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    Definition of Capacity:Capacity is the amount of work that can be done in a specified period of time.

    It is a rate of doing work, not the quantity of work done.Capacity Management:

    Is responsible for determining the capacity required to achieve the priority plans.

    Also providing, monitoring, and controlling the capacity so the priority plans canbe achieved.

    APICS Dictionary:

    The function of establishing, measuring, monitoring, & adjusting limits or levels of

    capacity in order to execute all manufacturingschedules.

    Capacity planning:

    Is the process of determining the resources required to meet the priority plan

    and the methods needed to make that capacity available.

    Planning is done at each level of priority planning process.

    The process of Capacity planning is as follows:

    1. Determine the available capacity at each work center.2. Determine the required capacity as per the customer order.

    3. Resolve the difference between available capacity and required capacity.

    If this is not possible, priority plans must changed to match the available


    Priority Capacity

    Long Range

    Medium Range


    Short Range

    Implementation Daily










    nts Plan


    nts plan



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    Types of Capacity:

    I) Available capacity: - Is the capacity of a system or resource to produce a

    quantity of output in a given time period. IT is affected by the following:

    Product specification.

    Product mix.

    Plant and equipment.

    Work effort.

    II) Required capacity: - Capacity requirements are generated by the priority

    planning system and involve translating priorities, given in units of product or some

    common unit, into hours of work required at each work centre in each time period.

    Determining Available Capacity:

    There are two ways of determining the capacity available: -

    I) Rated capacity : Based on available time, utilization, and efficiency.

    Rated or calculated capacity is a product of available time,

    utilization and efficiency.

    Available time: The available time is the number of hours a work center can be

    used. The available time depends on the number of machines, the no. of workers

    and the hours of operations.

    Utilization: The percentage of time that the work center is active compared tothe available time is called work center utilization.

    Utilization= (Hours actually worked/available hours)*100%

    Efficiency: The workers might be working at a faster or slower pace than the

    standard working pace, causing the efficiency of the work center to be more or

    less than 100%.

    II) Demonstrated capacity: Another way to determine the capacity is to examine the

    previous production records and to use that information as

    the available capacity of the work center.


    Capacity required=actual

    Efficiency=actual rate of production/standard rate of

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    (2 )


    Forecasting Techniques:

    I)Qualitative Techniques: -Are projections based on judgment, intuition, and informed

    opinions. Such techniques are used to forecast general business trends and the

    potential demand for large families of over an extended period of time.

    It includes the fallowing methods:

    a) Historical analogy.

    b) Market research.

    c) Delphi technique.

    II) Extrinsic techniques: - Are projections based on external indicators which relate to

    the demand for a companys products.

    The theory is that the demand for a product group is directly proportional, or

    correlates, to activity in another field.

    It uses economic indicators which describes economic conditions prevailing

    during a given time period.

    The problem is to find an indicator that correlates with demand and one that

    preferably leads demand, that is, one that occurs before the demand does.

    III) Intrinsic techniques: - It uses historical data for forecasting.

    It is based on the assumption that what happened in the past will happen in the


    This is most widely used since the best guide to the future is what has happened

    in the past.

    Some Intrinsic techniques:

    I)Simple average: -

    In this technique we take the average of past years data to know the future


    This method is use full when there is no particular trend or fluctuation in pastyears data.

    It also includes the estimate of error.

    II) Moving average: -

    In this method we have to fix the time period up to which the past year data has


    taken for forecasting.


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    Are best used for forecasting products with stable demand where there is little

    trend or seasonality.

    It is also useful to filter out random fluctuations.

    One drawback to using this is the need to retain several periods of history for

    each item to be forecast.

    III)Exponential Smoothing: -

    In this method there is no need to keep many years of data for

    forecasting.Therefore, the forecast can be based on the old calculated forecast

    and the new data.

    One advantage with this method is that the new data can be given any weight


    The weight given to latest actual demand is called a Smoothing constant and is

    represented by the Greek letter alpha ().Its value lie between 0 to 1.0

    Seasonal Indices: A useful indication of the degree of seasonal variation for a product is the

    seasonal index.

    The index is an estimate of how much the demand during the season will be

    above or below the average demand for the product.

    The formula for the seasonal index is:

    Year Quarter1 2 3 4 Total1



















    128 102 75 95 400

    Seasonal index : Q1=128/100 =1.28

    Q2=102/100 =1.02Q3=75/100 =.75

    Q4= 95/100= .95

    Total seasonal indices =4.00

    Seasonal Forecast:


    New forecast= ()(latest demand)+(1-)

    Seasonal index= period average demand/average

    Seasonal = (seasonal index)

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    (3 )


    Functions of Inventories:

    In batch manufacturing, the basic purpose of inventories is to decouple supply

    and demand.

    Inventory serves as a buffer between:

    Supply and demand.

    Customer demand and finished goods.

    Finished goods and component availability.

    Requirements for an operation and the output from the preceding


    Parts and materials to begin production and the suppliers of materials.

    Based on this, inventories can be classified according to function they perform:

    I)Anticipation inventory: -Are built up in anticipation of future demand. They are built

    up to help level production and to reduce the costs of changing production rates.

    II)Fluctuation Inventory: - Is held to cover random unpredictable fluctuations in supply

    and demand or lead time. If demand or lead time is greater than forecast, a stock out

    will occur.

    Safety stockis carried to protect against this possibility.

    Its purpose is to prevent disruptions in manufacturing or deliveries

    to customers.

    Safety stock is also called buffer stock or reserve stock.

    III)Lot-size inventory: -Items purchased or manufactured in quantities greater than

    needed immediately create lot-size inventories.

    Advantages are: quantity discount, to reduce shipping, clerical, and

    setup cost.

    It is also called cycle stock.

    It is the portion of inventory that depletes gradually as customers order

    come in and is replenished cyclically when suppliers orders are received.

    IV)Transportation Inventory: -Exists because of the time needed to move goods from

    one location to another such as from plant to distribution center or a customer.

    Also called Pipeline or movement or in transit inventory.

    The average amount of inventory in transit is:


    I= (Transit time*Annual

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    V) Hedge Inventory: - Some products such as minerals and commodities are traded on

    a worldwide market. The price of these products fluctuates according to world supply

    and demand. If buyers expect prices to rise, they can purchase Hedge inventory

    when prices are low.

    Objectives of Inventory Management:

    I)Maximum customer service: - Customer service is the ability of a company to satisfy

    the needs of customers.

    In inventory management, the term is used to describe the availability of items

    when needed and is a measure of inventory management effectiveness.

    Inventories help to maximize customer service by protecting against uncertainty.

    However, demand and the lead time to get an item are often uncertain, possibly

    resulting in stock outs and customer dissatisfaction.

    For these reasons, it may be necessary to carry extra inventory to protect

    against uncertainty.

    II) Operating Efficiency: -Inventories help make a manufacturing operation more

    productive in 4 ways:

    Inventories allow operations with different rates of production to operate

    separately and more economically.

    Level production and anticipation inventory would result in the following:

    Lower overtime costs.

    Lower hiring and firing costs.

    Lower training costs.

    Lower subcontracting costs. Lower capacity required.

    Allow longer production runs, which results in the following:

    Lower setup costs per item.

    An increase in production capacity due to production resources being

    used at a greater portion of the time for processing as opposed to setup.

    Lower ordering costs per unit and quantity discounts.

    Inventory control mechanisms:

    I)ABC analysis: This inventory classification helps in determining the following:

    What is the importance of the inventory items?

    How are they to be controlled?

    Most companies carry a large no. of items in stock. To have better control at a

    reasonable cost, it is helpful to classify the items according to their importance.

    It is based on Paretos law, which states that a small no. of items often dominates the

    results achieved in any situation. In this 3 groups can be defined:


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    Group A : About 20% of the items account for about 80% of the dollar usage.

    Group B : About 30% of the items account for about 15% of the dollar usage.

    Group C : About 50% of the items account for about 5% of the dollar usage.

    Control based on ABC classification:

    A items (High priority):Tight control with complete accurate records, regular and

    frequent review by management, frequent review of demand forecasts, and

    close fallow-up and expediting to reduce lead time.

    B items (Medium priority): Normal control with good records, regular attention,

    and normal processing.

    C items (Lowest priority): Simplest possible control- perhaps uses a two-bin

    system or periodic review system. Order large quantities and carry safety stock.

    II)XYZ Analysis:

    Analysis is based on the demand of the customer demand for FG (finished


    X is High demand.Yis medium demand.

    Z is low demand.

    The XYZ analysis gives, you an immediate view of which items are expensive to


    Through this analysis, you can reduce your money locked up by keeping as little

    as possible of these expensive items.

    III)VED Analysis:

    This classification is applicable only for spare parts.

    It based on the price, availability etc., For V items, a reasonable large volume of stocks might be necessary, while for D

    items, no Stocks are, perhaps, required be kept.

    For V items ofA classification a close control should be kept on stock levels, but

    if it is a C items, than large quantities mat be stored.

    IV)GOLF Analysis:

    This helps us to do material analysis based on material and type of organization.

    G -Government suppliers

    O- Ordinary or non government supplier

    L - Local suppliers

    F - Foreign suppliers

    V)FNS Analysis:

    This analysis is based on movement of material from inventory.

    Items are classified based on consumption and average stay in the inventory.

    Higher the stay of item in the inventory, the slower would be the movement of

    the material.

    F Fast Moving

    S- Slow Moving


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    N- Non moving

    Sometimes the terms FNS is also being used, where

    F Fast Moving

    N- Normal Moving

    S- Slow Moving

    (4 )


    I)Transportation: -Various methods of moving goods outside the firms buildings. For

    most firms, transportation is the single highest cost in distribution, usually accounting

    for 30% to 60% of distribution costs.

    The carriers of transportation can be divided into 5 basic modes:

    Rail: Railways are best able to move large volume of bulky goods over long

    distances. Their frequency of departure will be less than trucks. It is

    much cheaper than road service for large qty.

    Road: Trucks can provide door-to-door service as long as there is a suitable

    surface on which to drive. Trucks are particularly suited to distribution of

    relatively small-volume goods to a dispersed market.

    Air: It is the most expensive mode of transportation. For these reasons, air

    transport is most often suitable for high-value, low-weight cargo or for

    emergency items. Since operating costs are high, airlines costs are mainly

    variable. Main advantage is its speed.

    Water: Terminals are mainly a variable cost. Ships are either owned or leased

    by the carrier and represent the major capital or fixed cost to the carrier. Its

    main advantage is low cost. Therefore, Water transportation is most useful for

    moving low-value, bulky cargo over relatively long distances.

    Pipeline: They are unique among the modes of transportation in that they moveonly gas, oil, and refined products on a widespread basis. Capital costs for ways

    and pipeline are high, but operating costs are very low.

    II)Warehouses: - Its main purpose is to store inventory. The management of

    warehouses makes decisions on site selection; no. of distribution centers; layout; and

    methods of receiving, storing, and retrieving goods.

    Functions of warehouse:

    Bulk breaking= Bulk shipments from factories to distribution centers are divided

    into small shipments going to local markets. Consolidation=Shipments from several suppliers can be consolidated at a

    warehouse before being shipped to the factory.

    Product mixing= When customers place orders, they often want a mix of

    products that produced in different locations. Product mixing deals with the

    grouping of different items into an order and the economies that warehouse can

    provide in doing this.


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    Service= Improve customer service by providing place utility. Goods are placed

    closed to markets so that the market can be served more quickly.

    III)Packaging: - The basic role of packaging is to carry the goods safely through a

    distribution system to the customer.

    Functions of Packaging:

    Identify the product.

    Contain and protect the product.

    Contribute to physical distribution efficiency.

    3 types of packaging:

    Primary package= To protect the product.

    Secondary packaging= That hold the product.

    Tertiary packaging= To assemble several primary or secondary packages into aunit load.


    It is the consolidation of several units into large units, called unit loads, so

    there is less handling. Material handling costs decrease as the size of the unit

    load increases. It is more economical to move the product by cartons rather than

    individually and still more economical to move several cartons in one unit load.

    There are no. of unit-load devices such as sheets, racks, containers, and


    IV)Material Handling: - It is the movement and storage of goods inside the distributioncenter. The type of material handling equipment used affects the efficiency and cost of

    operating the distribution center. It include the loading and unloading of vehicles and

    the dispatch and recall of goods to and from storage.

    Objectives of material handling are:

    By using the height of the building, to increase cube utilization.

    To improve operation efficiency by reducing handling, by fewer moves.

    To improve the service level by increasing the speed of response to customer


    Some of the Material handling equipments are:

    Conveyors: Are devices that move material horizontally or vertically between

    two fixed. They are expensive, create a fixed route, and occupy space

    continuously. As a result they are used only where there is sufficient throughput

    between fixed points to justify their cost.


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    Industrial trucks: It is more flexible than conveyors in that they can move

    anywhere there are a suitable surface and no obstructions. Since they do not

    occupy space continuously, they most often used in distribution centers and in


    Cranes and hoists: Can move materials vertically and horizontally to any point

    within their area of operation. They required large space and are used to move

    heavy or large items.

    (5 )


    EOQ (Economic-order quantity):

    It is one of the methods to answer these two questions:

    How much should be order at one time?

    When should an order be placed?

    Thus, EOQ can be defined as:

    The amount of quantity that should be order at a time at which the total cost should

    be less

    The assumptions on which the EOQ is based are:

    Demand is relatively constant and is known.

    The item is produced or purchased in lots or batches and not continuously.

    Ordering cost and inventory carrying cost are constant and known.

    Cost per unit is constant and known.


    Unit in stock

    Reorder level

    Time (weeks)

    EOQ Formula:


    A= Annual demandS= Ordering cost per order

    I = Annual carrying cost rate

    C= per unit cost

    Q= Order quantity in units

    Total cost

    Carrying cost


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    Ordering cost


    Lot Size

    Annual ordering cost= no. of orders * Cost per order

    = (A/Q) * S

    Annual carrying cost= average inventory* unit cost* carrying cost

    = (Q/2)* c * i

    Total annual costs= Annual ordering cost + Annual carrying cost

    = [(A/Q) * S] + [(Q/2)* c * i]

    EOQ occurred at an order quantity in which the ordering costs equal the carrying



    Carrying costs = Ordering costs(Q/2)* c * i = (A/Q) * S

    Solving for Q gives

    Q^2 = 2AS/ic

    Q = 2AS/ic

    EMQ (Economic-manufacturing quantity):

    Stock gradually replenished

    Stock Stock consumed





    EMQ formula:


    S= Annual requirement.

    Cu=Manufacturing cost/unit

    Cp= Setup cost/ production

    p=Daily production rate

    d= Daily demand rate

    t= Production run time


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    Q= economic manufacturing quantity

    Manufacturing inventory at the end of production run= (p-d) t

    Annual inventory carrying cost = (q/2)(1-d/p).Cu.i

    Annual setup cost= (No. of production runs)*(Setup cost/ production)


    Annual total cost = Annual setup cost + Annual inventory carrying cost

    = [(S/q)*Cp]+[ (q/2)(1-d/p).Cu.i]

    EMQ = 2SCp


    (6 )


    Bullwhip effect:

    It is an observed phenomenon in forecast driven distribution channels. Also known as

    Whiplash effect.


    Since customer demand is rarely perfectly stable, businesses must

    forecast demand to properly position inventory and other resources.

    Forecasts are based on statistics, and they are rarely perfectly accurate.

    Due to forecast errors, companies often carry an inventory buffer called

    "safety stock".

    Moving up the supply chain from end-consumer to raw materials supplier,

    each supply chain participant has greater observed variation in demand

    and thus greater need for safety stock. In periods of rising demand,

    down-stream participants increase orders. In periods of falling demand,

    orders fall or stop to reduce inventory. The effect is that variations are

    amplified as one move upstream in the supply chain (further from the



    Inefficient production.

    Excessive inventory.

    Low utilization of distribution channel.

    Due to stock out poor customer service.

    The hiring and dismissals of employees to manage the demand variability

    induce further costs due to training and possible pay-offs. Counter Measures:

    Vendor Managed Inventory (VMI)

    Just In Time replenishment (JIT)

    Strategic partnership.

    Information sharing.

    Smooth the flow of products.

    Coordinate with retailers to spread deliveries evenly.

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    Reduce minimum batch sizes.

    Smaller and more frequent replenishments.

    (7 )


    I)Project Production:

    Characterized by complex sets of activities that must be performed in a

    particular order within the given period.

    It operates in an ETO (Engineering to order) environment.

    Operations of such products are carried out in fixed position i.e. they areimmobile.

    Examples are: Ships, Roads, Dam, Boilers, and Aircrafts.


    Definite beginning and definite end.

    Requirements of resources are not uniform even during the life of the


    Involvement of different agencies.

    Fixed position layout.

    Highly expensive manufacturing.

    Scheduling and control assumes great importance.

    II)Jobbing Production:

    Where one or few units of products are manufacture as per the customer

    specification within the given date and within the price fixed prior to the


    Examples are: general repair shop, special purpose machine tool

    manufacturers, building contractors, Tailoring shops.


    Types of

    Intermittent Continious

    Project Jobbing Batch Proces Mass and

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    Small lot size production.

    Discontinuous flow of materials.

    Use General Purpose machine in order to deliver customized products.

    Highly skilled labours are required.

    Highly knowledgeable supervision is required.

    Large work-in-progress.

    The time needed to design the product exceeds its manufacturing time.

    III) Batch production:

    Manufacturing of limited no. of products of similar type produced at regular

    intervals and stocked as finished goods in store or warehouse.

    It operates in MTS (Make to stock) environment.

    Sub-contractors and vendors are come under this.

    Examples are: Process industries such as pharmaceuticals, paints, chemicals,

    manufacture of readymade garments, Manufacturing and assembly shops.


    Short production runs. Frequent changes of set up.

    Skilled labour in specific trades.

    Supervisors must have considerable knowledge of a specific process.

    Use General Purpose machine.

    Process type of layout.

    Generally manual material handling.

    Large WIP(work-in-progress)

    Need to have production planning and control.

    IV)Mass and Flow Production:

    Where production is done either on a single machine or on a number ofmachines, arranged according to the sequence of operations and several

    number of a product are manufactured at a time and stocked in warehouse

    awaiting sales.

    These are particular continuous manufacturing industries.

    Examples are: Manufacture and assembly shops of automobiles, refrigerators,

    radios, fans.


    Continuous flow of material.

    Using Special purpose machine.

    Material handling is comparatively less and mostly mechanized

    Not needed highly skilled labour.

    Short manufacturing cycle time.

    Less supervision.

    Less WIP.

    Product type layout.

    V)Process production:

    Manufacturing of single product is done and store in warehouses awaiting sales.


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    Flexibility is almost 0 as only one type of product can be produced in such


    Examples are: Sugar, Cement, Paper, Steel industries.


    Special purpose machines with built-in controls.

    Highly mechanized material handling.

    Low skilled labour.

    Supervisor is highly qualified and is expected to posses considerable

    knowledge of processes involved.

    Negligible WIP.

    Limited planning and production control

    (8 )


    Factors affecting plant location:

    I)Nearness to the market: - It is essential in order to reaches the consumers on time and at the competitive


    Nearness to market not only lowers transportation costs.

    Locating a plant nearer to the market is preferred if:

    The product is fragile.

    The product is susceptible to spoilage.

    The promptness of service is required.

    The product is relatively inexpensive and transportation costs add significantly

    to the cost.

    II)Raw material availability: -

    Since raw material constitute 60% of product cost, it is important that the firm

    gets its requirements of raw materials at the right time and at the reasonable

    price for which plant must be located in such place where raw materials can be

    easily meet.

    Time of receipt of raw materials is important since inventory carrying costs rise

    pretty high if lead time is large due to distance factors.

    Transportation cost is equally n important factor.

    If raw materials come from variety of locations, the plant may be situated so as

    to minimize total transportation costs.

    III)Infrastructure facilities: -

    Infrastructure facilities like power, water, disposal of waste, etc. are very vital for

    many industries without which their activities may come to a standstill.

    Certain industries such as steel, aluminum, etc. are power intensive and must be

    located close to power generation house failing shortage or increase in cost of

    generating power may spell problems for their survival.

    Drainage facilities are important for process industries.


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    IV)Transportation problem: -

    Transportation cost is a key element to determine the plant location.

    The structure of transportation depends on:

    Characteristics of the commodity.

    Average distance of shipment.

    Medium of shipment.

    Since transportation cost has a major effect on product cost, the region most

    served by transport facilities is most suitable for industrial locations.

    V)Labour and wages: -

    Labour from outside is usually costly and it causes a lot of administrative


    Availability of required labour locally is better since problem of arranging

    accommodation and other related problems do not arise.

    Productivity of labour is of equal importance.

    Prevailing wage pattern, living costs and industrial relations are also importantfactors.

    VI)Government: -

    The policies of the State Government and Local bodies relating to issue of

    licenses, building codes, labour laws, etc. are the factors in selecting or rejecting

    a particular site.

    For balanced economic growth government offer incentives for setting up

    industries in particular locations.

    Exemption from excise duty, sales tax and octroi, subsidy in electricity charges,

    etc. are some of the incentives offered.

    VII)Climatic condition: -

    It is not much of concern now days because of the modern technologies

    available. However, it may be important factor for certain industries like textile

    mills which require high humidity.

    VIII)Safety requirements: -

    Safety factor may be important for certain industries such as: nuclear power

    plant, explosive factories.

    The location of such factories is far from residential place and close to border

    areas is undesirable.

    IX)Community facilities: -

    It implies accommodation, educational, entertainment and transport.

    Communication is another important infrastructure without which no unit can

    efficiently. Availability of a post office and telegraph office is a must.


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    Availability of medical facility such as dispensary or a hospital in the

    neighborhood is must.

    X)Suitability of the land: -

    It considers the topography and soil structure of the land.

    The soil structure must be capable of bearing loads of foundations.

    XI) Supporting industries and services: -

    A firm whose some or all parts made from outside must see that such sub-

    contractors are located in the neighborhood.

    If outside units are far off place may not only additional transportation cost but

    also time consuming and costly.

    XII)Availability and cost of the land: -

    Plot size must be large enough to accommodate not only the present production

    facilities, parking and access facilities but also leave room for future expansion.

    XIII)Community attitudes: -

    Community attitudes towards work as well as their upcoming entrepreneurs can make

    or break an industry.

    XIV)Competition: -

    Location of plant must be such that we can easily observe the activities of our

    competitors and get prepared to stand parallel to it.

    Principles of good layout:

    I) O verall integration of all factors : -A good layout is one that integrates men, machine, material and supporting

    activities in a way that the best compromise is obtained.

    II) Minimum movement : -

    A good layout is one that permits the minimum movement between the


    Straight line is the shortest distance between any two points and hence men and

    material as far as possible should be made to move long the straight line.

    III) Uni-directional flow : -

    A good layout is one that makes the materials move only in the forward

    direction, towards

    stage of completion, without any backtracking.

    Straight line arrangement


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    U-Shaped arrangement



    IV) Effective use of available space : -

    Back tracking and duplicated movements consume time, involve un-

    necessary material handling, add to cost and lead to inefficiency.

    Pallets should be made use of to pile up several layer one above another.

    I) Maximum visibility : -

    A good layout is one that makes men, machines and materials readily

    observable at all times.

    II) Maximum accessibility : -

    A good layout is one that makes all servicing and maintenance points

    readily accessible.

    Area in front of electrical panels and fire extinguishers should be kept free

    from obstruction.

    Machines should be kept sufficiently apart and with reasonable clearance

    from the wall so that lubrication, adjustment, removal, repair,replacement can be done easily.

    I) Minimum Handling : -

    Material should be store close to the point of use.

    Material should be handled in as bigger and convenient lots as possible.

    Material being worked upon should be kept at working height and never

    placed on floor if it required to be lifted.

    I) Inherent safety: -

    A good layout is one that makes the plant safer for workmen.

    Fire protection equipments should be provided at strategic locations.

    Gangways should be kept well lit.

    The aisles should be clearly marked and should be kept free from


    The aisles should be located in such a way that workmen do not have to

    walk close to chemicals vats or conveyors.

    I) Safe and improved environment : -

    A good layout is one that makes the work center and the areas around

    them satisfying to the workmen.


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    The work place should be free from heat, smoke, and dust.

    Proper sitting facility must be provided.

    Height of work place should be appropriate in order to avoid bending.

    I) Maximum flexibility : -

    A good layout is one that can be altered later without much cost.

    Process layout is more flexible than product layout.

    Use General Purpose machine over Special Purpose machine.

    Standardization of machines, tools, jigs, fixture give flexibility to

    Production department.

    Future requirements should be taken into account while designing the

    present layout.

    I) Maximum security : -

    A good layout is one that safeguards the plant and machinery against fire, theft,

    etc. without employing too many cages, doors and barriers.

    Types of Layouts:

    I) Process or functional layout: -

    Process layout is one where all the machines which perform similaroperation are placed together.

    The factory is divided into departments, and within these departments all

    similar facilities are grouped together

    Such as presses are kept at one place, milling machines at another place,

    drilling machines are kept at third place and so on.

    It is suitable when,

    The products are non-standard.

    There are wide variations in the processing times of individual operations.


    Higher utilization of available equipment. Uncertainties dose not dislocate the manufacturing activity on the

    shop floor.

    Provide greater flexibility in operation.

    Workers attain greater skills since they have to attend to

    one type of machines and operations.

    Imbalance of work in one station does not affect the work.

    Variety of the jobs makes the work interesting to the workmen.

    Flexibility in developing new products.

    Lower capital investment due to less no. of machines and lower

    cost of general purpose machine.


    Space requirements are higher.

    Material handling is costly.

    WIP inventory is higher since jobs have to queue up for operation.

    Routing and scheduling is difficult.

    Setup costs are high because of frequent changes of jobs.


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    Inspection requires to be done after each operation as material

    passes to different department, which causes delays and result in

    higher cost.

    Product A Product B


    II)Product or Line Layout: -

    It is a layout by sequence.

    All the machines and equipments required to produce the product are

    arrange in the sequence of operations to be performed on product.

    Design of layout is such that material flow should be unidirectional and at

    the steady rate. Special Purpose machines are used.

    Material should always flow in the forward direction towards the stage of


    Examples are: assembly line for automobiles, refrigerators, radios.


    Products are standard and are required to be produced in large


    Processing time s of individual operations is more or less equal.

    Uninterrupted supply of materials can be maintained.


    Less WIP.

    Material handling is minimal and automatic.

    Small space is required.

    Quality control is easy to perform and more effective.

    Higher customer satisfaction in terms of on time delivery.

    Production control is simplified.





    Grinding m/cs Gear shaper m/cs Deburring

    Milling m/csDrilling m/cs

    Presses Heat treatment


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    Any change in work contents or products lead to change in layout of

    the machinery.

    All machineries are not used to their full capacity.

    Manufacturing cost heavily depends upon volume of production.

    Easily expansion of capacity is not easily possible.

    Breakdown in any of the machinery lead to shut down the whole


    Specialization creates monotony due to which workers are not

    getting jobs in other


    Product A Product B Product C


    III)Project or Fixed position Layout: - The heavy materials, components, or subassemblies under this layout are

    remaining fixed in this layout.

    Men, machine, material are brought to the location to complete the job.

    Examples are: Manufactures of airplanes, ships, large turbines, heavy



    When one or few pieces of an identical product are to be


    When assembly consists of a large no. of heavy parts, the cost of

    transportation of which is very high.





    Gear 8sharp



    Grinding Drilling






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    (9 )


    Objectives of a good maintenance system:

    Ensuring maximum plant availability by preventing unexpected breakdown.

    Reducing the shutdown period.

    Increase the life of the equipment by reducing wear and tear.

    Reducing the chances of accidents thereby ensuring safety of workmen.

    Improve the productivity of the equipments.

    Achievement of all the above objectives at the least cost of the company.

    Preventive Maintenance:



    BreakdoPreventi Correcti

    Planned Unplann

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    Is a system where certain maintenance activities are carried out in a

    planned manner with an explicit objective of detecting weak spots.

    Preventive Maintenance is a systematic inspection of a plant and

    preventive actions are taken to prevent unscheduled interruption to the

    plant and equipments

    Basic activities of the preventive maintenance:

    I)Preventive inspection: -

    Inspection is carried out systematically, at periodic intervals, by the

    trained staff. If these defects no corrected on time may cause

    malfunctioning of the equipment, or result in breakdown of machine. It


    Parts which might have worn out or deteriorated.

    Surface which might have corroded.

    Bolts and nuts which might have become loose.

    Alignment adjustment.

    Defects which might have been caused due to overheating.

    II)Planned lubrication: - Lubrication help to: Protect parts from moist, dust and corrosion.

    Reducing the wear and tear of parts.

    Keep power consumption within the allowance limits.

    It should be done at right place, right quality, right time, and right


    III)Cleaning: -

    Periodic cleaning of machines is required to prevent ingression of dustinto the component. Dust gets mixed with lubricants, cause pre-mature

    failure of machines.

    Collection of dust on equipments also leads to destruction of protective


    IV)Minor adjustment and replacement: - It includes:

    Tightening of loose parts.

    Replacement of oil filters and oil seals.

    Replacement of small damaged parts.

    V)Engineering records: -

    The fallowing documents and records must be maintained for smooth working

    of the department:

    Instruction manuals.

    Spare-parts catalog.

    Electrical and hydraulic circuits diagram.

    Equipments history cards.


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    VI)Failure statistics analysis: -

    The analysis helps to:

    Cause for major repetitive failures, hence help in taking decisions.

    Quantify frequency of preventive inspections.

    Highlight the reliability of the machines which helps production planning.

    Forecast defects and o make plan to rectify before failure occurs.

    VII)Training of maintenance personnel: - It is necessary for the success of PM


    Corrective Maintenance:

    Corrective maintenance is employed to restore the equipment back to its

    original performance

    It is done after the complete stoppage of machines due to failure of breakdown.

    Basic activities of the corrective maintenance:

    I)Servicing and overhauls: -

    To get the trouble free service from equipment, it is necessary to carryout certain periodic activities such as servicing and overhauls.

    It lengthens the life of the equipment and its parts.

    Enable to pre purchase the material well in advanced at the competitive


    II)Rebuilding/ Reconditioning: -

    Reconditioning is a process of withdrawing the equipment from the

    production line , dismantling it unit wise, finding the defects, replacing

    worn out parts. It helps in:

    Eliminate problem and frequent breakdown. Increase the life of the components.

    Plan the requirements of the replacement parts.

    III)Planned maintenance of worn out parts: -

    It should be planned in such a manner that reduces the downtime of machines. It

    must be done with the synchronizing the activity of replacement of parts with

    natural gaps.

    IV)Emergency repair: -

    Is the maintenance necessary to undertaken immediately to avoid serious

    consequences of loss of production, excess damage to the equipment or to

    correct unsafe condition.

    V)Breakdown maintenance: -

    It has been performed after the equipment has failed completely and suddenly

    over which period the production is completely stopped and which need urgent



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    (10 )


    A good planning system must answer four questions:

    What are we going to make?

    What does it take to make it?

    What do we have? What do we need?

    These questions are of priority and capacity.

    Priority: Relates to what products are needed, at what quantity, and when they are


    Capacity: Is the capability of manufacturing to produce goods and services.


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    Manufacturing planning and control system

    Strategic Business Plan:

    Strategic planning defines an organization's process of its strategy, and

    making decisions on how to allocate its resources to pursue this strategy, whichincludes its capital and people.

    It is a plan for major goals and objectives the company expects to achieve over

    the next 2 to 10 years or more.

    Strategic business plan is developed by the senior management.

    The plan provides direction and coordination among the marketing, production,

    financial, and engineering plans.

    The level of details in the strategic business plan is not high.

    Various business analysis techniques are used in strategic planning such as

    SWOT, PESTLE analysis.

    The Strategic Planning Process

    Production Planning:

    Is concerned with:

    Planning for each product family

    Meeting desired inventory levels

    Determining resources needed

    Comparing with available resources

    Production plan takes information from SBP and sales forecast to produce theoverall plan of what production intends to make to meet forecast.





    Situation Analysis

    Strategy Formulation


    Production plan

    Master production Schedule

    Sales forecast

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    12-month time horizon. Fluctuating or seasonal demand. Developing a Production Plan: Make the sales forecast for each product or service over the appropriate

    planning period. Combine the individual product demands into one aggregate demand. Transform the aggregate demand of each time period into staff, process, and

    other elements of productive capacity.

    Master production schedule (MPS): It is an important planning tool and forms the basis for communication between

    sales and manufacturing. It forms the basis for calculating the capacity and resources needed. It is the priority plan for manufacturing. MPS deals with end items only. Objectives are:

    Maintain desired level of customer service. Best utilization of available resources. Keep inventory at desired level.

    Inputs to MPS are: The production plan. Forecast for individual end items. Inventory level for individual end items.

    Capacity restraints. Actual order received from customer and for stock replenishment.

    Steps in preparing MPS:1. Develop a preliminary MPS.2. Check the preliminary MPS against available capacity.3. Resolve the difference.

    MPS is judged on 3 criteria: Resource use : Is MPS within capacity restraints in each period of the plan?

    Does it make the best use of the resources? Customer service : Will due dates be met and will delivery performance be

    acceptable? Cost : Is the plan economical, or will excess costs be incurred for overtime,

    subcontracting, expediting, or transportation?Rough-cut capacity Planning:

    It checks whether critical resources are available to support the preliminary MPS. Critical resources include bottleneck operations, labour, and critical materials

    ( material that is scarce or has a long lead time). This is similar to resource planning used in production planning process. The

    difference is that now we are working with a product and not with family ofproducts. Now the resource bill is for single product.



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    MPS, FAS And Other Planning A ctivities

    Material Requirements Planning(MRP):

    Two major objectives of MRP:1. Determining requirements: What components are needed to meet the

    MPS and based on the lead time, to calculate the periods when thecomponents must be available. It must determine the following:

    What to order?

    How much to order?When to order?

    When to schedule delivery?2. Keep priorities current: In this ever changing world, a MRP must be able to

    reorganize priorities to keep plans current. It must be able to add, anddelete, expedite, delay, and change order.

    Inputs to MRP:

    Bill of Material:

    A bill of material lists all the components, subassemblies, parts, raw

    materials along with the quantity needed to make one assembly.

    Each part has a unique part number.

    Uses of BOM: Provide product definition i.e. components needed to make the


    Engineering change control.

    Planning= they define what components have to be purchased or

    made to satisfied the MPS.

    Costing of a product.

    Where used and Pegging reports:


    Production Plan

    MPS Rough-cut


    Final assembly

    Order entr and



    MRPPlanning Inventory


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    A listing ofall the parents in which a components is used is called a Where

    used report. However pegging report shows only those parents for which there is

    existing requirement.

    Exploding the requirements: It is the process of multiplying the requirements

    by the usage quantity and recording the appropriate requirements throughout

    the product tree.

    Offsetting: Is the process of placing the exploded requirements in their proper

    periods based on lead time.

    Low-level coding: Is the lowest level on which a part resides in all bill of


    Production Activity and Control: It is responsible for executing the MPS and MRP. To release work order to the shop for manufacturing. To take control of work orders and make sure they are complete on time. To manage day-to-day activity and provide the necessary support. PAC Functions:


    Ensure resources are availableSchedule start and completion dates

    Execute:Gather relevant shop order informationRelease shop orders


    Establish and maintain order priorityTrack actual performanceMonitor and control WIP, lead times, and queuesReport work center performance

    Scheduling: Establishing start and finish dates for each operation needed to complete

    an order. Meet delivery dates. Effectively use manufacturing resources.

    Execution of plan: (Shop order packet) Order number, part number, name and description, and quantity

    Engineering drawings Bills of material Route sheets Material issue tickets Tool requisitions Job tickets and move tickets



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    Dispatching is the function of selecting and sequencing available jobs to be runat individual work centers.

    Various dispatching rules are: FCFS(first come first serve),EDD( Earliest duedate), ODD(Earliest operation due date), SPT(shortest process time)

    (11 )


    Manufacturing Strategies:

    Engineer-to-order (ETO): -

    Customers specifications require unique engineering design or significant


    High involvement of customers in product design.

    Inventory is very small and purchased only when needed.

    Delivery lead time is very long.

    Make-to-order (MTO): -

    Manufacturing of products only start after receiving the orders from the

    customers, The final product is usually made from customer standard items but may

    involve customer designed components as well.

    Inventory is held as raw material.

    Lead time is less as compared to ETO.

    Assemble-to-order (ATO): -

    Final product is made from standard components that the manufacturer

    can inventory and assemble according to customer order.

    Delivery lead time is much shorter since there is no time needed for

    design and inventory is held ready for assembly. Customer involvement is limited.

    Make-to-stock (MTS): -

    The supplier manufactures the goods and sells from finished goods


    Delivery lead time is short.

    The customer has little or no involvement in product design.

    Delivery Lead time



    Lead time


    Design Purchase Manufacturing Assemble Ship

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    Production Strategies:I)Chase/Demand matching strategy:

    Producing as per the demand.

    Inventory level remains same while production is done to meet the


    Such type of production does not pile up the inventories of finished goods

    and must be capable of meeting the demand.

    In this case the company must have enough capacity o meet the peak


    Advantages are:

    Inventories can be kept to a minimum.

    Goods are made when demand occurs and are not stockpiled.

    Cost associated with carrying inventories is very less.



    II)Production Leveling: Is continuously producing an amount equal to average demand. Sometimes demand is less than the amount produced and an inventory builds

    up. At other times demand is greater and inventory is used up. The company will use its resources at a level rate and produce the same amount

    each day. Advantagesare:

    Smooth level of operation that avoids the cost of changing production


    Firms do not need to have excess capacity to meet peak demand.

    They can build a stable workforce.

    Disadvantage :

    Inventory will build up in low demand period, which will cost money to carry.

    Demand Production


    Inventory Manufacturing Assemble Ship

    Inventory Manufacturing Assemble Ship

    Manufacturing Assemble Inventory Ship

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    Producing at the level of minimum demand and meeting any additional demand

    through subcontracting.

    Subcontracting can mean buying the extra amounts demanded or turning away

    extra demand.

    The latter can be done by increasing prices when demand is high or by

    extending lead time.

    The decision about make or buy depends on:


    Firm may manufacture to keep confidential process within the firm, to

    maintain quality level, or to maintain workforce.

    The company buy from supplier who has special expertise in design and


    Advantages are:

    Cost associated with excess capacity is avoided.

    Because of level production no cost associated with changing productionlevels.


    The cost of purchasing may be greater than if the items were made in the



    Demand Demand


    IV)Hybrid strategy:

    Demand is matched to some extent, production is partially smoothed, and in the

    pea period some subcontracting takes place.


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    Production management is responsible for finding the combination of strategies

    that minimize the all cost involved.

    How to develop Level production plan:

    Total the forecast demand for the planning horizon.

    Determine the opening inventory and the desired endin inventory.

    Calculate the total production as fallows:

    Calculate the production required each period by dividing the total production by

    the no. of periods.

    Calculate the ending inventory for each period.

    Total production= Total forecast+ back orders + ending inventory

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