Operations Management
Content
Preface 1 . OPERATIONS MANAGEMENT CONCEPTS 1.1 Introduction 1.2 Historical Development 1.3 Concept of Production 1.4 Production System 1.5 Classification of Production System 1.5.1 Job-Shop Production 1.5.2 Batch Production 1.5.3 Mass Production 1.5.4 Continuous Production 1.6 Production Management 1.6.1 Objectives of Production Management 1.7 Operations System 1.7.1 A Framework of Managing Operations 1.8 Operations Management 1.9 Operations Management Objectives 1.1 0 The Strategic Role of Operations 1.1 1 Strategic Planning 1.11. 1 Strategic Planning for Production and Operations 1.11. 2 Strategic Planning Approaches for Production/Operations 1.11. 3 Strategic Planning—Forced Choice Model 1.11. 4 A Strategic Planning Operations Model 1.1 2 The Trend: Information and Non Manufacturing Systems 1.1 3 Productivity 1.13. 1 Modern Dynamic Concept of Productivity 1.13. Factor Productivity and Total Productivity
v 1–26 1 1 3 3 4 4 5 5 6 7 7 7 8 9 11 13 15 15 15 15 16 17 18 18 18
2 1.13. 3
Productivity Analysis
19
viii
Contents
1.1 4 1.1 5 1.1 6 1.1 7
Factors Affecting Productivity International Dimensions of Productivity The Environment of Operations Scope of Operations Management Exercise References
19 20 20 21 25 26 27–51 27 27 28 28 30 30 30 31 31 33 35 35 35 43 45 46 49 51 53–60 53 53 54 55 55 57 60 60
2.
OPERATIONS DECISION-MAKING 2.1 Introduction 2.2 Management as a Science 2.3 Characteristics of Decisions 2.4 Framework for Decision-Making 2.5 Decision Methodology 2.5 .1 Complete Certainty Methods 2.5 .2 Risk and Uncertainty Methods 2.5 .3 Extreme Uncertainty Methods 2.5 .4 Decision-Making Under Uncertainty 2.5 .5 Decision-Making Under Risk 2.6 Decision Support System 2.7 Economic Models 2.7 .1 Break-even Analysis 2.8 Statistical Models 2.8.1 Equations for Discrete and Continuous Data 2.9 Decision Tree Exercise References SYSTEMS DESIGN AND CAPACITY 3.1 Introduction 3.2 Manufacturing and Service Systems 3.3 Design and Systems Capacity 3.4 Capacity Planning 3.5 Process of Capacity Planning 3.6 Importance of Capacity Decisions Exercise References
3.
4.
FACILITY LOCATION AND LAYOUT 4.1 Introduction and Meaning 4.2 Need for Selecting a Suitable Location 4.3 Factors Influencing Plant Location/Facility Location
61–103 61 61 66
Content s
ix
4.4 4.5
4.6 4.7
4.8
4.9 4.1 0 4.1 1 4.1 2 5.
4.3 .1 General Locational Factors 4.3 Specific Locational Factors for Manufacturing .2 Organisation 4.3.3 Specific Locational Factors for Service Organisation Location Theories Location Models 4.5 .1 Factor Rating Method 4.5 .2 Weighted Factor Rating Method 4.5 .3 Load-distance Method 4.5 .4 Centre of Gravity 4.5 .5 Break-even Analysis Locational Economics Plant Layout 4.7 .1 Objectives of Plant Layout 4.7 .2 Principles of Plant Layout Classification of Layout 4.8 .1 Process Layout 4.8 .2 Product Layout 4.8 .3 Combination Layout 4.8 .4 Fixed Position Layout 4.8.5 Group Layout (or Cellular Layout) Design of Product Layout Design of Process Layout Service Layout Organisation of Physical Facilities Exercise
66 70 71 72 73 73 74 75 77 78 80 81 81 82 82 82 83 84 85 85 87 91 94 95 102 105–128 105 105 105
FORECASTING DEMAND 5.1 Introduction 5.2 Forecasting Objectives and Uses 5.3 Forecasting Decision Variables
5.4
5.5 5.6
5.7
Forecasting Methods 5.4 .1 Opinion and Judgmental Methods 5.4 .2 Time Series Methods Exponential Smoothing 5.5 .1 Adjusted Exponential Smoothing Regression and Correlation Methods 5.6 .1 Regression 5.6 .2 Correlation Applications and Control of Forecast 5.7 .1 Forecast Controls Exercise References
106 106 106 112 113 114 114 117 119 119 125 128
x
Contents
6.
PRODUCT DEVELOPMENT AND DESIGN 6.1 Introduction 6.2 Purpose of a Product Design 6.3 Product Analysis 6.3 .1 Marketing Aspect 6.3 .2 The Product Characteristics 6.3 .3 Economic Analysis 6.3 .4 Production Aspect 6.4 A Framework for Process Design 6.4 .1 Product Planning 6.4 .2 Process Design : MACRO 6.4 .3 Process Design : MICRO 6.5 Design for Manufacture (DFM) 6.6 Design for Excellence 6.6 .1 Concurrent Development Activities Exercise References MATERIALS MANAGEMENT 7.1 Introduction and Meaning 7.2 Scope or Functions of Materials Management 7.3 Material Planning and Control 7.3 .1 Techniques of Material Planning 7.4 Purchasing 7.4 .1 Objectives of Purchasing 7.4 .2 Parameters of Purchasing 7.4 .3 Purchasing Procedure 7.4 .4 Selection of Suppliers 7.4 .5 Special Purchasing Systems 7.5 Stores Management 7.5 .1 Codification
129–160 129 129 130 131 133 136 150 150 150 152 153 153 156 158 160 160 161–190 161 161 163 163 164 164 165 167 169 173 174 175
7.
7.6
7.7
Inventory Control or Management 7.6 .1 Meaning of Inventory 7.6 .2 Reasons for Keeping Inventories 7.6 .3 Meaning of Inventory Control 7.6 .4 Objectives of Inventory Control 7.6 .5 Benefits of Inventory Control 7.6 .6 Techniques of Inventory Control 7.6 .7 Inventory Model Standardization 7.7 .1 Advantages of Standardization 7.7 .2 Disadvantages of Standardization
176 176 176 176 177 177 177 179 183 183 185
Content s
xi
7.8 7.9
7.10 7.11
Simplification 7.8 .1 Advantages of Simplification Value Analysis 7.9 .1 Value Analysis Framework 7.9 .2 Steps in Value Analysis Ergonomics (Human Engineering) 7.10.1 Objectives of Human Engineering Just-in-Time (JIT) Manufacturing 7.11.1 Seven Wastes 7.11.2 Benefits of JIT Exercise
185 185 185 186 186 187 187 188 188 189 190 191–216 191 192 195 198 200 202 203 204 205 213 216 217–235 217 219 219 219 224 227 227 231
8. AGGREGATE PLANNING AND MASTER SCHEDULING 8.1 8.2 8.3 8.4 8.5 8.6 Introduction Variables Used in Aggregate Planning Aggregate Planning Strategies Mixed Strategies Mathematical Planning Models Master Scheduling 8.6 .1 Master Scheduling Planning Horizon 8.6 .2 Master Scheduling Format 8.6 .3 Available-to-Promise Quantities Exercise References
9. MATERIAL AND CAPACITY REQUIREMENTS PLANNING (MRP AND CRP) 9.1 9.2 MRP and CRP Objectives MRP Inputs and Outputs 9.2 .1 Bill of Materials 9.2 .2 Low-level Coding MRP Logic System Refinements Safety Stock, Lot Sizing and System Updating CRP Inputs and Outputs
9.3 9.4 9.5 9.6
9.7
Loading 9.7 .1 Steps in the Loading 9.7 .2 Loading Concepts Exercise References
231 232 233 234 235
xii
Contents
10. SCHEDULING AND CONTROLLING PRODUCTION ACTIVITIES 10.1 Introduction 10.2 Concept of Single Machine Scheduling 10.3 Measures of Performance 10.4 Shortest Processing Time (SPT) Rule 10.5 WSPT Rule 10.6 Earliest Due Date (EDD) Rule 10.7 Minimizing the Number of Tardy Jobs 10.8 Flow Shop Scheduling 10.9 Johnson’s Problem 10.9. 1 Johnson’s Algorithm 10.9. 2 Extension of Johnson’s Rule 10.10 CDS Heuristic 10.11 Job-Shop Problem 10.12 Types of Schedules 10.13 Heuristic Procedures 10.14 Priority Dispatching Rules 10.15 Two Jobs and M Machines Scheduling Exercise References Glossary
237–257 237 237 238 239 240 241 241 244 246 246 247 249 251 252 253 253 254 256 257 259–277
1
OPERATIONS MANAGEMENT CONCEPTS
CHAPTER OUTLINE
1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 Introducti on Histori Developmen cal t Conce o pt f Production Productio n System Classification of Production System Productio Manageme n nt Operatio ns System Operations Management Operatio Managem ns ent Objectives The Strategic Role of Operations 1.11 1.12 Strategic Planning The Trend: Information and Non Manufacturi n g System Productivity Factors Affecting Productivity International Dimensions of
1.13 1.14 1.15 1.16 1.17
Productivity
The Environment of Operations Scope of Operations Management • • Exercise References
1.1
INTRODUCTION
Operation is that part of as organization, which is concerned with the transformation of a range of inputs into the required output (services) having the requisite quality level. Management is the process, which combines and transforms various resources used in the operations subsystem of the organization into value added services in a controlled manner as per the policies of the organization. The set of interrelated management activities, which are involved in manufacturing certain products, is called as production management. If the same concept is extended to services management, then the corresponding set of management activities is called as operations management.
1.2
HISTORICAL DEVELOPMENT
For over two centuries operations and production management has been recognized as an important factor in a country’s economic growth. The traditional view of manufacturing management began in eighteenth century when Adam Smith recognised the economic benefits of specialization of labour. He recommended breaking of jobs down into subtasks and recognises workers to specialized tasks in which they would become highly skilled and efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories
2
Operations Management
and developed scientific management. From then till 1930, many techniques were developed prevailing the traditional view. Brief information about the contributions to manufacturing management is shown in the Table 1.1. Production Management becomes the acceptable term from 1930s to 1950s. As F.W. Taylor’s works become more widely known, managers developed techniques that focused on economic efficiency in manufacturing. Workers were studied in great detail to eliminate wasteful efforts and achieve greater efficiency. At the same time, psychologists, socialists and other social scientists began to study people and human behaviour in the working environment. In addition, economists, mathematicians, and computer socialists contributed newer, more sophisticated analytical approaches. With the 1970s emerge two distinct changes in our views. The most obvious of these, reflected in the new name Operations Management was a shift in the service and manufacturing sectors of the economy. As service sector became more prominent, the change from ‘production’ to ‘operations’ emphasized the broadening of our field to service organizations. The second, more suitable change was the beginning of an emphasis on synthesis, rather than just analysis, in management practices.
Table 1.1 Historical summary of operations management Da te 17 76 17 99 18 32 19 00 19 00 19 01 19 15 19 27 19 31 19 35 19 40 19 46 19 47 19 50 Contribution Specialization of labour in manufacturing Interchangeable parts, cost accounting Division of labour by skill; assignment of jobs by Skill; basics of time study Scientific management time study and work study Developed; dividing planning and doing of work Motion of study of jobs Scheduling techniques for employees, machines Jobs in manufacturing Economic lot sizes for inventory control Human relations; the Hawthorne studies Statistical inference applied to product quality: quality control charts Statistical Sampling applied to quality control: inspection sampling plans Operations research applications in world war II Digital Computer Linear Programming Mathematical programming, on-linear and stochastic processes Contributor Adam Smith Eli Whitney & others Charles Babbage
Frederick W.Taylor
Frank B. Gilbreth Henry L. Gantt
F.W. Harris Elton Mayo W.A. Shewart
H.F.Dodge & H.G.Roming
P.M.Blacker & others John Mauchlly and J.P.Eckert G.B.Dantzig, Williams & others A.Charnes, W.W.Cooper & others
19 51 19 60 19 70
Commercial digital computer: large-scale computations available Organisational behaviour: continued study of people at work Integrating operations into overall strategy and policy Computer applications to manufacturing, scheduling, and control, Material Requirement Planning (MRP) Quality and productivity applications from Japan: robotics, CAD-CAM
Sperry Univac L.Cummings, L.Porter W.Skinner J.Orlicky & G. Wright
19 80
W.E. Deming & J.Juran
Operations Management Concepts 3
1.3
CONCEPT OF PRODUCTION
Production function is ‘the part of an organisation, which is concerned with the transformation of a range of inputs into the required outputs (products) having the requisite quality level’. Production is defined as ‘the step-by-step conversion of one form of material into another form through chemical or mechanical process to create or enhance the utility of the product to the user’. Thus production is a value addition process. At each stage of processing, there will be value addition. Edwood Buffa defines production as ‘a process by which goods and services are created’. Some examples of production are: manufacturing custom-made products like, boilers with a specific capacity, constructing flats, some structural fabrication works for selected customers, etc., and manufacturing standardized products like, car, bus, motor cycle, radio, television, etc. 1.4 PRODUCTION SYSTEM
The production system is ‘that part of an organisation, which produces products of an organisation. It is that activity whereby resources, flowing within a defined system, are combined and transformed in a controlled manner to add value in accordance with the policies communicated by management’. A simplified production system is shown below:
Fig.1.1 Schematic production system
The production system has the following characteristics: 1. Production is an organised activity, so every production system has an objective. 2. The system transforms the various inputs to useful outputs. 3. It does not operate in isolation from the other organisation system. 4. There exists a feedback about the activities, which is essential to control and improve system performance.
4
Operations Management
1. 5
CLASSIFICATION OF PRODUCTION SYSTEM
Production systems can be classified as Job-shop, Batch, Mass and Continuous production systems.
Fig. 1.2 Classifications of production systems
1.5.1 Job-Shop Production Job-shop production are characterised by manufacturing one or few quantity of products designed and produced as per the specification of customers within prefixed time and cost. The distinguishing feature of this is low volume and high variety of products. A job-shop comprises of general-purpose machines arranged into different departments. Each job demands unique technological requirements, demands processing on machines in a certain sequence. Job-shop Production is characterised by 1. High variety of products and low volume.
Use of general purpose machines and facilities. Highly skilled operators who can take up each job as a challenge because of uniqueness. Large inventory of materials, tools, parts. Detailed planning is essential for sequencing the requirements of each product, capacities for each work centre and order priorities. Advantages Following are the advantages of Job-shop Production: 1. Because of general purpose machines and facilities variety of products can be produced. 2. Operators will become more skilled and competent, as each job gives them learning opportunities. 3. Full potential of operators can be utilised. 4. Opportunity exists for Creative methods and innovative ideas.
2. 3. 4. 5.
Operations Management Concepts 5
Limitations Following are the limitations of Job-shop Production: 1. Higher cost due to frequent set up changes. 2. Higher level of inventory at all levels and hence higher inventory cost. 3. Production planning is complicated. 4. Larger space requirements. 1.5.2 Batch Production American Production and Inventory Control Society (APICS) defines Batch Production as a form of manufacturing in which the job pass through the functional departments in lots or batches and each lot may have a different routing. It is characterised by the manufacture of limited number of products produced at regular intervals and stocked awaiting sales. Batch Production is characterised by 1. Shorter production runs. 2. Plant and machinery are flexible. 3. Plant and machinery set up is used for the production of item in a batch and change of set up is required for processing the next batch. 4. Manufacturing lead-time and cost are lower as compared to job order production. Advantages Following are the advantages of Batch Production: 1. Better utilisation of plant and machinery. 2. Promotes functional specialisation. 3. Cost per unit is lower as compared to job order production. 4. Lower investment in plant and machinery. 5. Flexibility to accommodate and process number of products. 6. Job satisfaction exists for operators. Limitations Following are the limitations of Batch Production: 1. Material handling is complex because of irregular and longer flows. 2. Production planning and control is complex. 3. Work in process inventory is higher compared to continuous production. 4. Higher set up costs due to frequent changes in set up. 1.5.3 Mass Production Manufacture of discrete parts or assemblies using a continuous process are called Mass Production. This production system is justified by very large volume of production. The machines are arranged in a line or product layout. Product and process standardisation exists and all outputs follow the same path.
6
Operations Management
Mass Production is characterised by 1. Standardisation of product and process sequence. 2. Dedicated special purpose machines having higher production capacities and output rates. 3. Large volume of products. 4. Shorter cycle time of production. 5. Lower in process inventory. 6. Perfectly balanced production lines. 7. Flow of materials, components and parts is continuous and without any back tracking. 8. Production planning and control is easy. 9. Material handling can be completely automatic. Advantages Following are the advantages of Mass Production: 1. Higher rate of production with reduced cycle time. 2. Higher capacity utilisation due to line balancing. 3. Less skilled operators are required. 4. Low process inventory. 5. Manufacturing cost per unit is low. Limitations Following are the limitations of Mass Production: 1. Breakdown of one machine will stop an entire production line. 2. Line layout needs major change with the changes in the product design. 3. High investment in production facilities. 4. The cycle time is determined by the slowest operation. 1.5.4 Continuous Production Production facilities are arranged as per the sequence of production operations from the first operations to the finished product. The items are made to flow through the sequence of operations through material handling devices such as conveyors, transfer devices, etc. Continuous Production is characterised by 1. Dedicated plant and equipment with zero flexibility. 2. Material handling is fully automated. 3. Process follows a predetermined sequence of operations. 4. Component materials cannot be readily identified with final product. 5. Planning and scheduling is a routine action. Advantages Following are the advantages of Continuous Production: 1. Standardisation of product and process sequence. 2. Higher rate of production with reduced cycle time. 3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
Operations Management Concepts 7
5. Person with limited skills can be used on the production line. 6. Unit cost is lower due to high volume of production.
Limitations Following are the limitations of Continuous Production: 1. Flexibility to accommodate and process number of products does not exist. 2. Very high investment for setting flow lines. 3. Product differentiation is limited.
1.6
PRODUCTION MANAGEMENT
Production management is ‘a process of planning, organising, directing and controlling the activities of the production function. It combines and transforms various resources used in the production subsystem of the organization into value added product in a controlled manner as per the policies of the organization’. E.S.Buffa defines production management as follows: ‘Production management deals with decision-making related to production processes so that the resulting goods or services are produced according to specifications, in the amount and by the schedule demanded and out of minimum cost’. 1.6.1 Objectives of Production Management The objective of the production management is ‘to produce goods and services of Right Quality and Quantity at the Right time and Right manufacturing cost’. 1. Right Quality: The quality of product is established based upon the customers need. The right quality is not necessarily being the best quality. It is determined by the cost of the product and the technical characteristics as suited to the specific requirements. 2. Right Quantity: The manufacturing organisation should produce the products in right number. If they are produced in excess of demand the capital will block up in the form of inventory and if the quantity is produced in short of demand, leads to shortage of products. 3. Right Time: Timeliness of delivery is one of the important parameter to judge the effectiveness of production department. So, the production department has to make the optimal utilization of input resources to achieve its objective. 4. Right Manufacturing Cost: Manufacturing costs are established before the product is actually manufactured. Hence, all attempts should be made to produce the products at pre-established cost, so as to reduce the variation between actual and the standard (pre-established) cost.
1.7
OPERATIONS SYSTEM
An operation was defined in terms of the mission it serves for the organisation, technology it employs and the human and managerial processes it involves. Operations in an organisation can be categorised into Manufacturing Operations and Service Operations. Manufacturing Operations is a conversion process that includes manufacturing yields a tangible output: a product, whereas, a conversion process that includes service yields an intangible output: a deed, a performance, an effort.
8
Operations Management
Operations system converts inputs in order to provide outputs, which are required by a customer. It converts physical resources into outputs, the function of which is to satisfy customer wants. Everett E. Adam & Ronald J. Ebert defines as ‘An operating system is the part of an organisation that produces the organistion’s physical goods and services’. Ray Wild defines operations system as ‘a configuration of resources combined for the provision of goods or services’. In some of the organisation the product is a physical good (breakfast in hotels) while in others it is a service (treatment in hospitals). Bus and taxi services, tailors, hospital and builders are the examples of an operations system. The basic elements of an operation system show in Figure 1.3 with reference to departmental stores. A departmental store's has an input like land upon which the building is located, labour as a stock clerk, capital in the form of building, equipment and merchandise, management skills in the form of the stores manager. Output will be serviced customer with desired merchandise. Random fluctuations will be from external or internal sources, monitored through a feedback system.
Late delivery Labour tumover
Fig.1.3 Operations system for department stores
1.7.1 A Framework of Managing Operations Managing Operations can be enclosed in a frame of general management function as shown in
figure 1.3. Operation managers are concerned with planning, organising, and controlling the activities, which affect human behaviour through models. Planning is the activity that establishes a course of action and guide future decision-making. The operations manager defines the objectives for the operations subsystem of the organisation, and the policies, and procedures for achieving the objectives. This stage includes clarifying the role and focus of operations in the organization’s overall strategy. It also involves product planning, facility designing and using the conversion process. Organizing is the activities that establish a structure of tasks and authority. Operation managers establish a structure of roles and the flow of information within the operations subsystem. They determine the activities required to achieve the goals and assign authority and responsibility for carrying them out. Controlling is the activities that assure the actual performance in accordance with planned performance. To ensure that the plans for the operations subsystems are accomplished, the operations
Operations Management Concepts 9
manager must exercise control by measuring actual outputs and comparing them to planned operations management. Controlling costs, quality, and schedules are the important functions here. 1. Behaviour: Operations managers are concerned with the activities, which affect human behaviour through models. They want to know the behaviour of subordinates, which affects managerial activities. Their main interest lies in the decision-making behaviour. 2. Models: Models represents schematic representation of the situation, which will be used as a tool for decision-making. Following are some of the models used. Aggregate planning models for examining how best to use existing capacity in short term, break-even analysis to identify break-even volumes, Linear programming and computer simulation for capacity utilisation, Decision tree analysis for long- term capacity problem of facility expansion, simple median model for determining best locations of facilities, etc.
Fig. 1.4 General model for managing operations
1.8
OPERATIONS MANAGEMENT
Joseph G .Monks defines Operations Management as the process whereby resources, flowing within a defined system, are combined and transformed by a controlled manner to add value in accordance with policies communicated by management.
PDF to Wor
v 1–26 1 1 3 3 4 4 5 5 6 7 7 7 8 9 11 13 15 15 15 15 16 17 18 18 18
2 1.13. 3
Productivity Analysis
19
viii
Contents
1.1 4 1.1 5 1.1 6 1.1 7
Factors Affecting Productivity International Dimensions of Productivity The Environment of Operations Scope of Operations Management Exercise References
19 20 20 21 25 26 27–51 27 27 28 28 30 30 30 31 31 33 35 35 35 43 45 46 49 51 53–60 53 53 54 55 55 57 60 60
2.
OPERATIONS DECISION-MAKING 2.1 Introduction 2.2 Management as a Science 2.3 Characteristics of Decisions 2.4 Framework for Decision-Making 2.5 Decision Methodology 2.5 .1 Complete Certainty Methods 2.5 .2 Risk and Uncertainty Methods 2.5 .3 Extreme Uncertainty Methods 2.5 .4 Decision-Making Under Uncertainty 2.5 .5 Decision-Making Under Risk 2.6 Decision Support System 2.7 Economic Models 2.7 .1 Break-even Analysis 2.8 Statistical Models 2.8.1 Equations for Discrete and Continuous Data 2.9 Decision Tree Exercise References SYSTEMS DESIGN AND CAPACITY 3.1 Introduction 3.2 Manufacturing and Service Systems 3.3 Design and Systems Capacity 3.4 Capacity Planning 3.5 Process of Capacity Planning 3.6 Importance of Capacity Decisions Exercise References
3.
4.
FACILITY LOCATION AND LAYOUT 4.1 Introduction and Meaning 4.2 Need for Selecting a Suitable Location 4.3 Factors Influencing Plant Location/Facility Location
61–103 61 61 66
Content s
ix
4.4 4.5
4.6 4.7
4.8
4.9 4.1 0 4.1 1 4.1 2 5.
4.3 .1 General Locational Factors 4.3 Specific Locational Factors for Manufacturing .2 Organisation 4.3.3 Specific Locational Factors for Service Organisation Location Theories Location Models 4.5 .1 Factor Rating Method 4.5 .2 Weighted Factor Rating Method 4.5 .3 Load-distance Method 4.5 .4 Centre of Gravity 4.5 .5 Break-even Analysis Locational Economics Plant Layout 4.7 .1 Objectives of Plant Layout 4.7 .2 Principles of Plant Layout Classification of Layout 4.8 .1 Process Layout 4.8 .2 Product Layout 4.8 .3 Combination Layout 4.8 .4 Fixed Position Layout 4.8.5 Group Layout (or Cellular Layout) Design of Product Layout Design of Process Layout Service Layout Organisation of Physical Facilities Exercise
66 70 71 72 73 73 74 75 77 78 80 81 81 82 82 82 83 84 85 85 87 91 94 95 102 105–128 105 105 105
FORECASTING DEMAND 5.1 Introduction 5.2 Forecasting Objectives and Uses 5.3 Forecasting Decision Variables
5.4
5.5 5.6
5.7
Forecasting Methods 5.4 .1 Opinion and Judgmental Methods 5.4 .2 Time Series Methods Exponential Smoothing 5.5 .1 Adjusted Exponential Smoothing Regression and Correlation Methods 5.6 .1 Regression 5.6 .2 Correlation Applications and Control of Forecast 5.7 .1 Forecast Controls Exercise References
106 106 106 112 113 114 114 117 119 119 125 128
x
Contents
6.
PRODUCT DEVELOPMENT AND DESIGN 6.1 Introduction 6.2 Purpose of a Product Design 6.3 Product Analysis 6.3 .1 Marketing Aspect 6.3 .2 The Product Characteristics 6.3 .3 Economic Analysis 6.3 .4 Production Aspect 6.4 A Framework for Process Design 6.4 .1 Product Planning 6.4 .2 Process Design : MACRO 6.4 .3 Process Design : MICRO 6.5 Design for Manufacture (DFM) 6.6 Design for Excellence 6.6 .1 Concurrent Development Activities Exercise References MATERIALS MANAGEMENT 7.1 Introduction and Meaning 7.2 Scope or Functions of Materials Management 7.3 Material Planning and Control 7.3 .1 Techniques of Material Planning 7.4 Purchasing 7.4 .1 Objectives of Purchasing 7.4 .2 Parameters of Purchasing 7.4 .3 Purchasing Procedure 7.4 .4 Selection of Suppliers 7.4 .5 Special Purchasing Systems 7.5 Stores Management 7.5 .1 Codification
129–160 129 129 130 131 133 136 150 150 150 152 153 153 156 158 160 160 161–190 161 161 163 163 164 164 165 167 169 173 174 175
7.
7.6
7.7
Inventory Control or Management 7.6 .1 Meaning of Inventory 7.6 .2 Reasons for Keeping Inventories 7.6 .3 Meaning of Inventory Control 7.6 .4 Objectives of Inventory Control 7.6 .5 Benefits of Inventory Control 7.6 .6 Techniques of Inventory Control 7.6 .7 Inventory Model Standardization 7.7 .1 Advantages of Standardization 7.7 .2 Disadvantages of Standardization
176 176 176 176 177 177 177 179 183 183 185
Content s
xi
7.8 7.9
7.10 7.11
Simplification 7.8 .1 Advantages of Simplification Value Analysis 7.9 .1 Value Analysis Framework 7.9 .2 Steps in Value Analysis Ergonomics (Human Engineering) 7.10.1 Objectives of Human Engineering Just-in-Time (JIT) Manufacturing 7.11.1 Seven Wastes 7.11.2 Benefits of JIT Exercise
185 185 185 186 186 187 187 188 188 189 190 191–216 191 192 195 198 200 202 203 204 205 213 216 217–235 217 219 219 219 224 227 227 231
8. AGGREGATE PLANNING AND MASTER SCHEDULING 8.1 8.2 8.3 8.4 8.5 8.6 Introduction Variables Used in Aggregate Planning Aggregate Planning Strategies Mixed Strategies Mathematical Planning Models Master Scheduling 8.6 .1 Master Scheduling Planning Horizon 8.6 .2 Master Scheduling Format 8.6 .3 Available-to-Promise Quantities Exercise References
9. MATERIAL AND CAPACITY REQUIREMENTS PLANNING (MRP AND CRP) 9.1 9.2 MRP and CRP Objectives MRP Inputs and Outputs 9.2 .1 Bill of Materials 9.2 .2 Low-level Coding MRP Logic System Refinements Safety Stock, Lot Sizing and System Updating CRP Inputs and Outputs
9.3 9.4 9.5 9.6
9.7
Loading 9.7 .1 Steps in the Loading 9.7 .2 Loading Concepts Exercise References
231 232 233 234 235
xii
Contents
10. SCHEDULING AND CONTROLLING PRODUCTION ACTIVITIES 10.1 Introduction 10.2 Concept of Single Machine Scheduling 10.3 Measures of Performance 10.4 Shortest Processing Time (SPT) Rule 10.5 WSPT Rule 10.6 Earliest Due Date (EDD) Rule 10.7 Minimizing the Number of Tardy Jobs 10.8 Flow Shop Scheduling 10.9 Johnson’s Problem 10.9. 1 Johnson’s Algorithm 10.9. 2 Extension of Johnson’s Rule 10.10 CDS Heuristic 10.11 Job-Shop Problem 10.12 Types of Schedules 10.13 Heuristic Procedures 10.14 Priority Dispatching Rules 10.15 Two Jobs and M Machines Scheduling Exercise References Glossary
237–257 237 237 238 239 240 241 241 244 246 246 247 249 251 252 253 253 254 256 257 259–277
1
OPERATIONS MANAGEMENT CONCEPTS
CHAPTER OUTLINE
1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 Introducti on Histori Developmen cal t Conce o pt f Production Productio n System Classification of Production System Productio Manageme n nt Operatio ns System Operations Management Operatio Managem ns ent Objectives The Strategic Role of Operations 1.11 1.12 Strategic Planning The Trend: Information and Non Manufacturi n g System Productivity Factors Affecting Productivity International Dimensions of
1.13 1.14 1.15 1.16 1.17
Productivity
The Environment of Operations Scope of Operations Management • • Exercise References
1.1
INTRODUCTION
Operation is that part of as organization, which is concerned with the transformation of a range of inputs into the required output (services) having the requisite quality level. Management is the process, which combines and transforms various resources used in the operations subsystem of the organization into value added services in a controlled manner as per the policies of the organization. The set of interrelated management activities, which are involved in manufacturing certain products, is called as production management. If the same concept is extended to services management, then the corresponding set of management activities is called as operations management.
1.2
HISTORICAL DEVELOPMENT
For over two centuries operations and production management has been recognized as an important factor in a country’s economic growth. The traditional view of manufacturing management began in eighteenth century when Adam Smith recognised the economic benefits of specialization of labour. He recommended breaking of jobs down into subtasks and recognises workers to specialized tasks in which they would become highly skilled and efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories
2
Operations Management
and developed scientific management. From then till 1930, many techniques were developed prevailing the traditional view. Brief information about the contributions to manufacturing management is shown in the Table 1.1. Production Management becomes the acceptable term from 1930s to 1950s. As F.W. Taylor’s works become more widely known, managers developed techniques that focused on economic efficiency in manufacturing. Workers were studied in great detail to eliminate wasteful efforts and achieve greater efficiency. At the same time, psychologists, socialists and other social scientists began to study people and human behaviour in the working environment. In addition, economists, mathematicians, and computer socialists contributed newer, more sophisticated analytical approaches. With the 1970s emerge two distinct changes in our views. The most obvious of these, reflected in the new name Operations Management was a shift in the service and manufacturing sectors of the economy. As service sector became more prominent, the change from ‘production’ to ‘operations’ emphasized the broadening of our field to service organizations. The second, more suitable change was the beginning of an emphasis on synthesis, rather than just analysis, in management practices.
Table 1.1 Historical summary of operations management Da te 17 76 17 99 18 32 19 00 19 00 19 01 19 15 19 27 19 31 19 35 19 40 19 46 19 47 19 50 Contribution Specialization of labour in manufacturing Interchangeable parts, cost accounting Division of labour by skill; assignment of jobs by Skill; basics of time study Scientific management time study and work study Developed; dividing planning and doing of work Motion of study of jobs Scheduling techniques for employees, machines Jobs in manufacturing Economic lot sizes for inventory control Human relations; the Hawthorne studies Statistical inference applied to product quality: quality control charts Statistical Sampling applied to quality control: inspection sampling plans Operations research applications in world war II Digital Computer Linear Programming Mathematical programming, on-linear and stochastic processes Contributor Adam Smith Eli Whitney & others Charles Babbage
Frederick W.Taylor
Frank B. Gilbreth Henry L. Gantt
F.W. Harris Elton Mayo W.A. Shewart
H.F.Dodge & H.G.Roming
P.M.Blacker & others John Mauchlly and J.P.Eckert G.B.Dantzig, Williams & others A.Charnes, W.W.Cooper & others
19 51 19 60 19 70
Commercial digital computer: large-scale computations available Organisational behaviour: continued study of people at work Integrating operations into overall strategy and policy Computer applications to manufacturing, scheduling, and control, Material Requirement Planning (MRP) Quality and productivity applications from Japan: robotics, CAD-CAM
Sperry Univac L.Cummings, L.Porter W.Skinner J.Orlicky & G. Wright
19 80
W.E. Deming & J.Juran
Operations Management Concepts 3
1.3
CONCEPT OF PRODUCTION
Production function is ‘the part of an organisation, which is concerned with the transformation of a range of inputs into the required outputs (products) having the requisite quality level’. Production is defined as ‘the step-by-step conversion of one form of material into another form through chemical or mechanical process to create or enhance the utility of the product to the user’. Thus production is a value addition process. At each stage of processing, there will be value addition. Edwood Buffa defines production as ‘a process by which goods and services are created’. Some examples of production are: manufacturing custom-made products like, boilers with a specific capacity, constructing flats, some structural fabrication works for selected customers, etc., and manufacturing standardized products like, car, bus, motor cycle, radio, television, etc. 1.4 PRODUCTION SYSTEM
The production system is ‘that part of an organisation, which produces products of an organisation. It is that activity whereby resources, flowing within a defined system, are combined and transformed in a controlled manner to add value in accordance with the policies communicated by management’. A simplified production system is shown below:
Fig.1.1 Schematic production system
The production system has the following characteristics: 1. Production is an organised activity, so every production system has an objective. 2. The system transforms the various inputs to useful outputs. 3. It does not operate in isolation from the other organisation system. 4. There exists a feedback about the activities, which is essential to control and improve system performance.
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Operations Management
1. 5
CLASSIFICATION OF PRODUCTION SYSTEM
Production systems can be classified as Job-shop, Batch, Mass and Continuous production systems.
Fig. 1.2 Classifications of production systems
1.5.1 Job-Shop Production Job-shop production are characterised by manufacturing one or few quantity of products designed and produced as per the specification of customers within prefixed time and cost. The distinguishing feature of this is low volume and high variety of products. A job-shop comprises of general-purpose machines arranged into different departments. Each job demands unique technological requirements, demands processing on machines in a certain sequence. Job-shop Production is characterised by 1. High variety of products and low volume.
Use of general purpose machines and facilities. Highly skilled operators who can take up each job as a challenge because of uniqueness. Large inventory of materials, tools, parts. Detailed planning is essential for sequencing the requirements of each product, capacities for each work centre and order priorities. Advantages Following are the advantages of Job-shop Production: 1. Because of general purpose machines and facilities variety of products can be produced. 2. Operators will become more skilled and competent, as each job gives them learning opportunities. 3. Full potential of operators can be utilised. 4. Opportunity exists for Creative methods and innovative ideas.
2. 3. 4. 5.
Operations Management Concepts 5
Limitations Following are the limitations of Job-shop Production: 1. Higher cost due to frequent set up changes. 2. Higher level of inventory at all levels and hence higher inventory cost. 3. Production planning is complicated. 4. Larger space requirements. 1.5.2 Batch Production American Production and Inventory Control Society (APICS) defines Batch Production as a form of manufacturing in which the job pass through the functional departments in lots or batches and each lot may have a different routing. It is characterised by the manufacture of limited number of products produced at regular intervals and stocked awaiting sales. Batch Production is characterised by 1. Shorter production runs. 2. Plant and machinery are flexible. 3. Plant and machinery set up is used for the production of item in a batch and change of set up is required for processing the next batch. 4. Manufacturing lead-time and cost are lower as compared to job order production. Advantages Following are the advantages of Batch Production: 1. Better utilisation of plant and machinery. 2. Promotes functional specialisation. 3. Cost per unit is lower as compared to job order production. 4. Lower investment in plant and machinery. 5. Flexibility to accommodate and process number of products. 6. Job satisfaction exists for operators. Limitations Following are the limitations of Batch Production: 1. Material handling is complex because of irregular and longer flows. 2. Production planning and control is complex. 3. Work in process inventory is higher compared to continuous production. 4. Higher set up costs due to frequent changes in set up. 1.5.3 Mass Production Manufacture of discrete parts or assemblies using a continuous process are called Mass Production. This production system is justified by very large volume of production. The machines are arranged in a line or product layout. Product and process standardisation exists and all outputs follow the same path.
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Operations Management
Mass Production is characterised by 1. Standardisation of product and process sequence. 2. Dedicated special purpose machines having higher production capacities and output rates. 3. Large volume of products. 4. Shorter cycle time of production. 5. Lower in process inventory. 6. Perfectly balanced production lines. 7. Flow of materials, components and parts is continuous and without any back tracking. 8. Production planning and control is easy. 9. Material handling can be completely automatic. Advantages Following are the advantages of Mass Production: 1. Higher rate of production with reduced cycle time. 2. Higher capacity utilisation due to line balancing. 3. Less skilled operators are required. 4. Low process inventory. 5. Manufacturing cost per unit is low. Limitations Following are the limitations of Mass Production: 1. Breakdown of one machine will stop an entire production line. 2. Line layout needs major change with the changes in the product design. 3. High investment in production facilities. 4. The cycle time is determined by the slowest operation. 1.5.4 Continuous Production Production facilities are arranged as per the sequence of production operations from the first operations to the finished product. The items are made to flow through the sequence of operations through material handling devices such as conveyors, transfer devices, etc. Continuous Production is characterised by 1. Dedicated plant and equipment with zero flexibility. 2. Material handling is fully automated. 3. Process follows a predetermined sequence of operations. 4. Component materials cannot be readily identified with final product. 5. Planning and scheduling is a routine action. Advantages Following are the advantages of Continuous Production: 1. Standardisation of product and process sequence. 2. Higher rate of production with reduced cycle time. 3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
Operations Management Concepts 7
5. Person with limited skills can be used on the production line. 6. Unit cost is lower due to high volume of production.
Limitations Following are the limitations of Continuous Production: 1. Flexibility to accommodate and process number of products does not exist. 2. Very high investment for setting flow lines. 3. Product differentiation is limited.
1.6
PRODUCTION MANAGEMENT
Production management is ‘a process of planning, organising, directing and controlling the activities of the production function. It combines and transforms various resources used in the production subsystem of the organization into value added product in a controlled manner as per the policies of the organization’. E.S.Buffa defines production management as follows: ‘Production management deals with decision-making related to production processes so that the resulting goods or services are produced according to specifications, in the amount and by the schedule demanded and out of minimum cost’. 1.6.1 Objectives of Production Management The objective of the production management is ‘to produce goods and services of Right Quality and Quantity at the Right time and Right manufacturing cost’. 1. Right Quality: The quality of product is established based upon the customers need. The right quality is not necessarily being the best quality. It is determined by the cost of the product and the technical characteristics as suited to the specific requirements. 2. Right Quantity: The manufacturing organisation should produce the products in right number. If they are produced in excess of demand the capital will block up in the form of inventory and if the quantity is produced in short of demand, leads to shortage of products. 3. Right Time: Timeliness of delivery is one of the important parameter to judge the effectiveness of production department. So, the production department has to make the optimal utilization of input resources to achieve its objective. 4. Right Manufacturing Cost: Manufacturing costs are established before the product is actually manufactured. Hence, all attempts should be made to produce the products at pre-established cost, so as to reduce the variation between actual and the standard (pre-established) cost.
1.7
OPERATIONS SYSTEM
An operation was defined in terms of the mission it serves for the organisation, technology it employs and the human and managerial processes it involves. Operations in an organisation can be categorised into Manufacturing Operations and Service Operations. Manufacturing Operations is a conversion process that includes manufacturing yields a tangible output: a product, whereas, a conversion process that includes service yields an intangible output: a deed, a performance, an effort.
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Operations Management
Operations system converts inputs in order to provide outputs, which are required by a customer. It converts physical resources into outputs, the function of which is to satisfy customer wants. Everett E. Adam & Ronald J. Ebert defines as ‘An operating system is the part of an organisation that produces the organistion’s physical goods and services’. Ray Wild defines operations system as ‘a configuration of resources combined for the provision of goods or services’. In some of the organisation the product is a physical good (breakfast in hotels) while in others it is a service (treatment in hospitals). Bus and taxi services, tailors, hospital and builders are the examples of an operations system. The basic elements of an operation system show in Figure 1.3 with reference to departmental stores. A departmental store's has an input like land upon which the building is located, labour as a stock clerk, capital in the form of building, equipment and merchandise, management skills in the form of the stores manager. Output will be serviced customer with desired merchandise. Random fluctuations will be from external or internal sources, monitored through a feedback system.
Late delivery Labour tumover
Fig.1.3 Operations system for department stores
1.7.1 A Framework of Managing Operations Managing Operations can be enclosed in a frame of general management function as shown in
figure 1.3. Operation managers are concerned with planning, organising, and controlling the activities, which affect human behaviour through models. Planning is the activity that establishes a course of action and guide future decision-making. The operations manager defines the objectives for the operations subsystem of the organisation, and the policies, and procedures for achieving the objectives. This stage includes clarifying the role and focus of operations in the organization’s overall strategy. It also involves product planning, facility designing and using the conversion process. Organizing is the activities that establish a structure of tasks and authority. Operation managers establish a structure of roles and the flow of information within the operations subsystem. They determine the activities required to achieve the goals and assign authority and responsibility for carrying them out. Controlling is the activities that assure the actual performance in accordance with planned performance. To ensure that the plans for the operations subsystems are accomplished, the operations
Operations Management Concepts 9
manager must exercise control by measuring actual outputs and comparing them to planned operations management. Controlling costs, quality, and schedules are the important functions here. 1. Behaviour: Operations managers are concerned with the activities, which affect human behaviour through models. They want to know the behaviour of subordinates, which affects managerial activities. Their main interest lies in the decision-making behaviour. 2. Models: Models represents schematic representation of the situation, which will be used as a tool for decision-making. Following are some of the models used. Aggregate planning models for examining how best to use existing capacity in short term, break-even analysis to identify break-even volumes, Linear programming and computer simulation for capacity utilisation, Decision tree analysis for long- term capacity problem of facility expansion, simple median model for determining best locations of facilities, etc.
Fig. 1.4 General model for managing operations
1.8
OPERATIONS MANAGEMENT
Joseph G .Monks defines Operations Management as the process whereby resources, flowing within a defined system, are combined and transformed by a controlled manner to add value in accordance with policies communicated by management.
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