divided into three groups.
a. ;ffective use of the operator
b. .rrangement of the workplace
c. ools and equipment
2ua$ified <or4er
T. qualified worker is one who is accepted as having the necessary physical attributes,
possessing the required intelligence and education and having acquired the necessary skill and
knowledge to carry out the work in hand to satisfactory standards of safety, quantity and qualityT
Techni;ues of <or4 Measurement
he main techniques used to measure work are:
/irect ime #tudy.
#ynthesis (ethod.
.nalytical ;stimating.
Pre determined (otion ime #ystem 2P(#3.
8ork sampling or .ctivity #ampling or -atio /elay (ethod.
Steps in <or4 Measurement
8ork measurement involves seven steps.
". ,reak the ?ob into elements
$. -ecord the observed time for each element by means of either time study, synthesis or
analytical estimating.
21
Student HandNotes R. Sendamiztchelvan
Operation Management
%. ;stablish elemental time values by e+tending observed time into normal time for each
element by applying a rating factor.
0. .ssess rela+ation allowance for personal needs and physical and mental fatigue involved
in carrying out each element.
5. .dd the rela+ation allowance time to the normal time for each element to arrive at the
work content.
6. /etermine the frequency of occurrences of each element in the ?ob, multiply the work
content of each element by its frequency 2i.e.! number of time the element occurs in the
?ob3 and add up the times to arrive at the work content for the ?ob.
7. .dd contingency allowance if any to arrive at the standard time to do the ?ob.
Productivity and 'mp$oyees
@ Production refers to the total output.
@ Productivity: he amount of goods and services produced with resources used.
@ Partial productivity: Output in a given period divided by labors hours used in the period.
Output in a given period
otal productivity C
=abour D &apital D (aterials D ;nergy used in the same period
Unit-@
<hy Materia$s Management=
(aterials is one of the five (Ns2(en, (aterial, (oney, (achine and (ethods3 of an
industrial organi!ation.
(aterials offer considerable scope for improving profit.
(aterials form an important form of current assets in any organi!ation.
Oalue addition is the margin between the raw material value and finished goods value.
#uppliers and materials management account for more than 5< percent of total value.
1uality of the finished product depends on quality of materials used.
&onservation of materials and their availability for posterity is one of the planks of social
responsibility of business.
;+ploring new sources of supply is a challenge for material management e+ecutives.
Materia$s Management
(aterial management involves organi!ing and coordinating all management functions that
are responsible for every aspect of materials, storage, and transformation.
,uying, storage, and movement of material are the three basic ob?ectives of materials
management.
Optimum investment in inventory is the prime ob?ective of materials management*
/evelopment of personnel is very important for long'term growth of a firm.
;ngineering groups are primarily responsible for standards of specifications.
Importance of Materia$s Management
". =ower prices for materials and
equipment
$. 4aster inventory turnover
%. &ontinuity of supply
22
Student HandNotes R. Sendamiztchelvan
Operation Management
0. -educed lead time
5. -educed transportation costs
6. =ess duplication of efforts
7. ;limination of buck'passing
9. -educed materials obsolescence
:. Improved supplier relationships and
better records, and information
"<. ,etter interdepartmental cooperation
"". Personnel development
Functions of Materia$s Management
". (aterials planning and programming
$. -aw material purchase
%. -eceiving, store keeping, and warehousing
0. Issuing of material
5. Inventory control
6. Oalue engineering
7. ransportation of materials
9. Oendor development
:. Oendor rating
"<. /isposal of scrap and surpluses
O"0ectives
Primary O"0ectives
". ,uying the best item at the lowest cost
$. -eduction in inventory cost and )igh inventory turnover
%. (aintaining the flow of production
0. (aintaining the consistency of quality
5. Optimi!ation of acquisition and possession, resulting in lower cost
6. &ordial relationship with suppliers
7. (aintaining good records
9. &ontribution towards competitiveness
:. Personnel development
Secondary O"0ectives
". Promotion of standardi!ation with suppliers
$. /evelopment of reciprocal relations with customers
%. &ommittees to decide on economic make Jor' buy decisions
0. /evelopment of inter departmental relationships
Materia$s Management Information System #MMIS&
". ((I# provides on'line information on stock level, work'in' processR finished goods, and
stores and spares.
$. It provides information at right time, it also request the supplier to supply the material on
time.
%. It also helps in accessing information rapidly, detects errors and assures prompt decision
making.
0. It also takes decisions regarding when to buy or when to make parts and the like.
M)T'RI)1 P1)77I78 )7. CO7TRO1
(aterial planning is a scientific technique of determining in advance the requirements of raw
materials, ancillary parts and components, spares etc. as directed by the production programme.
23
Student HandNotes R. Sendamiztchelvan
Operation Management
It is a subsystem in the overall planning activity. here are many factors, which influence the
activity of material planning. hese factors can be classified as macro and micro systems.
". Macro %actors: #ome of the micro factors which affect material planning, are price trends,
business cycles *ovt. import policy etc.
$. Micro %actors: #ome of the micro factors that affect material planning are plant capacity
utili!ation, re?ection rates, lead times, inventory levels, working capital, delegation of powers
and communication.
Materia$s udgeting
The Process of Preparing Materia$ udgets
Materia$s udgeting/ Process of preparing materials budget or purchase budget in terms of
quantity and money value of materials to be procured for a given period of time.
(aterial ,udgeting is an estimate of e+penses to be incurred in the procurement of material and
its helps in effective e+ecution and control of material plans.
Materia$ Contro$
4unction of maintaining constantly availability of all kinds of materials required for the
manufacture of products.
Purchasing
he term SpurchasingN refer to buying of a material or an item from a company or division that
supplies materials. #ince a manufacturing firm is involved in the conversion of raw material into
finished goods, it should ensure that right type of material are purchased in the right time. . one
percent saving in cost is equivalent to "< percent increase in turnover.
O"0ectives of Purchasing
he basic ob?ective of the purchasing function is to ensure continuity of supply of raw materials,
sub'contracted items and spare parts and to reduce the ultimate cost of the finished goods. In
other words, the ob?ective is not only to procure the raw materials at the lowest price but to
reduce the cost of the final product.
he ob?ectives of the purchasing department can be outlined as under:
24
Student HandNotes R. Sendamiztchelvan
Operation Management
U To avai$ the materia$s( supp$iers and e;uipments at the minimum possi"$e costs/ hese
are the inputs in the manufacturing operations. he minimi!ation of the input cost increases the
productivity and resultantly the profitability of the operations.
U To ensure the continuous f$o% of production through continuous supply of raw materials,
components, tools etc. with repair and maintenance service.
U To increase the asset turnover/ he investment in the inventories should be kept minimum
in relation to the volume of sales. his will increase the turnover of the assets and thus the
profitability of the company.
U To deve$op an a$ternative source of supp$y/ ;+ploration of alternative sources of supply of
materials increases the bargaining ability of the buyer, minimisation of cost of materials and
increases the ability to meet the emergencies.
U To esta"$ish and maintain the good re$ations %ith the supp$iers/ (aintenance of good
relations with the supplier helps in evolving a favourable image in the business circles. #uch
relations are beneficial to the buyer in terms of changing the reasonable price, preferential
allocation of material in case of material shortages, etc.
To achieve ma3imum integration %ith other department of the company/ he purchase
function is related with production department for specifications and flow of material,
engineering department for the purchase of tools, equipments and machines, mar4eting
department for the forecasts of sales and its impact on procurement of materials, financia$
department for the purpose of maintaining levels of materials and estimating the working
capital required, personne$ department for the purpose of manning and developing the
personnel of purchase department and maintaining good vendor relationship.
U To train and deve$op the personne$/ Purchasing department is manned with varied types of
personnel. he company should try to build the imaginative employee force through training and
development.
U 'fficient record 4eeping and management reporting/ Paper processing is inherent in the
purchase function. #uch paper processing should be standardised so that record keeping can be
facilitated. Periodic reporting to the management about the purchase activities ?ustifies the
independent e+istence of the department.
Purchase Cyc$e
25
Student HandNotes R. Sendamiztchelvan
Operation Management

Purchasing cycle comprising of eight steps.
". -ecognition of Aeed : Identifying an item that is officially brought to the attention of
purchasing department.
$. /escription of -equirement: Purchase requisition should give accurate information for
ordering recognised product.
%. #election of #ource: -egistered suppliers who are approved by the company. ,uying
from single supplier helps develop long'term relationship and reduces the risk and
interruption in the supply. ,uying from multiple suppliers may not help in maintaining
quality and helps get material at competitive prices.
0. /etermination of Price and .vailability
5. Placing the Order
6. Order .cknowledgement
7. 4ollow Mp and ;+pediting
9. &hecking he Invoice and .pproval

Purchase Functions
". Obtaining prices
$. #electing vendors
%. .warding purchase orders
0. 4ollow up on delivery promise
5. .d?usting and settling complaints
6. #electing and training of purchase personnel
7. Oendor relations
2
Student HandNotes R. Sendamiztchelvan
Operation Management
Purchasing Po$icies
@ )nci$$ary .eve$opment/ he firms sub'contracts, i.e., decides to buy the parts from outside
suppliers. (ostly the fabricated parts, components are brought from outside suppliers by the
firms.
@ Ma4e or "uy/ .nother purchasing policy is whether to buy the parts or components from
outside supplier or manufacture within the firm. he decisions lie depending in various
factors.
@ Specu$ative "uying/ #peculative buying is conducted with the hope of making profit out of
price changes. )ere the profit is made by buying at low price and selling at higher price.
6endor rating/ he evaluation of supplier or vendor rating provides valuable information which
help in improving the quality of the decision. In the vendor rating three basic aspects are
considered namely quality, service and price
he /evelopment Pro?ect &ommittee of the Aational .ssociation of Purchasing .gents 2M.#...3
has suggested following methods for evaluating the performance of past suppliers.
5* The categorica$ p$an/ Mnder this method the members of the buying staff related with the
supplier like receiving section, quality control department, manufacturing department etc., are
required to assess the performance of each supplier. he rating sheets are provided with the
record of the supplier, their product and the list of factors for the evaluation purposes. he
members of the buying staff are required to assign the plus or minus notations against each
factor.
+* The %eighted-point method/ he weighted'point method provides the quantitative data for
each factor of evaluation. he weights are assigned to each factor of evaluation according to the
need of the organi!ation, e..., a company decides the three factors to be consideredVquality,
price and timely delivery. It assigns the relative weight to each of these factors as under:
1uality WWW 5< points
Price WWW %< points
imely delivery WWW $< points
,* Critica$ incidents method/ -ecord of events related to buyer vendor relationships is
maintained in each vendorNs file. hey reflect positive and negative aspect of actual
performance. his kind of documentation useful in discussing ways and means of improving
performance, acknowledging the e+istence of good relationships, determining the competence of
a vendor, and if necessary considering termination
@* The cost-ratio p$an/ Mnder this method, the vendor rating is done on the basis of various
costs incurred for procuring the materials from various suppliers. he cost'ratios are ascertained
delivery etc. he cost'ratios are ascertained for the different rating variables such as quality,
price, timely delivery etc. he cost'ratio is calculated in percentage on the basis of total
individual cost and total value of purchases.
A* Chec4$ist system/ . simple checklist is used to evaluate the vendors. &heck list may
be something like -eliability, technical capability, after sales service, availability, buying
convenience etc
VALUE ANALYSIS
Oalue engineering or value analysis had its birth during the 8orld 8ar II =awrence /. (iles
was responsible for developing the technique and naming it. Oalue analysis is defined as Gan
2!
Student HandNotes R. Sendamiztchelvan
Operation Management
organi!ed creative approach which has its ob?ective, the efficient identification of unnecessary
cost'cost which provides neither quality nor use nor life nor appearance nor customer features.H
Oalue analysis focuses engineering, manufacturing and purchasing attention to one ob?ective'
equivalent performance at a lower cost.
4unction .
Oalue C
&ost
Steps in Value Analysis
In order to answer the above questions, three "asic steps are necessary:
". Identifying the function/ .ny useful product has some primary function which must be
identifiedVa bulb to give light, a refrigerator to preserve food, etc. In addition it may have
secondary functions such as withstanding shock, etc. hese two must be identified.
$. 'va$uation of the function "y comparison/ Oalue being a relative term, the comparison
approach must be used to evaluate functions. he basic question is, S/oes the function
accomplish reliability at the best costN and can be answered only comparison.
%. .eve$op a$ternatives/ -ealistic situations must be faced, ob?ections should overcome and
effective engineering manufacturing and other alternatives must be developed.
STORES MANAGEMENT
#tores play a vital role in the operations of company. It is in direct touch with the user
departments in its day'to'day activities. he most important purpose served by the stores is to
provide uninterrupted service to the manufacturing divisions. 4urther, stores are often equated
directly with money, as money is locked up in the stores.
7ature of Stores
#tore as building where inventories are kept.
#torage is the function of receiving, storing, and issuing materials.
#tores ensure ready accessibility of ma?or materials there'by efficient service to users.
(inimisation of stores cost, and continuous supply is the prime function of stores.
#tores layout is a fundamental factor in determining the efficient performance of stores
department.
. satisfactory storage system compromises between the use of space and the use of time.
-andom location means that items can be stored in any storage position which is
available.
Qeeping stock on one side of the aisle in which case the layout is called comb type .
#tores manual is a written statement of policies, and procedures.
Codification
It is one of the functions of stores management. &odification is a process of representing each
item by a number, the digit of which indicates the group, the sub'group, the type and the
dimension of the item.
O!'CTI6'S OF CO.IFIC)TIO7
he ob?ectives of a rationali!ed material coding system are:
". ,ringing all items together.
$. o enable putting up of any future item in its proper place.
%. o classify an item according to its characteristics.
0. o give an unique code number to each item to avoid duplication and ambiguity.
2"
Student HandNotes R. Sendamiztchelvan
Operation Management
5. o reveal e+cessive variety and promote standardi!ation and variety reduction.
6. o establish a common language for the identification of an item.
7. o fi+ essential parameters for specifying an item.
9. o specify item as per national and international standards.
:. o enable data processing and analysis.
Inventory
. physical resource that a firm holds in stock with the intent of selling it or transforming it into a
more valuable state.
-aw (aterials
8orks'in'Process
4inished *oods
(aintenance, -epair and Operating 2(-O3
Obecti!es of In!ento"y Cont"ol
". o ensure adequate supply of products to customer and avoid shortages as far as possible.
$. o make sure that the financial investment in inventories is minimum 2i.e.! to see that the
working capital is blocked to the minimum possible e+tent3.
%. ;fficient purchasing, storing, consumption and accounting for materials is an important
ob?ective.
0. o maintain timely record of inventories of all the items and to maintain the stock within the
desired limits
5. o ensure timely action for replenishment.
6. o provide a reserve stock for variations in lead times of delivery of materials.
7. o provide a scientific base for both short'term and long'term planning of materials.
Inventory Costs
Inventory costs includes ordering cost plus carrying costs.
". Ordering &osts
$. &arrying &osts
@ &apital &osts
&apital cost is the loss of interest on money invested in inventory building and
inventory control equipment.
#torage #pace &osts
@ Inventory #ervice &osts
@ )andling'equipment &osts
@ Inventory -isk &osts
%. Out'of'stock &osts
0. &apacity &osts
Inventory Contro$ Techni;ues
". )$%ays "etter contro$ #)C& c$assification* In this analysis, the classification of
e+isting inventory is based on annual consumption and the annual value of the items. )ence
we obtain the quantity of inventory item consumed during the year and multiply it by unit
cost to obtain annual usage cost. he items are then arranged in the descending order of such
annual usage cost.
2a3 A-Item: Oery tight control, the items being of high value. he control need be e+ercised at
higher level of authority.
2#
Student HandNotes R. Sendamiztchelvan
Operation Management
2b3 B-Item: (oderate control, the items being of moderate value. he control need be e+ercised
at middle level of authority.
2c3 C-Item: he items being of low value, the control can be e+ercised at gross root level of
authority, i.e., by respective user department managers.
+*9igh( medium and $o% #9M1& c$assification* In this analysis, the classification of
e+isting inventory is based on unit price of the items. hey are classified as high price, medium
price and low cost items.
,*6ita$( essentia$ and desira"$e #6'.& c$assification* In this analysis, the classification of
e+isting inventory is based on criticality of the items. hey are classified as vital, essential and
desirable items. It is mainly used in spare parts inventory.
@*Scarce( difficu$t and easy to o"tain #S.'&* In this analysis, the classification of e+isting
inventory is based on the items.
A*8O1F ana$ysis/ In this analysis, the classification of e+isting inventory is based sources of the
items. hey are classified as *overnment supply, ordinarily available, local availability and
foreign source of supply items.
-*SOS ana$ysis/ In this analysis, the classification of e+isting inventory is based nature of supply
of items. hey are classified as seasonal and off'seasonal items.
B*Fast moving( s$o% moving and non-moving #FS7&*
C*'conomic order ;uantity #'O2&* Inventory models deal with idle resources like men,
machines, money and materials. hese models are concerned with two decisions: how much to
order 2purchase or produce3 and when to order so as to minimi!e the total cost.
D*Ma3-Minimum system*
5E*T%o "in system
<hat is a >!ust-in-time System?=
G>ust'in'timeH: . philosophy of manufacturing based on planned elimination of all waste
and continuous improvement of productivity.
Overvie% of !IT manufacturing
". Inventory reduction
$. 1uality improvement
%. =ead time reduction
0. =ead time reduction
5. &ontinuous Improvement
6. otal Preventive (aintenance
7. #trategic *ain
3$
Student HandNotes R. Sendamiztchelvan