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WHAT IS OPERATIONS MANAGEMENT?

Operations Management deals with the design and management of products,

processes, services and supply chains. It considers the acquisition, development,

and utilization of resources that firms need to deliver the goods and services their

clients want.

The Survey of OM ranges from strategic to tactical and operational levels.

Representative strategic issues include determining the size and location of

manufacturing plants, deciding the structure of service or telecommunications

networks, and designing technology supply chains.

Tactical issues include plant layout and structure, project management methods,

and equipment selection and replacement. Operational issues include production

scheduling and control, inventory management, quality control and inspection,

traffic and materials handling, and equipment maintenance policies.

Nature and Scope of the Operational Management (Essences of operational management)

Operations management is often used along with production management in literature on

the subject. It is therefore, useful to understand the nature of operations management.

Operations management is the process whereby resources or inputs are converted into

more useful products and this model is also known as the IPO MODEL.

The Input-Process-Output-Model is also known as IPO+S Model is a functional

model and conceptual schema of a general system. An IPO chart identifies a program’s

inputs, its outputs, and the processing steps required to transform the inputs into the

outputs.

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DIFFERENT TYPES OF OPERATIONS MANAGERS

Operation Managers are an integral part of any business. This is because an Operations

Manager’s job encompasses a lot of different roles in the organization. There are

variations of the Operations Manager position that covers one or some of the roles that

would be a part of an Operation Manager’s job description.

Material Manager:

The role of a Materials Manager is to supervise and store the products through the

production process. The Materials Manager ships these between departments,

warehouses and finally to the customer. In short, a Material Manager would have to

make sure that the right thing is bought for the right price at the right time.

Purchase Manager:

Procuring the raw materials or services like that of a lawyer or insurance company is

done by this Manager. The quantity, price, quality and time of delivery are

coordinated by the Purchase Manager. The other variations that are part of this job

are: purchasing agents, buyer and expediter.

Industrial Production Manager:

An Industrial Production Manager coordinates all the departments of production in

manufacturing businesses. Production scheduling, quality control, staffing, inventory

control, equipment maintenance and control and other such roles are a part of the

Industrial Production Manager’s responsibilities. A line supervisor, production

planner and manufacturing supervisor are different types of Industrial Production

Managers.

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Quality Assurance Manager:

A Quality Assurance Manager would work on preventing deficiencies in the

production of goods. This is done by preventing any defects, detecting any defects if

any and correcting those defects. The standards of the finished product laid out by the

company are met.

Logistics Manager:

The Logistics Manager is responsible for managing the supply chain of the product or

service. The main aim of a Logistics Manager is to increase the efficiency of improve

the efficiency of receiving and shipping the goods.

These are some of the different types of Operations Managers that are present in the

global marketplace.

THE IMPORTANCE OF OPERATIONS MANAGEMENT

Operations management is important to an organization’s managers for at least two

reasons. First, it can improve productivity, which improves an organization’s financial

health. Second, it can help organizations meet customers’ competitive priorities.

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To improve productivity: A measure of efficiency:

Productivity, the ratio of output to input, is a measure of a manager’s or an

employee’s efficiency in using the organization’s scarce resources to produce goods

and services. The higher the numerical value of this ratio, the greater the efficiency.

Ernst & Young managers use “hoteling” to affect to affect both parts of this ratio.

They seek to cut inputs (space cost) and to boost the output of traveling accountants.

A total Quality approach to operations improvement:

The quality movement, with such approaches as small scale continuous improvement

processes and the large scale radical redesign of processes, is directly affecting

productivity and measures of efficiency. Take, for example, the Dutch

telecommunications company Philips Business Communication Systems (PBCS). PBCS was long sheltered by import barriers and captive government contracts.

Recently it has found itself in a competitive global economy and a deregulated,

privatized network where customers shop around for services. When David

Kynaston became managing director of the company in 1990 be found much in need

of change: Poor service had damaged sales, and profits had declined to the point

where the parent company, Philips Electronics, could no longer support the company.

All business functions need information from operations management in order to

perform their tasks. At the same time, operations managers are

highly dependent on input from other areas. This process of information

sharing is dynamic, requiring that managers work in teams and understand each

other’s roles.

TRAITS OF GOOD OPERATIONAL MANAGER

The Top 10 Skills of Effective Operations Managers:

1) Understands customer needs

2) Communicates effectively

3) Understands the organization's financial performance

4) Tracks and measures staff performance

5) Motivates the team

6) Creates a positive learning environment

7) Maximizes staff utilization

8) Delegates

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9) Enforces standards

10) Infuses pride in organizational values and mission

Role of Operation Management in the field of Management

1. Finance Securing of financial resources

Allocating of resources

2. Marketing Assessing consumer wants and needs

Selling goods and services

3. Operations Producing goods and providing services

Transform company input into output

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THE ESSENCE OF OPERATIONAL FUNCTION

Value added is considered essence of operational management which means the

difference between the sale price and the production cost of a product is the value added

per unit. Value Added is a higher portion of Revenue for integrated companies.

USAGE OF VALUE ADDED

Value Added as a basis for business decisions and for determining incentive

compensation. Simply, it is equivalent to net operating profits after taxes minus a charge

for the cost of invested capital necessary to generate those profits. The VA decision-

making model also enhances operating decisions in stores. We believe that focusing on

EVA improvement encourages continuous improvement of our business

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WHO PLAY AN IMPORTANT ROLE IN OPERATIONAL

MANAGEMENT???

To be able produce professional managers capable of fulfilling strategic

roles within business and government enterprises the need for the practice of operations

management cannot be forgone. Operations management is very important in business

operations since it forms the heart of the organization by controlling the system

of operation. Operations management deals with the:

Design

Operation

Improvement of the firm’s system that creates and delivers a

firm’s primary products and services.

Operations management professionals make a number of key decisions that affect the

entire organization. These include the following:

What: What resources will be needed, and in what amounts?

When: When will each resource be needed? When should the work be scheduled? When

should materials and other supplies be ordered? When is corrective action needed?

Where: Where will the work be done?

How: How will the product or service be designed? How will the work be done

(organization, methods, equipment)? How will resources be allocated?

Who: Who will do the work?

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OPERATIONS MANAGEMENT IN PRACTICE

Of all the business functions, operations are the most diverse in terms of the

tasks per-formed. If you consider all the issues involved in managing a transformation

process, you can see that operations managers are never bored. Who are operations

managers and what do they do?

The head of the operations function in a company usually holds the title of

vice p r e s i d e n t o f o p e r a t i o n s , v i c e p r e s i d e n t o f m a n u f a c t u r i n g , V . P .

o r d i r e c t o r o f s u p p l y chain operations and generally reports directly to the

president or chief operating officer.

Below the vice president level are midlevel managers: manufacturing manager,

operations manager, quality control manager, plant manager, and others.

Below these managers are a variety of positions such as quality specialist,

production analyst, Inventory analyst, and production supervisor.

These people perform a variety of functions, such as analyzing production

problems, developing forecasts, making plans for new products, measuring

quality, monitoring inventory, and developing employee schedules. Thus,

there are many job opportunities in operations management at all levels of

the company. In addition, operations jobs tend to offer high salaries,

interest-in work, and excellent opportunities for advancement. Today many corporate

CEO have come through the ranks of operations.

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SCIENTIFIC MANAGEMENT

The term scientific management is the combination of two words i.e. scientific and

management. The word "Scientific" means systematic analytical and objective approach

while "management" means getting things done through others.

In simple words scientific management means application of principles and methods of

science in the field of management. "Scientific management is the art of knowing best

and cheapest way". It is the art of knowing exactly what is to be done by whom it is to be

done and what is the best and cheapest way of doing it.

Scientific methods and techniques are applied in the field of management i.e.,

recruitment, selection, training, placement of workers and methods of doing work in the

best and cheapest way.

STUDY OF SCIENTIFIC MANAGEMENT

The Scientific management can be studied under the following heads:

Primary principles of scientific management as evolved by F.W. Taylor.

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Secondary principles of scientific management.

DEFINITIONS OF SCIENTIFIC MANAGEMENT

The main definitions of scientific management are as follows:

According to Fredrick Winslow Taylor, "Scientific management means knowing

exactly what you want men to do and seeing that they do it in the best and the cheapest

way."

According to Harlow Person, "Scientific management characterizes that form of

organization and procedure in purposive collective effort which rests on principles or

laws derived by the process of scientific investigation and analysis, instead of tradition or

on policies determined empirically and casually by the process of trial and error."

According to Jones, "Scientific management is a body of rules, together with their

appropriate expression in physical and administrative mechanism and specialized

executives, to be operated in coordination as a system for the achievement of a new

strictness in the control and process of production."

According to Lioyd, Dodd and zynch, In broad outline "Scientific management seeks to

get the maximum from methods, men materials machines and money and it controls the

works of production from the location and layout of the worker to the final distribution of

the product."

According to Peter F. Drucker, “Scientific management is the organized study of work,

the analysis of work into its simplest element and the systematic improvement of the

workers".

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Characteristics / Features of Scientific Management

The main characteristics or features of scientific management are as follows:

Approach: It is a systematic, analytical and objective approach to solve industrial

problems.

Economy: The basis of scientific management is economy. For implementing

economy, all the unnecessary elements of production are eliminated and a sincere

effort is made to achieve optimum production at the minimum cost.

A Definite plan: The main characteristic of scientific management is that before

starting and work there must be a definite plan before as and the work is to be

done strictly according to that plan.

Discards old methods: It discards the age old methods of rule of thumb and hit or

miss approaches.

Emphasis: It lays emphasis on all factors of production, men, material and

technology.

Techniques: It implies scientific techniques in methods of work, recruitment,

selection and training of workers.

Attempts: It attempts to develop each man to his greatest efficiency and

prosperities.

Method: It attempts to discover the best method of doing a work at the cheapest

cost.

A definite Aim: It is another main characteristic of scientific management.

Scientific management is the process of organizing, directing, conducting and

controlling human activities. Hence there must be a definite aim before the

managers, so that the human activities be organized directed conducted and

controlled for achieving that aim or aims.

Changes in attitude: It involves a complete change in the mental attitude of

workers as well as the management.

A Set of Rules: There must be a set of rules in accordance with the laid plan so

that the objectives can be achieved. According to F.W. Taylor, It is no single

element but rather the whole combination that constitutes the scientific

management.

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PRIMARY PRINCIPLES OF SCIENTIFIC MANAGEMENT AS

EVOLVED BY F.W. TAYLOR:

F.W. Taylor, the father of scientific management evolved the following five primary

principle of scientific management:

Science is not Rule of Thumb

Rule of thumb was the technique of pre-scientific management era. Taylor maintained

that the rule of thumb should be replaced by scientific knowledge. While rule of thumb

emphasizes mere estimation, scientific method denotes precision in determining any

aspect of work. This should be done with the help of careful scientific investigation.

Exactness of various aspects of work like day's fair work, standardization in work,

differential price rate for payment etc. is the basic care of scientific management.

therefore, it is essential that these should be measured precisely and not on mere

estimates.

Harmony not Discord

Taylor emphasized that harmony rather than discord should be obtained in group action.

Harmony means that a group should work as a unit and contribute to the maximum.

Within it there should be mutual give and take situation and proper understanding.

Co-operation not Individualism

Scientific management requires that parts of industrial body co-operate with each other,

scientific management is based on mutual confidence, co-operation and goodwill. It

requires a complete mental revolution on the part of both workers and management.

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Taylor suggested "Substitution of war for peace, hearty and brotherly co-operation for

contention and strife, replacement of suspicious watchfulness with mutual confidence of

becoming friends instead of enemies."

The Development of each man to his greatest efficiency and prosperity

In order to maximize production all possible efforts are made to increase the efficiency of

workers. Workers are selected according to the nature of work. It includes scientific

training, scientific allotment of work, implementation of incentive wage plan above all,

development of workers to the fullest extent for themselves and also for the companies’

highest prosperity. Scientific management leads to the development of each worker to his

greatest efficiency and prosperity.

SECONDARY PRINCIPLES OF SCIENTIFIC MANAGEMENT:

Standardization of Tools and Equipment’s

Another principle of scientific management is the standardization of tools and

equipment’s. It is essential for the improvement of quality of products and also for

bringing about uniformity in the production of standard goods. As a matter of fact,

standardization should be maintained in respect of tools, equipment’s, materials, period

of work, working conditions, amount of work, cost of production etc.

Scientific Selection and Training of Workers

Scientific management requires a radical change in the selection and training or workers.

They must be selected on a scientific basis. The old traditional and absolute methods of

selection of workers have to be replaced by the scientific and modern methods. Taylor

suggested that the workers should be selected on scientific basis taking into account their

educational background, health, work experience, aptitude, physical, strength and I.Q.

etc. Further, proper training by qualified persons should be given according to their

capabilities and nature of work.

Experimentation and Scientific Investigation

The success of scientific management depends upon experimentation and investigation. It

involves analytical study, observation research, experimentation and investigation. It is

only through constant experimentation and scientific investigation that one can find out

the best and most efficient methods of doing a work. It has been rightly said that

experimentation and investigation is the life-blood of scientific management.

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Incentive Wage System

Taylor for the first time advocated an incentive wage system in the form of differential

piece wages instead of time wages. Under differential piece system two wage rates are

prescribed, i.e. one lower and the other higher. Those who are unable to perform standard

work within standard time are paid wages at lower rate per unit. On the contrary, those

who attain standard or even more within the standard time are paid wages at higher rate

per unit. Thus, there is considerable difference in wages between those who attain and

those who do not attain standards.

Efficient attain system

Another important principle of scientific management is the efficient costing system. It is

an essential element of scientific management. The management is interested in knowing

the cost of production not only total cost but cost at every stage of production. Besides, it

must see there is no waste, and proper cost control has been ensured.

Scientific Allotment of Task

Another important principle of scientific management is the scientific allotment of task.

Every job must be entrusted to the best available man according to his aptitude and

training for that specific job. As a matter of fact, every person, however efficient he may

be, cannot perform all the jobs efficiently. One has to carefully fit "the man to the job",

and "the job to the man". The principle of 'right job to the right person' should be

implemented. A worker may perform his task most efficiently provided it suits his

inclination aptitude taste and capability

Taylor's Influence and Legacy Carl Bart lecturer at Harvard and early consultant on Scientific Management

H.L. Gantt developed Gantt chart, a visual aid for graphing the scheduling of tasks and flow of work to be completed

Harrington Emerson

introduced scientific management to railroad industry and developed idea of "staff" function as advisory role to "line" management.

Morris Cooke adapted scientific management to educational and municipal organizations.

Hugo Munsterberg

created the discipline of industrial psychology

Lillian Gilbreth introduced psychology to management studies. Frank Gilbreth introduced scientific management in construction industry and

developed "motion" studies using photography for what came to be called "time and motion" studies

Harlow S. Person

as dean of Dartmouth's Amos Tuck School of Administration and Finance, promoted the teaching of scientific management

James O. McKinsey

professor at University of Chicago and senior partner in his accounting firm, propagated the budget as a means of accountability and measuring performance.

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Outside the United States: France Le Chatelier translated Taylor's work and introduced scientific

management thoughout state plants during World War I. This will influence the French theorist Henri Fayol who publishes Administration Industrielle et Générale in 1916, emphasizing organizational structure in management.

Switzerland The American Edward Albert Filene established the International Management Institute to spread information about management

Japan Yoichi Ueno - In 1912 introduced Taylorism to Japan and was first management consultant to create the "Japanese- management style". His son Ichiro Ueno pioneered Japanese quality assurance.

TAYLORISM

Taylor began his career as the first management theorist, consultant, and "guru" as an

apprentice foreman and common laborer, positions from which he quickly advanced to

chief engineer. Taylor's early resume, however, belies the fact that he was born into an

affluent Philadelphia family. His direct observations of men at work led him to develop

what we would call "motivation" theory, although this is a psychology term that would

not be imported into the management vocabulary until later. Taylor's own point of view,

although benign towards workers, saw human labor very much analogous to machine

work--- something to be "engineered" to achieve efficiency. His theories on management

would be promoted worldwide (and maybe took stronger root in Japan than in the U.S. or

Europe) and would be controversial at home. If greater economic development through

efficient and productive work was Taylor's own view of his work, the growing Labor

Movement would see "Taylorism" as exploitive. Organized labor's antagonism to the

American popularity of Taylor's work would eventually lead to Congressional hearings

and, pretty much, the demise of "Scientific Management".

Taylor developed his management theories in his book Shop Management published in

1903, making it arguably the first scholarly work on management. Although there were

books and published pieces on what could be termed "management" these were more of a

"guide to" or trade publication on best practices. Shop Management approached the role

of manager as a general role with specific functions with respect to collaborative work.

The problem, as Taylor saw it, was that workers were inefficient because: (1) Workers

tended to ration their work load or work less than they could, because working faster and

harder would mean that there would be less or no work to do in the future. (2)

Management failed to structure work effectively and to provide appropriate incentives. It

should be pointed out that Taylor is writing before the establishment of a "minimum

wage" (the minimum wage became federal law in 1938), so the notion of what is "a fair

day's work for a fair day's pay" was arbitrary. A day-rate or hourly-rate was a common

practice at the turn of the century. Taylor viewed these wage practices as rewarding for

attendance, not performance. While another common practice was the "piece-rate"

system that paid workers on the basis of output, this generally failed because standards

were poorly set, employers cut rates when workers earned "too much", and workers

would conceal their real capacity for production to keep standards low.

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The solution, to Taylor, lay in discovering the appropriate work standard and fitting

wages to the standard. Management should establish specific work targets, pay workers

for the tasks and goals met, and provide regular feedback. The main elements of his

theory were:

1. Management is a true science. The solution to the problem of determining fair work

standards and practices could be discovered by experimentation and observation. From

this, it follows, that there is "one right way" for work to be performed.

2. The selection of workers is a science. Taylor's "first class worker" was someone

suitable for the job. It was management's role to determine the kind of work for which an

employee was most suited, and to hire and assign workers accordingly.

3. Workers are to be developed and trained. It is management's task to not only

engineer a job that can be performed efficiently, but management is responsible for

training the worker as to how the work is to be performed and for updating practices as

better ones are developed. This standardizes how the work is performed in the best way.

4. Scientific management is a collaboration of workers and managers. Managers are

not responsible for execution of work, but they are responsible for how the work is done.

Planning, scheduling, methods, and training are functions of the manager.

The "scientific" approach towards work led Taylor to investigate work through "task

allocation" which meant that a job would be studied by sub-dividing it into discrete tasks,

each element of the job would be investigated to discern the optimal efficiency by which

it could be accomplished. The elements of the job, properly designed, then, would be

reconstructed as an efficient job. The criticism of this approach is that it omits the

worker's own contribution to the design of work and, thereby, alienates the worker from

the job. Still, what Taylor does is link national wealth and company profits to how

effectively work is performed, and he defines a cooperative role between labor and

management in wealth creation.

Taylor's system was widely adopted in the United States and the world until its demise in

the 1930's as organized labor pushed for a minimum wage based on hourly pay, as

opposed to Taylor's contention that pay ought to be based on performance. In practice

"Taylorism" too often fell short of collaboration between labor and management and,

frequently, was a mask for business exploitation of workers. The enduring and

unquestionable contribution of Frederick Taylor is that management is firmly established

as something done by trained, professional practitioners and is elevated as the subject of

legitimate scholarship.

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CRITICISM:

Taylor's Scientific Management is criticized on the following main grounds:-

1. Exploitation of Workers

Taylor's Scientific Management put unnecessary pressures on the employees to perform

the work faster. Importance was given to productivity and profitability. This resulted in

exploitation of the employees. Therefore, many employees joined trade unions. This also

resulted in mistrust between management and employees.

2. Problem of Unity of Command

Taylor used functional foremanship. So, the workers have to report to eight bosses. This

breaks the principle of unity of command, where the workers have to report to only one

boss. Lack of unity of command can create confusion and chaos in the organisation.

3. Mechanical Approach

Taylor's approach was a mechanical approach. He gave too much importance to

efficiency. He did not consider the human element. Taylor considered workers as robots,

which could speed up the work at any cost.

4. Problem of Separation of Planning from Doing

Taylor said to separate planning from doing. In reality, we cannot separate planning from

doing. The planners should also be engaged in doing, and then only they will be able to

make realistic plans for the organization.

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5. Individualistic Approach

Taylor's scientific management gives too much importance to individual performance and

not to group performance. However, the success of an organization depends not only on

individual performance of workers, but also on group performance of workers.

6. Wrong Assumptions

Taylor assumed that workers are motivated only by financial gains. However, in reality,

workers are motivated not financial incentives but also by social needs and personal egos.

7. Narrow Application

Taylor's scientific management has narrow application. It can be applied only when the

performance of the workers can be measured quantitatively. It can be applied only for

factories where the performance can be measured quantitatively. It cannot be used in the

service sector because in this sector the performance of a person cannot be measured

quantitatively.

.

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HUMAN RELATIONS MOVEMENT

Human relations movement refers to the researchers of organizational development

who study the behavior of people in groups, in particular workplace groups. It originated

in the 1930s' Hawthorne studies, which examined the effects of social relations,

motivation and employee satisfaction on factory productivity. The movement viewed

workers in terms of their psychology and fit with companies, rather than as

interchangeable parts, and it resulted in the creation of the discipline of human resource

management.

MAYO'S WORK

George Elton Mayo stressed the following:

1. Natural groups, in which social aspects take precedence over functional

organizational structures.

2. Upwards communication, by which communication is two way, from worker to

chief executive, as well as vice versa.

3. Cohesive and good leadership is needed to communicate goals and to ensure

effective and coherent decision making

It has become a concern of many companies to improve the job-oriented interpersonal

skills of employees. The teaching of these skills to employees is referred to as "soft

skills" training. Companies need their employees to be able to successfully communicate

and convey information, to be able to interpret others' emotions, to be open to others'

feelings, and to be able to solve conflicts and arrive at resolutions. By acquiring these

skills, the employees, those in management positions, and the customer can maintain

more compatible relationships.

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ARGUMENTS AGAINST MAYO'S INVOLVEMENT IN HUMAN

RELATIONS

Elton Mayo's work is considered by various academics to be the counterpoint of

Taylorism and scientific management. Taylorism founded by F W Taylor, sought to

apply science to the management of employees in the workplace in order to gain

economic efficiency through labor productivity. Elton Mayo's work has been widely

attributed to the discovery the 'social person', allowing for workers to be seen as

individuals rather than merely robots designed to work for unethical and unrealistic

productivity expectations. However, this theory has been contested, as Mayo's purported

role in the human relations movement has been questioned. Nonetheless, although

Taylorism attempted to justify scientific management as a holistic philosophy rather than

a set of principles, the human relations movement worked parallel to the notion of

scientific management aiming to address the social welfare needs of workers and

therefore elicit their co-operation as a workforce.

The widely perceived view of human relations is said to be one that completely

contradicts the traditional views of Taylorism. Whilst scientific management tries to

apply science to the workforce, the accepted definition of human relations suggests that

management should treat workers as individuals, with individual needs. In doing so,

employees are supposed to gain an identity, stability within their job and satisfaction,

which in turn make them more willing to co-operate and contribute their efforts towards

accomplishing organizational goals. Thus, the human relations movement supported the

primacy of organization to be attributed to natural human groupings, communication and

leadership. However, the conventional depiction of the Human Relations 'school' of

management rising out of the ashes of Scientific Management is argued to be a rhetorical

distortion of events.

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Management is the act of getting people together to accomplish desired goals and

objectives using available resources efficiently and effectively. Management comprises

planning, organizing, staffing, leading or directing, and controlling an organization (a

group of one or more people or entities) or effort for the purpose of accomplishing a goal.

Resourcing encompasses the deployment and manipulation of human resources, financial

resources, technological resources and natural resources. Since organizations can be

viewed as systems, management can also be defined as human action, including design,

to facilitate the production of useful outcomes from a system. This view opens the

opportunity to 'manage' oneself, a pre-requisite to attempting to manage others.

Management is the process of reaching organizational goals by working with and through

people and other organizational resources.

Management has the following 3 characteristics:

1. It is a process or series of continuing and related activities.

2. It involves and concentrates on reaching organizational goals.

3. It reaches these goals by working with and through people and other organizational

resources.

MANAGEMENT FUNCTIONS:

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The 4 basic management functions that make up the management process are described

in the following sections:

1. PLANNING

2. ORGANIZING

3. INFLUENCING

4. CONTROLLING.

PLANNING:

Planning involves choosing tasks that must be performed to attain organizational goals,

outlining how the tasks must be performed, and indicating when they should be

performed.

ORGANIZING:

Organizing can be thought of as assigning the tasks developed in the planning stages, to

various individuals or groups within the organization. Organizing is to create a

mechanism to put plans into action.

People within the organization are given work assignments that contribute to the

company’s goals. Tasks are organized so that the output of each individual contributes to

the success of departments, which, in turn, contributes to the success of divisions, which

ultimately contributes to the success of the organization.

INFLUENCING:

Influencing is also referred to as motivating, leading or directing. Influencing can be

defined as guiding the activities of organization members in the direction that helps the

organization move towards the fulfillment of the goals.

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The purpose of influencing is to increase productivity. Human-oriented work situations

usually generate higher levels of production over the long term than do task oriented

work situations because people find the latter type distasteful.

CONTROLLING:

Controlling is the following roles played by the manager:

1. Gather information that measures performance

2. Compare present performance to pre-established performance norms.

3. Determine the next action plan and modifications for meeting the desired

performance parameters.

CONTROLLING IS AN ONGOING PROCESS.

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THE 7 M’S OF MANAGEMENT

1. Man - Man in management is referred as a human resource. Even in the automated

world no organization can flourish without human resource .For instance an aviation

Industry may have automated aircraft still it needs flight crew to cater & assist the needs

of their boarded air travelers. In terms of management recruitment, selection, training

promotion, grievances handling. Payments of compensation gratuity, termination of

services are the few issues that have to be dealt effectively to retain the talent within an

organization.

2. Material- Material is a basic ingredient in management be it a service industry or a

product industry. Most of the industries locate them self-nearby to the availability of

material. For instance a mineral water factory In India is mostly located in the Himalaya

where a fresh source of water, which is also a raw material to these companies are

available. Similarly services industries such as banking Insurance Hair Dressing Saloons

etc. are located near its existing and prospective clients. Perishable products such as dairy

products locate themselves where well connected transportation and distribution facilities

are available.

3. Machine -Machine are the basic tools to produce goods or to generate services

.Selection of an appropriate machine not only enhances efficiency but also saves times

and increases revenue .Tailoring the requirement of the organization, Selections of a right

technical machine and equipment, availability of spare parts, evaluation of after sales

services, substitutes and technology and the organization budget are the crucial criteria

while purchasing a machine. Maintenance and overhauling issues along with its life span

also cannot be overlooked. In service Industry Technology matters a lot these days we are

having Computers & peripherals as a major machine to serve the service clients.

4. Money- Money issue in management involves right from where an enterprise is

established and the owner brings money in the business. Various long term and short

term sources of finances are determined ,Loans and advances are taken management is

done to meet day to day business requirements and the funds involved in meeting those

requirements are known as working capital .Investments in assets patents are done and

proposals are screened according to the payback period. In payback period only those

investments are preferred which returns the invested money in less time span. Similarly

there are other criteria of evaluating investments such is Internal Rate of Return where

only those investments are selected which has higher returns. Similarly proposals are also

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screened on the basis of Net present Value which asserts that a value of a rupee will

worth a penny tomorrow.

5. Method-Everything has a right way to do and this right way is known as a Method in

management .In short it means an art of doing. A set of procedures and instructions is

known as a method. For instance to obtain a credit card a customer follows a following

series of steps filling a credit card application ,attaching required documents and

submitting to a bank representative .while processing the credit card application The form

filled by the a customer is checked. Documents are verified and customer verification is

done. Credit card is dispatched by generating pin to a courier company for the final

delivery to the customer and records are maintained. All these standard procedures are

known as method in management.

6. Management- The functions of management involves planning controlling leading

organizing decision making of business areas in Marketing, Production ,Sales, Research

& Development, Human Resource, Finance, Operations Etc. .It includes Business tactics

and strategy application. Few traditional management most heard are Strike when then

iron is hot, No free lunch, etc. There are various levels of management Top level takes all

major and crucial decisions and frames organization mission ,vision and objectives

.Middle level management gives direction to lower level management of how to

implement those business objectives. Policies are framed and work methods are

determined to get set and Go.

7. Moral Values -Every enterprise exist in a society and must conduct business by fair

means .It must include the welfare of its stakeholders (also known as Corporate

Governance) like shareholders, buyers suppliers, employees. The paramount

consideration of welfare must not be overlooked in the blind race of profit making.

Government policies rules and regulations also governs this aspect of management

.Consumer Courts are opened. Legal penalties against violation of corporate law are

framed and it is an obligatory requirement to abide by these laws and regulations if an

organization wants to exist in a society.

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MANAGEMENT AS AN ACYIVITY

Management is also an activity because a manager is one who accomplishes the

objectives by directing the efforts of others. According to Koontz, “Management is what

a manager does”. Management as an activity includes -

1. Informational activities - In the functioning of business enterprise, the manager

constantly has to receive and give information orally or in written. A

communication link has to be maintained with subordinates as well as superiors

for effective functioning of an enterprise.

2. Decisional activities - Practically all types of managerial activities are based on

one or the other types of decisions. Therefore, managers are continuously

involved in decisions of different kinds since the decision made by one manager

becomes the basis of action to be taken by other managers. (E.g. Sales Manager is

deciding the media & content of advertising).

3. Inter-personal activities - Management involves achieving goals through people.

Therefore, managers have to interact with superiors as well as the sub-ordinates.

They must maintain good relations with them. The inter-personal activities

include with the sub-ordinates and taking care of the problem. (E.g. Bonuses to be

given to the sub-ordinates).

THERE ARE 14 PRINCIPLES OF MANAGEMENT DESCRIBED BY

HENRI FAYOL.

1. Division of Labor

a. Henry Fayol has stressed on the specialization of jobs.

b. He recommended that work of all kinds must be divided & subdivided and

allotted to various persons according to their expertise in a particular area.

c. Subdivision of work makes it simpler and results in efficiency.

d. It also helps the individual in acquiring speed, accuracy in his

performance.

e. Specialization leads to efficiency & economy in spheres of business.

2. Party of Authority & Responsibility

a. Authority & responsibility are co-existing.

b. If authority is given to a person, he should also be made responsible.

c. In a same way, if anyone is made responsible for any job, he should also

have concerned authority.

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d. Authority refers to the right of superiors to get exactness from their sub-

ordinates whereas responsibility means obligation for the performance of

the job assigned.

e. There should be a balance between the two i.e. they must go hand in hand.

f. Authority without responsibility leads to irresponsible behavior whereas

responsibility without authority makes the person ineffective.

3. Principle of One Boss

a. A sub-ordinate should receive orders and be accountable to one and only

one boss at a time.

b. In other words, a sub-ordinate should not receive instructions from more

than one person because -

- It undermines authority

- Weakens discipline

- Divides loyalty

- Creates confusion

- Delays and chaos

- Escaping responsibilities

- Duplication of work

- Overlapping of efforts

c. Therefore, dual sub-ordination should be avoided unless and until it is

absolutely essential.

d. Unity of command provides the enterprise a disciplined, stable & orderly

existence.

e. It creates harmonious relationship between superiors and sub-ordinates.

4. Unity of Direction

a. Fayol advocates one head one plan which means that there should be one

plan for a group of activities having similar objectives.

b. Related activities should be grouped together. There should be one plan of

action for them and they should be under the charge of a particular

manager.

c. According to this principle, efforts of all the members of the organization

should be directed towards common goal.

d. Without unity of direction, unity of action cannot be achieved.

e. In fact, unity of command is not possible without unity of direction.

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Basis Unity of command Unity of direction

Meaning It implies that a sub-ordinate should

receive orders & instructions from

only one boss.

It means one head, one plan for a

group of activities having similar

objectives.

Nature It is related to the functioning of

personnel’s.

It is related to the functioning of

departments, or organization as a

whole.

Necessity It is necessary for fixing

responsibility of each subordinate.

It is necessary for sound

organization.

Advantage It avoids conflicts, confusion &

chaos.

It avoids duplication of efforts and

wastage of resources.

Result It leads to better superior sub-ordinate

relationship.

It leads to smooth running of the

enterprise.

Therefore it is obvious that they are different from each other but they are dependent on

each other i.e. unity of direction is a pre-requisite for unity of command. But it does not

automatically come from the unity of direction.

5. Equity

a. Equity means combination of fairness, kindness & justice.

b. The employees should be treated with kindness & equity if devotion is

expected of them.

c. It implies that managers should be fair and impartial while dealing with

the subordinates.

d. They should give similar treatment to people of similar position.

e. They should not discriminate with respect to age, caste, sex, religion,

relation etc.

f. Equity is essential to create and maintain cordial relations between the

managers and sub-ordinate.

g. But equity does not mean total absence of harshness.

h. Fayol was of opinion that, “at times force and harshness might become

necessary for the sake of equity”.

6. Order

a. This principle is concerned with proper & systematic arrangement of

things and people.

b. Arrangement of things is called material order and placement of people is

called social order.

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c. Material order- There should be safe, appropriate and specific place for

every article and every place to be effectively used for specific activity

and commodity.

d. Social order- Selection and appointment of most suitable person on the

suitable job. There should be a specific place for every one and everyone

should have a specific place so that they can easily be contacted whenever

need arises.

7. Discipline

a. According to Fayol, “Discipline means sincerity, obedience, respect of

authority & observance of rules and regulations of the enterprise”.

b. This principle applies that subordinate should respect their superiors and

obey their order.

c. It is an important requisite for smooth running of the enterprise.

d. Discipline is not only required on path of subordinates but also on the part

of management.

e. Discipline can be enforced if -

- There are good superiors at all levels.

- There are clear & fair agreements with workers.

- Sanctions (punishments) are judiciously applied.

8. Initiative

a. Workers should be encouraged to take initiative in the work assigned to

them.

b. It means eagerness to initiate actions without being asked to do so.

c. Fayol advised that management should provide opportunity to its

employees to suggest ideas, experiences& new method of work.

d. It helps in developing an atmosphere of trust and understanding.

e. People then enjoy working in the organization because it adds to their zeal

and energy.

f. To suggest improvement in formulation & implementation of place.

g. They can be encouraged with the help of monetary & non-monetary

incentives.

9. Fair Remuneration

a. The quantum and method of remuneration to be paid to the workers should

be fair, reasonable, satisfactory & rewarding of the efforts.

b. As far as possible it should accord satisfaction to both employer and the

employees.

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c. Wages should be determined on the basis of cost of living, work assigned,

financial position of the business, wage rate prevailing etc.

d. Logical & appropriate wage rates and methods of their payment reduce

tension & differences between workers & management creates

harmonious relationship and pleasing atmosphere of work.

e. Fayol also recommended provision of other benefits such as free

education, medical & residential facilities to workers.

10. Stability of Tenure

a. Fayol emphasized that employees should not be moved frequently from

one job position to another i.e. the period of service in a job should be

fixed.

b. Therefore employees should be appointed after keeping in view principles

of recruitment & selection but once they are appointed their services

should be served.

c. According to Fayol. “Time is required for an employee to get used to a

new work & succeed to doing it well but if he is removed before that he

will not be able to render worthwhile services”.

d. As a result, the time, effort and money spent on training the worker will go

waste.

e. Stability of job creates team spirit and a sense of belongingness among

workers which ultimately increase the quality as well as quantity of work.

11. Scalar Chain

a. Fayol defines scalar chain as ’The chain of superiors ranging from the

ultimate authority to the lowest”.

b. Every orders, instructions, messages, requests, explanation etc. has to pass

through Scalar chain.

c. But, for the sake of convenience & urgency, this path can be cut shirt and

this short cut is known as Gang Plank.

d. A Gang Plank is a temporary arrangement between two different points

to facilitate quick & easy communication as explained below:

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In the figure given, if D has to communicate with G he will first send the

communication upwards with the help of C, B to A and then downwards

with the help of E and F to G which will take quite some time and by that

time, it may not be worth therefore a gang plank has been developed

between the two.

e. Gang Plank clarifies that management principles are not rigid rather they

are very flexible. They can be molded and modified as per the

requirements of situations

12. Sub-Ordination of Individual Interest to General Interest

a. An organization is much bigger than the individual it constitutes therefore

interest of the undertaking should prevail in all circumstances.

b. As far as possible, reconciliation should be achieved between individual

and group interests.

c. But in case of conflict, individual must sacrifice for bigger interests.

d. In order to achieve this attitude, it is essential that -

- Employees should be honest & sincere.

- Proper & regular supervision of work.

- Reconciliation of mutual differences and clashes by mutual

agreement. For example, for change of location of plant, for

change of profit sharing ratio, etc.

13. Espirit De’ Corps (can be achieved through unity of command)

a. It refers to team spirit i.e. harmony in the work groups and mutual

understanding among the members.

b. Spirit De’ Corps inspires workers to work harder.

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c. Fayol cautioned the managers against dividing the employees into

competing groups because it might damage the moral of the workers and

interest of the undertaking in the long run.

d. To inculcate Espirit De’ Corps following steps should be undertaken -

There should be proper co-ordination of work at all levels

Subordinates should be encouraged to develop informal relations

among themselves.

Efforts should be made to create enthusiasm and keenness among

subordinates so that they can work to the maximum ability.

Efficient employees should be rewarded and those who are not up

to the mark should be given a chance to improve their

performance.

Subordinates should be made conscious of that whatever they are

doing is of great importance to the business & society.

e. He also cautioned against the more use of Britain communication to the

subordinates i.e. face to face communication should be developed. The

managers should infuse team spirit & belongingness. There should be no

place for misunderstanding. People then enjoy working in the organization

& offer their best towards the organization.

14. Centralization & De-Centralization

a. Centralization means concentration of authority at the top level. In other

words, centralization is a situation in which top management retains most

of the decision making authority.

b. Decentralization means disposal of decision making authority to all the

levels of the organization. In other words, sharing authority downwards is

decentralization.

c. According to Fayol, “Degree of centralization or decentralization depends

on no. of factors like size of business, experience of superiors,

dependability & ability of subordinates etc.

d. Anything which increases the role of subordinate is decentralization &

anything which decreases it is centralization.

e. Fayol suggested that absolute centralization or decentralization is not

feasible. An organization should strike to achieve a lot between the two

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Business administration is the process of managing every aspect of a business in order for

it to maintain its growth or stability, depending on the overall goal of the owner or

owners. Most companies have a dedicated group of administrators who work to ensure

this takes place. Most work to get to this point by setting up a hierarchy. This starts with

lower management, and works its way through middle management to upper

management.

Business administration involves the conduct of activities leading to, and resulting from,

the delivery of a product or service to the customer. Administration is often seen as

paperwork and form-filling, but it reaches more widely than that to encompass the

coordination of all the procedures that enable a product or service to be delivered,

together with the keeping of records that can be checked to identify errors or

opportunities for improvement.

According to Theo Haimann, “Administration means overall determination of policies,

setting of major objectives, the identification of general purposes and lying down of

broad programmers and projects”. It refers to the activities of higher level. It lays down

basic principles of the enterprise. According to Newman, “Administration means

guidance, leadership & control of the efforts of the groups towards some common goals”.

Whereas, management involves conceiving, initiating and bringing together the various

elements; coordinating, actuating, integrating the diverse organizational components

while sustaining the viability of the organization towards some pre-determined goals. In

other words, it is an art of getting things done through & with the people in formally

organized groups.

34

DIFFERENCE BETWEEN MANAGEMENT AND

ADMINISTRATION

The difference between Management and Administration can be summarized under 2

categories: -

1. Functions

2. Usage / Applicability

On the Basis of Functions: -

Basis Management Administration

Meaning Management is an art of getting things

done through others by directing their

efforts towards achievement of pre-

determined goals.

It is concerned with formulation

of broad objectives, plans &

policies.

Nature Management is an executing function. Administration is a decision-

making function.

Process Management decides who should as it &

how should he dot it.

Administration decides what is

to be done & when it is to be

done.

Function Management is a doing function because

managers get work done under their

supervision.

Administration is a thinking

function because plans &

policies are determined under it.

Skills Technical and Human skills Conceptual and Human skills

Level Middle & lower level function Top level function

On the Basis of Usage: -

Basis Management Administration

Applicability It is applicable to business

concerns i.e. profit-making

organization.

It is applicable to non-business

concerns i.e. clubs, schools,

hospitals etc.

Influence The management decisions are

influenced by the values,

opinions, beliefs & decisions of

the managers.

The administration is influenced by

public opinion, govt. policies,

religious organizations, customs etc.

Status Management constitutes the

employees of the organization

who are paid remuneration (in

the form of salaries & wages).

Administration represents owners of

the enterprise who earn return on

their capital invested & profits in the

form of dividend.

Key factor

motivation is the key factor of a

management

Planning is the key factor of an

administration

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Responsibility Management does not handle the

sensitive issue of finance but

does handle the method of

operation to carry out the

strategy of the administration

It is important to note that

administrative handles the most vital

aspect of an organization, namely,

finance. Administration organizes

resources so as to use them to fulfill

their mission.

Decisions management is not authorized to

take vital decisions of an

organization but can take

decisions within a certain

framework by the approval of

the administration

It is the administration that takes

vital decisions of an organization

Found managers are found in business

firms.

Administrators are found in

government, educational and

religious bodies

Practically, there is no difference between management & administration. Every manager

is concerned with both - administrative management function and operative management

function as shown in the figure. However, the managers who are higher up in the

hierarchy denote more time on administrative function & the lower level denote more

time on directing and controlling worker’s performance i.e. management.

The Figure above clearly shows the degree of administration and management performed

by the different levels of management

36

FEASIBILITY STUDIES

Introduction:

Feasibility studies aim to objectively and rationally uncover the strengths and

weaknesses of the existing business or proposed venture, opportunities and threats as

presented by the environment, the resources required to carry through, and ultimately the

prospects for success. In its simplest terms, the two criteria to judge feasibility are cost

required and value to be attained. As such, a well-designed feasibility study should

provide a historical background of the business or project, description of the product or

service, accounting statements, details of the operations and management, marketing

research and policies, financial data, legal requirements and tax obligations. Generally,

feasibility studies precede technical development and project implementation.

Feasibility Studies - Importance

Most organizations, businesses, developers and charities make the mistake of steam

rolling into a project without a sound feasibility study. The importance of one cannot be

underestimated.

The information you gather and present in your feasibility study will help you:

List in detail all the things you need to make the idea work;

Identify logistical and other problems and solutions;

Develop marketing strategies to convince a donor, bank or investor that your idea

is worth considering as an investment; and

Serve as a solid foundation for developing your business plan.

Even if you have a great idea you still have to find a cost-effective way to market and sell

your products and services. This is especially important for store-front retail businesses.

For example, most commercial space leases place restrictions on businesses that can have

a dramatic impact on income. A lease may limit business hours/days, parking spaces

restrict the product or service you can offer, and in some cases, even limit the number of

customers.

If you need a feasibility study- we can produce the most effective one for your

organization’s needs. Our feasibility studies have brought in £37 million for our clients.

Three things are crucial when doing a feasibility study:

1. It must be fully comprehensive- leaving no stone unturned

2. The consultant preparing it needs to have an expert understanding of what the

funding requirements are- to ensure synergy between the feasibility report and the

funding application forms. If he/she doesn't- you've wasted your money.

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3. It must be complemented by a GOOD and THOROUGH business plan

So, do you want to take your project to the next level?

If the answer is yes- then you need a feasibility study- an effective one that can deliver

for your organization.

Did you know that applying for funding without a feasibility study for a project that is

linked to a building can ruin your chances of success- in fact most funders won't consider

your project without one. This could damage your organization’s credibility.

If you are planning an important project or a capital development for your organization,

you will need to have Feasibility Study and Business Plan to support your bids.

Your project's feasibility study and business plan both need to be effective and geared

towards meeting the criteria of funding bodies. As well as ensuring that your project

meets the requirements of the Disability Discrimination Act the feasibility study must

include the following key areas:

Ensure that the objectives of the project match the economic development needs of the

local area and are compatible with the wider county and regional economic development

plans and strategies. This is important to ensure success in funding bids and to ensure that

your idea fits into the wider master plan for the area.

Need Of Feasibility Study

It determine the potential of the existing system

It finds and determines all the problem of existing business

To determine all the goal of the system.

It finds all possible solution of a problem of the existing system.

38

WHAT IS THE DIFFERENCE BETWEEN A FEASIBILITY STUDY

AND A BUSINESS PLAN?

A feasibility study is not a business plan. The separate roles of the feasibility study and

the business plan are frequently misunderstood. The feasibility study provides an

investigating function that should answer the question of “Is this a viable business

venture?”

The business plan provides a planning function that outlines the actions needed to take

the proposal from “idea” to “reality.”

The feasibility study outlines and analyzes several alternatives or methods of achieving

business success. So the feasibility study helps to narrow the scope of the project to

identify the best business model. The business plan deals with only one alternative or

model. The feasibility study must narrow the scope of the project to identify and define

two or three scenarios or alternatives. The consultant conducting the feasibility study may

work with the group to identify the “best” alternative for their situation. This becomes the

basis of the business plan.

The feasibility study is conducted before the business plan. A business plan is prepared

only after the business venture has been deemed to be feasible. If a proposed business

venture is considered to be feasible, then a business plan constructed that provides a

“roadmap” of how the business will be created and developed. The business plan

provides the “blueprint” for project implementation. If the venture is deemed not to be

feasible, efforts may be made to correct its deficiencies, other alternatives may be

explored, or the idea is dropped.

A good feasibility study saves money, time, energy, resources beforehand the actual work

or the project is being taken up.

39

There are many different types of feasibility studies depending upon the projects or

research or nature or area or function and category of the work. Some of the common

main types are given below-

Economic feasibility

Technical feasibility

Estate feasibility

Resource feasibility

Operational feasibility

Cultural feasibility

Legal feasibility

Comprehensive feasibility

1. Economic feasibility: whereby the available money or finance is able to gain the

desired output or outcome. It is also known as cost- benefit analysis.

2.Technical feasibility: whereby the available instruments, processes and procedures are

conducive toward the success of the work under consideration.

3. Estate feasibility: whereby the available land or property is how far suitable or

appropriate to begin the work or the business.

4. Resource feasibility: whereby the research is to check whether the available resources

required is enough to begin the project.

5. Operational feasibility: whereby measurement is done on how far the work or the

company will be able to solve problems and take advantage of the opportunities during

the course of the work.

6. Marketing feasibility whereby the finished products would convert to income by

taking account of necessity, population size, living standard, economic status of the

inhabitants etc.

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7. Cultural feasibility: in which the impact of both local and general cultures are studied

and the requirement of conducive to the environmental implications.

8. Legal feasibility: in which it measures all the legal and ethical requirement are made

or not.

9. Comprehensive feasibility: whereby it checks the various aspects involved in the

venture of a particular type of project.

STRUCTURAL OUTLINE OF FEASIBILITY STUDY

Determine if you actually need to conduct a feasibility study. If a company is already

doing the same thing that you plan to do and they are making a profit, your business idea

is feasible and you don't need a study to prove it. However, if you have a novel idea or a

new take on a current business, a feasibility study is warranted.

Create an outline for your feasibility study. You may want to use an example of another

company's feasibility report to help you in this stage. In general you want to include a

Cover Sheet

Executive Summary

Table Of Contents

introduction

market consumption

production or service

location of plant

41

description of project

production process

raw material

management and personal requirements

intellectual property

regulation

critical risk factor

descriptions of your product or service

definition of the technology used

business model,

marketing strategies

critical risk factors

Financial Projections and a Conclusion.

Balance sheet

Income statement projection

Cash flow projection

Break even analysis

Capital structure

Expense estimates

Dividend policy

recommendation

Executive summary

Draft your executive summary to reflect what will be included in the feasibility study.

Keep this section to a maximum of one page. This section is written last but it will need

to be positioned at the beginning of the study as an introduction to your report.

Products and/or services

Describe your products and/or services. Include a physical description of the product,

how it will be used by customers, how it will be tested for safety and effectiveness, and

how it will be upgraded in the future.

Technology

Describe the technology that will be used by your company. This may be technology

used to produce a product, to allow a product to function or to manage the regular

operation of the company. Also include information about your research and

development plans and needs to keep your company on the cutting edge of the industry.

Market environment

42

Describe your market environment. This will need to include a description of your target

market, how the customers will benefit from your products or services, what niche or

need your products or services will fulfill, estimate of market size, targeted geographical

area and factors that will impact the sales volume of your products or services. This

might include how frequently shoppers buy items like yours, psychographic factors, and

demographic factors.

Competition

Describe your competition. Make sure that this section identifies both direct and indirect

competition. Also identify key competitors and outline their market share, business

strengths, assets, goals, strategies, etc. This section will also need to include barriers that

your company will need to overcome to enter the market. Then you will want to list your

company's potential advantages, including the uniqueness of your product, your

company's assets, etc.

Industry

Define your industry. To do this, state what your industry is, what products or services

are contained within the industry, how large it is, how fast it is growing, the outlook for

the industry, the industry's demands, the industry's current supply factors and any other

factors that may influence the health of the stated industry.

Business model.

Draft your business model. To do this, you will need to identify how your company will

generate revenue, what recurring revenue you expect, and include enough detail to

support your financial projections (included in a later section).

Marketing and sales strategy.

Describe your marketing and sales strategy. Include information about anticipated

marketing partnerships, how you will gain market access, what your basic marketing and

sales strategies are, how you plan to distribute your merchandise or services, how you

plan to price your products or services, set out an amount you plan on budgeting for the

first year's marketing, and identify any other factors that may influence the productivity

of your proposed marketing campaign.

Production and operating requirements

Describe both your production requirements your operating requirements. Include how

items will be manufactured, where they will be manufactured, how items will be

transported, how much space you will need to manufacture your goods, how much space

you will need to contain the operational staff, disclose whether you plan to rent or buy

43

your warehouse facility and headquarters, how much money you plan to use for

renovations and how complex it is to manufacture your product. You will need to

disclose any information about your suppliers, a description of any pre-existing contracts

you have in place, how services will be designed, how services will be delivered to

customers, how services can be improved or modified and whether there are any

stakeholders already in place.

Management and personnel

Describe the management and personnel of your business. This section can be a list of

prospective key employee names, titles, respective duties and responsibilities and the

costs associated with employing these people. You will also want to outline support staff

positions and employment costs.

Intellectual property

Describe the intellectual property that your company will develop and utilize. This should

include all patents, copyrights and trademarks. Also include any licensing agreements

that you have secured for another company's intellectual material.

Regulations and environmental issues

Describe the regulations and environmental issues that your company will need to

address. This should include local, state, and federal laws that you will need to follow, as

well as environmental factors like waste disposal plans, international trade policies, etc.

that you will need to take into consideration when developing, producing or delivering

merchandise or services.

Critical risk factors

Describe any critical risk factors, like economic stability and forecasts, investments,

internal organization of the company, etc.

Schedule

Outline your start-up schedule. Include important events and projected dates of

completion such as having financing in place, etc. Make sure that you also connect the

milestone with a specific business function such as financial requirements, personnel

requirements, etc.

Financial projections

Provide documentation for your financial projections. You will need to include the

following financial reports: balance sheet projection for three years with highlight

inflows of capital, cost benefit analysis, income projections for the first year, and break-

44

even analysis and income projections for the first year. Break even analysis is conducted

this formula:

Break even = Fixed Cost

Contribution margin

Capital requirements

Describe your capital requirements and your strategy. This section will need to outline

how much capital you need to start up your business, what assets the company has in

place to secure financing, what types of funding the company is looking for, the

anticipated debt to equity ratio the company hopes to maintain and when investors will be

paid a return on their investment.

Final findings and recommendations

Outline your final findings and recommendations. This section should analyze the

findings outlined in the feasibility study. You should examine the company's market

viability, exit strategy viability, technical viability, economic and financial viability,

business model viability and management model viability. Then make recommendations

on how your start-up plan can be improved, what areas need more research and

development, etc.

45

PLANT LOCATION-MEANING AND DEFINITION:

Plant location may be understood as the function of determining where the plant should

be located for maximum operating economy and effectiveness. The selection of a place

for locating a plant is one of the problems, perhaps the most important, which is faced by

an entrepreneur while launching a new enterprise.

A selection on pure economic considerations will ensure an easy and regular supply of

raw materials, labour force, efficient plant layout, proper utilization of production

capacity and reduced cost of production. An ideal location may not, by itself, guarantee

success; but it certainly contributes to the smooth and efficient working of an

organization. A bad location, on the other hand, is a severe handicap for any enterprise

and it finally bankrupts it. It is, therefore, very essential that utmost care should be

exercised in the initial stages to select a proper place.

According to Prof. R.C. Davis:

“The function of determining where the plant should be located for maximum operating

economy and effectiveness.”

NEED FOR SELECTION OF LOCATION:

The need for the selection of the location may arise under any of the following

conditions:

When the business is newly started;

The existing business unit has outgrown its original facilities and expansion is not

possible; hence a new location has to be found;

The volume of business or the extent of market necessitates the establishment of

branches;

A lease expires and the landlord does not renew the lease; and

Other social or economic reasons; for instance, inadequate labor supply, shifting

of the market etc.

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NATURE OF LOCATION DECISIONS:

This course describes why decisions regarding the location of operations are important

and the procedures for effectively evaluating options to make decisions.

STRATEGIC IMPORTANCE OF LOCATION DECISIONS:

Location decisions are closely tied to an organization’s strategies.

E.g. A strategy of being of low cost producer might result in locating where labor

or material costs are low, or locating near markets or raw

Materials to reduce transportation costs.

E.g. A strategy of increasing profits by increasing market share might result in

locating in high traffic areas.

E.g. Convenience strategy= Many locations, e.g. ATMs, Fast-foods etc.

Long term commitment/costs

Impact on investments, revenues, and operations

Supply chains

OBJECTIVES OF LOCATION DECISIONS:

Profit potential:

For profit oriented organizations.

No single location may be better than others:

There may be numerous acceptable locations from which to choose.

Identify several locations from which to choose:

Rather than of identifying the one best location.

Business at end of supply chain (retail) focus on customer demographics, traffic

patterns etc. Business at the beginning of supply chain (raw materials)will focus

on source of raw materials etc.

LOCATION OPTIONS:

Expand existing facilities:

Good option if there is room for expansion

Add new facilities:

While retaining existing facilities (Retail operations)

Move:

Shut down one location and move to another.

Doing nothing:

If these are less benefit in moving then don’t.

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OBJECTIVES:

After studying this lesson, you should be able to:

Describe the concepts of plant location and plant layout

Identify the various factors to be considered for selection of plant location from

state/area to the specific site

Distinguish among the alternative patterns of plant layout

ISSUES IN FACILITY LOCATION:

1. The problem of Facility Location is faced by both new and existing businesses,

and its solution is critical to a company’s eventual success .

2. An important element in designing a company’s supply chain is the location of its

facilities.

CRITERIA INFLUENCING FACILITY LOCATION:

Proximity to customers:

It helps to ensure that customer needs are incorporated into products being developed and

built.

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Business climate:

May include the presence of similar size business, presence of companies in the same

industry etc.

Total costs:

The objective is to select a site with the lowest total cost

Infrastructure:

Adequate road, rail and sea transports are vital. Energy and telecom requirements must be

met and local govt.’s willingness to invest in such plans.

Quality of labor:

The educational& skills levels of the labor pool must match the company’s needs.

Suppliers:

A high-quality & competitive supplier base makes a given location suitable.

Political Risk:

The fast changing geopolitical scenes innumerous nations present exciting, challenging

opportunities. Political risks in both the country of location & the host country influence

the location decisions.

Environmental Regulations:

These regulations influence the relationship with the local community.

Host Community:

The host community’s interest in having the plant in its midst is required. Local

educational facilities and the broader issue of quality of life are also important.

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PLANT LOCATION

Every entrepreneur is faced with the problem of deciding the best site for location

of his plant or factory.

What is plant location?

Plant location refers to the choice of region and the selection of a particular site for

setting up a business or factory. But the choice is made only after considering cost and

benefits of different alternative sites. It is a strategic decision that cannot be changed once

taken. If at all changed only at considerable loss, the location should be selected as per its

own requirements and circumstances. Each individual plant is a case in itself.

Businessman should try to make an attempt for optimum or ideal location.

What is an ideal location?

An ideal location is one where the cost of the product is kept to minimum, with a large

market share, the least risk and the maximum social gain. It is the place of maximum net

advantage or which gives lowest unit cost of production and distribution. For achieving

this objective, small-scale entrepreneur can make use of locational analysis for this

purpose.

LOCATIONAL ANALYSIS

Locational analysis is a dynamic process where entrepreneur analyses and compares the

appropriateness or otherwise of alternative sites with the aim of selecting the best site for

a given enterprise. It consists the following:

(a) Demographic Analysis: It involves study of population in the area in terms of total population (in no.), age

composition, per capita income, educational level, occupational structure etc.

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(b) Trade Area Analysis:

It is an analysis of the geographic area that provides continued clientele to the firm. He

would also see the feasibility of accessing the trade area from alternative sites.

(c) Competitive Analysis:

It helps to judge the nature, location, size and quality of competition in a given trade

area.

(d) Traffic analysis:

To have a rough idea about the number of potential customers passing by the proposed

site during the working hours of the shop, the traffic analysis aims at judging the

alternative sites in terms of pedestrian and vehicular traffic passing a site.

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(e) Site economics:

Alternative sites are evaluated in terms of establishment costs and operational costs under

this. Costs of establishment is basically cost incurred for permanent physical facilities but

operational costs are incurred for running business on day to day basis, they are also

called as running costs.

SELECTION CRITERIA:

The important considerations for selecting a suitable location are given as follows:

Natural or climatic conditions.

Availability and nearness to the sources of raw material.

Transport costs-in obtaining raw material and also distribution or marketing

finished products to the ultimate users.

Access to market: small businesses in retail or wholesale or services should be

located within the vicinity of densely populated areas.

Availability of Infrastructural facilities such as developed industrial sheds or

sites, link roads, nearness to railway stations, airports or sea ports, availability of

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electricity, water, public utilities, civil amenities and means of communication

are important, especially for small scale businesses.

Availability of skilled and non-skilled labor and technically qualified and trained

managers.

Banking and financial institutions are located nearby.

Locations with links: to develop industrial areas or business centers result in

savings and cost reductions in transport overheads, miscellaneous expenses.

Strategic considerations of safety and security should be given due importance.

Government influences: Both positive and negative incentives to motivate an

entrepreneur to choose a particular location are made available. Positive includes

cheap overhead facilities like electricity, banking transport, tax relief, subsidies

and liberalization. Negative incentives are in form of restrictions for setting up

industries in urban areas for reasons of pollution control and decentralization of

industries.

Residence of small business entrepreneurs want to set up nearby their homelands

One study of locational considerations from small-scale units revealed that the native

place or homelands of the entrepreneur was the most important factor. Heavy preference

to homeland suggests that small-scale enterprise is not freely mobile. Low preference for

Government incentives suggests that concessions and incentives cannot compensate for

poor infrastructure.

SIGNIFICANCE:

From the discussion above, we have already learnt that location of a plant is an important

entrepreneurial decision because it influences the cost of production and distribution to a

great extent. In some cases, you will find that location may contribute to even 10% of

cost of manufacturing and marketing. Therefore, an appropriate location is essential to

the efficient and economical working of a plant. A firm may fail due to bad location or its

growth and efficiency may be restricted.

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FACTORS AFFECTING PLANT LOCATION DECISIONS AND THE

NEED FOR SUCH DECISIONS:

Plant location decisions need detailed analysis because:

1. Wrong plant location generally affects cost parameters i.e. poor location can act as a

continuous stimulus of higher cost. Marketing, transportation, quality, customer

satisfaction are some of the other factors which are greatly influenced by the plant

location decisions – hence these decisions require in-depth analysis.

2. Once a plant is set up at a location which is not much suitable, it is a very disturbing as

well as very expensive process to shift works of a company to some other place, as it

would largely affect the cycle of production.

3. The investments involved in the in setting up of the plant premises .buying of the land

etc. are very large and especially in the case of big multinational companies, the

investments can go into millions of rupees, so economic factors of the location should be

very minutely and carefully checked and discussed in order to achieve good returns on

the money which has been invested.

THE NEED FOR LOCATION DECISIONS -

These decisions are needed when a new plant is to be set up or when the operations

involved in the company at the present location need to be expanded but expansion

becomes difficult because of the poor selection of the site for such operations. These

decisions are sometimes taken because of the social or the political conditions engulfing

the working of a company.

The way the works of a company have to be performed, largely depends upon the

industrial policies issued by the government. Any change that creeps in the industrial

policy of the government which favors decentralization and hence does not permit any

change or any expansion of the existing plant – requires strictly evaluated location

decisions.

FACTORS GOVERNING PLANT LOCATION:

1. Regional factors:

These factors include proximity of the plant to the market and also to the sources of the

raw materials. They also include infrastructural facilities, transportation facilities, and

availability of skilled workers, legislation, the taxation and also the work attitude of the

workers.

Robinson was the one who has very clearly and efficiently justified industrial location

concerns using pure materials nearer to the markets or the consumption centers.

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According to Robinson, the place of production is likely to be at the place of

consumption where the final product is more expensive to carry because it is more bulky,

more fragile or more perishable than is raw materials.

Availability of Raw Materials:

It is categorized into two:

Ubiquities i.e., existing everywhere like clay, water etc.

Localized materials i.e. minerals, coal, sugarcane etc. & it is sub-divided into pure

(cotton, raw silk) & gross materials (iron-ore, limestone, sugarcane). Spriegel &

Lansburgh quoted “Nearness to the source of raw materials is of special importance when

the material is bulky in relation to its value & when the volume & weight are greatly

reduced during its processing.”

For e.g.: Textile mills in Maharashtra, Sugar factories in U.P, Marble manufacturing in

Jabalpur, Sandal Wood products in Mysore, fish-canning & salt pans near coast, Export

of Alphansos from Ratnagiri.

Nearness to fuel & power:

It is a decisive factor in plant location. It is necessary to ensure that the phases, voltage,

frequency, rates, regularity, special discounts allowed are suitable to factory.

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Transport:

Getting raw materials to place of manufacture, transporting finished goods to place of

consumption & carrying employees to the factory & sales representatives to the

consumers are functions of transport. James Lundy quoted “ideal plant from the point of

view of transportation is one which is centrally located & directly connected by water,

rail, road & air. Cost, dependability, time required to transport finished goods, prompt

availability, shift in the market &speed are factors considered for choosing particular

mode.

For e.g.: TAPS uses road, water & own rail route.

Market:

A place where particular products are sold. Nearness to market influences:

Reduced cost of transporting finished goods & promotional expenses.

Enables to study the consumers.

Enables to render quick service & after-sales services.

Execute replacement orders without delay.

Perishable nature of goods.

Fragile nature of goods.

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Meteorological conditions & Topography:

Kimball & Kimball quoted “The effect of climate upon the efficiency in the case of

working force required working outdoors, as in case of quarries, constructional industries

etc. cannot be minimized. A cool climate develops the best of worker.” For e.g.: Agro-

industries.

2. Community factors:

These involve accommodation, education, entertainment and transport facilities. It also

includes attitude of the community, supporting industries and services, suitability of the

land etc.

Labor:

Kimball & Kimball wrote “The need of adequate supply of labor is obvious, but a

number of considerations such as cost of living & the character of labor available as to

both skill &temperament should be taken into account.” According to labor, factory may

be located as follows:

Semi-skilled/ Unskilled – Rural areas.

Skilled – Urban areas. The need of management is to face less strikes or lockouts

& to achieve lower labor cost per unit of production. A stable labor force, the

right type of labor, reasonable wage rates, adequate number of employees,

reliability of labor supply, proper attitude towards work are features that influence

supply of labor.

Supplementary & Complementary factories:

Jones described advantages of concentration of industries:

Helps to increase the variety of materials that suppliers offer.

Improves the labor market for employer & employee.

Helps banks to discount commercial papers readily.

Attracts a variety of repair plants like foundries, tool makers &machine shops.

Serves to perfect the local markets.

Division of labor is possible.

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Banking & Credit institutions:

Factory expansion needs funds to meet the requirements. Existence of banks will exert

influence over location of plants.

Local Taxes & Insurance:

Factories must be located in a place where taxes, insurance costs are comparatively low.

E.g.: firecracker industry.

Water supply:

Water should be available in adequate quantity &proper quality. The factors in this

connection are stability in its supply, mineral content of water, problems leading to water

pollution, cost of transporting water if it is not readily available.

Momentum of early start:

Some of the facilities like banking, transport, communication, repair services, shops &

hotels give momentum to growth of industries in such an area.

Historical factors:

The existences of historical towns are responsible for location of such industries. E.g.:

Banaras, Lucknow, Kanjivaram, Kanpur.

Political stability:

The political situation in potential locations should be considered while selecting a

locality for establishing a factory.

E.g.: Singur, liquor industries in Gujarat.

State assistance:

Karnataka state provides assistances like feasibility study subsidy; investment subsidy;

concession on term loans, processing fee, working capital loan; stamp duty exemption;

sales tax exemption to some extent; subsidy on electricity tariff; Technical guidance; raw

materials; marketing facilities; allotment of land & sheds to entrepreneurs.

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EXAMPLES OF PLANT LOCATION ( INDIA)

Most of the textile mills are found in or near Mumbai and Ahmedabad because of

the humidity conditions that prevail there.

Sites for nuclear power plants to be located in different parts of the country

largely depend upon environmental, safety, socio-economic and also the

engineering factors affecting the construction and operation of such plants.

Steel plants are generally located near the Jharkhand, Bengal, Chhattisgarh and

Orissa regions. This choice of site is mainly because of more economical

transport of the finished goods as compared to basic raw materials.

Similar case is observed in the plants which manufacture cement; such plants are

located near the lime and the coal deposits.

Namroop and Thal Vaishet, both act as very important sites for the gas-based

fertilizer plants. Coal based fertilizer plants at Ramagundum are located near the

source of raw materials (coal).

Naptha / oil based fertilizer plants at Mangalore, Madras, Cochin have been

located near ports, which act as a great source for the import of the raw materials.

‘Proximity to market’ forms a major factor which affects plant location decisions

in case of machine tool industries. In case of such industries, sites are scattered

over different parts of the country such as Ludhiana, Pune, Bangalore, Calcutta,

Mumbai etc.

Information Technology/BPO/Software Industries depend largely on availability

of skilled personnel, infrastructure etc… Because of these reasons most of such

organizations operate in urban areas such as Delhi, Chennai, Hyderabad,

Bangalore, Pune etc.

SELECTION OF EXACT PLANT SITE:

Following factors must be considered while selecting plant site:

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1) Price of land

2) Type of soil

3) Waste disposal

4) Expansion potential

5) Availability of commercial services

6) Communication

7) Availability of amenities

8) Health of the locality

9) Statutory consideration

10) Flood & drought conditions

11) Right & title of the land

12) Good scenery

13) Attitude of local people

14) Technology know-how

15) Existence of religious & social institutions

SELECTION OF MOST ECONOMIC SITE:

According to Kimball & Kimball:

“The most advantageous location is that at which the cost of gathering material &

fabricating it plus cost of distributing the finished product to the customer will be a

minimum.”

Recent trends in Plant Location:

Seven most important trends with regard to plant location are:

To locate plants away from cities.

The development of industrial estates.

Competition among states to develop industries.

Trend towards decentralization.

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Pollution control.

Location of industries leading to balanced regional development.

Growth of multinational firms, thereby transcending the geographical areas of the

country.

WHAT IS DESIGN?

In the introduction to this section the point is made that our general image of a designer is

closer to a fashion designer or a motor car designer than an operations manager. The

chapter generally then goes on to explain how the word ‘design’, in its broadest sense, is

right at the heart of operations management. However, many of the qualities we associate

with fashion and motor car designers are also necessary for operations management

‘designers’. We expect fashion designers to show flair and creativity but we also expect

them to be able to understand the way fashion trends are moving. If we substitute ‘the

way the market is moving’ for ‘the way fashion trends are moving’ then we can see

similarities between the two types of designer. Both have to reconcile their own creative

ideas (what they would like to do) with what is commercially viable (what the market

wants them to do).

This section also makes the point that there is no simple definition of design. But that

design,

must reflect the needs of customers;

applies to products, services and processes;

can be managed as an operations transformation process in is own right;

and

Starts with something very abstract (a concept) and ends with something

very specific (the final design).

PRODUCT/SERVICE DESIGN AND PROCESS DESIGN ARE

INTERRELATED:

The relationship between designing products and services on one hand and designing the

processes that make them is an important point to consider. The chapter makes the

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general point that while it is possible to separate product design and process design in

manufacturing, it is impossible in practice to separate service design and process design.

This is because many services (especially high visibility services) are such that the

service and the process are the same thing. Even in manufacturing industries there has

recently been considerable effort put into examining the overlap between product and

process design. There is a growing recognition that the design of products has a major

effect on the cost of making them. Many of the decisions taken during the design of

products (for example, choosing the material from which the product is going to made, or

the way in which the various components are fastened together) will all define much of

the cost of making it. The figure below shows how the costs of the design process itself

grow quite slowly, especially at the start of the design activity, but the cost to which the

design is committing the organization grown very quickly. It makes sense, therefore, to

evaluate the various choices which the designer faces in terms of their effect on

manufacturing cost as well as on the functionality of the product itself. Also, the way in

which product and process design overall has a significant effect on the time between

starting the initial concept design for the product and eventually getting it to market.

THE DESIGN ACTIVITY AS A TRANSFORMATION PROCESS:

Some operations do nothing but design products and services. They simply exist to

design products and services for other companies. Quite clearly then, the design activity

can be regarded as an operation in its own right.

Simulation in design

It describes some examples of how simulation can be used to help the design process.

This is becoming increasingly important and widespread as computing power increases.

Some of the visualizations referred to (such as in the box ‘The Virtual Reality of Design’)

can require very powerful computers. However, they can give an insight into how a

potential process or product might work in practice which cannot be gained in any other

way. A famous example of how simulation aids design was the victory of Team New

Zealand in the America’s Cup in 1995. The America’s Cup is the most famous sailing

race in the world and takes place between a yacht representing America and one

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representing the rest of the world. In 1995 the New Zealand boat was challenging the

American team. It made extensive use of thousands of simulations to perfect the design

of its hull and keels (both vital to the performance of the yacht). This enabled them to

explore alternative designs before they built the yacht itself. So successful was this

process that they eventually beat the American boat 5-0. However, when discussing their

success, the design team were the first to point out that simulation can only make a good

design better. It cannot create a good design in the first place. The input into the

simulation exercise is the design experience from a ‘human’ designer. The better the

input from the designer, the better the eventual design will be.

Volume-variety and design

The four V’s of operations were volume, variety, variation and visibility. The first two of

these – volume and variety – are particularly important when considering design issues in

operations management. Not only do they usually go together (high variety usually

means low volume, high volume normally means low variety) but together they also

impact on the nature of products and services and processes which produce them.

The volume and variety of an operation’s activities are particularly influential in

determining the way it thinks about its performance objectives. The figure below

illustrates how the definitions of quality, speed, dependability, flexibility and cost are

influenced by the volume-variety position of the operation.

Quality

Quality in a low volume-high variety process such as an architects’ practice, for example,

is largely concerned with the final aesthetic appearance of the building and the

appropriateness of its detailed design. In an exceptionally high volume-low variety

process, such as an electricity supply company, quality is exclusively concerned with

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error-free service – electricity must be constantly available in the correct form (in terms

of voltage, frequency, etc.). The meaning of quality has shifted from being concerned

primarily with the performance and specification of the product or service towards

conformity to a predefined standard, as we move from low volume-high variety

operations through to high volume-low variety operations.

Speed

Speed for the architects’ practice means negotiating a completion date with each client,

based on the client’s needs and the architects’ estimates of how much work is involved in

each project. Speed is taken to its extreme in the electricity utility where speed means

literally instant delivery. No electricity company could ask its customers to wait for their

‘delivery’ of electricity. Speed therefore means an individually negotiated delivery time

in low volume-high variety operations, but moves towards meaning ‘instant’ delivery in

some high volume-low variety operations.

Dependability

Dependability in processes such as the architects’ practice means keeping to each

individually negotiated delivery date. In continuous operations, dependability often

means the availability of the service itself. A dependable electricity supply is one which

is always there. So dependability has moved from meaning ‘on-time delivery’ in low

volume-high variety operations to ‘availability’ in high volume-low variety operations.

Flexibility

Flexibility in low volume-high variety processes such as the architects’ practice means

the ability to design many different kinds of buildings according to its clients’ various

requirements. With the electricity company’s process, the need for product flexibility has

disappeared entirely (electricity is electricity, more or less) but the ability to meet almost

instantaneous demand changes through volume flexibility is vital if the company is to

maintain supply. Flexibility has moved from meaning product flexibility in low volume-

high variety operations to volume flexibility in high volume-low variety operations.

Cost

Cost, in terms of the unit cost per product or service, varies with both the volume of

output of the operation and the variety of products or services it produces. The variety of

products or services in low-volume operations is relatively high, which means that

running the operation will be expensive because of the flexible and high skill levels

employed. Further, because the volume of output is relatively low, a few products or

services are bearing the operation’s high cost base. Also, and more significantly for the

operation, the cost of each product or service is different. At the other end of the scale,

high-volume operations usually produce similar products or services, output is high, so

that whatever the base cost of the operation, it is shared among a high number of products

or services. Cost per unit of output is therefore usually low for operations such as the

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electricity utility but, more significantly, the cost of producing one second of electricity is

the same as the next second. Cost is relatively constant.

PROCESS LAYOUT:

Process layouts are sometimes called functional layouts because the transforming

resources with the same, or similar, function are grouped together. ‘Products’ with

different requirements move between the clusters of transforming resources in different

ways. This makes this kind of layout particularly flexible. It can usually cope with a wide

variety of different processing requirements. However, it is complex to manage with

flows crossing each other and moving on irregular and intermittent paths.

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PROCESS TECHNOLOGY:

Go into any operation and one of the first things you will notice is the process technology

it employs. In some operations the process technology makes itself very evident because

it is large, noisy and sometimes dirty. For example, in a steel works, the whole operation

is dominated by steel processing technology. But even in a fast food restaurant the

technology is there (and often you can see it behind the counter). And just because it is

not as big or as impressive as the steel processing technology does not mean to say that it

is not as important. For example, McDonald’s have been known to spend millions of

dollars on the technology which helps to prepare their food. Saving one or two square

metres of space in the kitchen area may mean sitting an extra four or five people in the

restaurant area. If each of these spends $6 every 15 minutes for 356 days a year in every

single McDonald’s outlet, just think of the extra revenue. In fact, for most operations,

process technology is becoming even more important. Information processing

technologies especially are opening up new possibilities for operations managers.

Internet-based technologies have created some totally new businesses and destroyed

others. But while it is important for operations managers to understand technology, they

do not have to be technological ‘experts’. In fact it is sometimes a disadvantage to

become too deeply embroiled in the details of the technology. What is important though

is that operations managers can ask enough sensible questions to understand the

implications of any particular technology on their operations processes.

What is process technology?

Several examples are given throughout this chapter of very different process

technologies. Each of these process technologies is used to create and deliver products

and services. This distinguishes them from product technology which is the technology

embedded within a product.

Life-cycle effects on product/service and process technology:

If product/service and process technologies can sensibly be separated in an operation,

they will not always receive equal attention. Sometimes developing product technology

will be seen as more important than developing process technology and sometimes vice

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versa. One factor which influences this is the stage of the product or service in its life

cycle that is the maturity of the product. The figure below illustrates how the relative

rates of product/service and process technology innovation vary as a product matures.

For example, examine how the relative emphasis on product and process technology of

personal computers (PCs) has changed since their introduction in the late 1970s. For the

first few years after their introduction the product technologies of PCs were their main

feature. The fact that a product which was capable of being so conveniently transported

could also be so powerful was a major innovation in product technology. These early PCs

were often assembled using the most basic production methods. Apple Computer, for

example, built its first machines in a garage. That did not matter to customers who were

concerned more with what their products could do. As the rate of change in product

technology slowed, a little more thought was put into how PCs were to be produced.

Increasing volumes made continued use of the ‘garage’ approach both infeasible and

uneconomic. PC manufacturers realized that further market success would depend on

investing in automated production technology.

MATERIALS PROCESSING TECHNOLOGIES

A small number of materials processing technologies are described in the chapter. These

are,

Computer numerically controlled machine tools (CNC).

Robotics

Automated guided vehicles (AGVs)

Flexible manufacturing systems (FMS)

Computer integrated manufacturing (CIM)

From this list it might seem as though all materials processing technologies are

manufacturing technologies. However this is not the case. For example, the integrated

mail processing machines used by national mail collection and delivery systems as a

material processing technology. It does not physically change the material, but it does

sort it by its destination.

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COMPARISONS OF ADVANCED MANUFACTURING TECHNOLOGIES

The progression from conventional machine tools to FMS involves a gradual replacement

of manual operations with automated operations. The figure below characterizes the

relationship between the degree of possible automation and some of the technologies

described in the chapter. Note how the steps at the core of the process, involving the

shaping or cutting activities are the first to be automated, after which the more peripheral

activities at either end of the whole process are gradually included within the capabilities

of the technology.

INFORMATION PROCESSING TECHNOLOGIES

A number of information processing technologies are described in the chapter. The most

significant ones are often at the interface of conventional information technology (IT) and

telecommunications. Undoubtedly we are in a period of rapid change in this particular

kind of technology. So an understanding of some of the basics of IT and

telecommunications technologies is vital for operations managers. Certainly the impact

on operations capabilities has already been very significant. The costs savings shown in

Figure 8.7 which illustrates the relative costs of different technologies in retail banking is

worth thinking about. It could be easy to read the wrong implications into this figure. One

should not infer that all banking will be internet-based banking in the future. Certainly

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there are significant advantages both from banks’ and customers’ point of view of using

the internet to manage transactions. However, there will always be customers and always

certain types of transaction which the other ‘technologies’ may be better at. There is also

some evidence that some retail banks in Europe closed old fashioned bank branches too

quickly, failed to persuade all their customers to use telephone and internet

communication, and lost market share as a result. Remember that because a new

technology makes something feasible it does not necessarily make it desirable.

AN OFFICE IN THE SKY:

As the technologies of data processing and telecommunications are merging, so too are

the services which they support coming together. The individual television screens, now

common in aircraft, provide the entertainment which keeps passengers happy on long

international flights.

Now British Airways has gone one step further in bringing together entertainment

technology with information provision and processing. Using a hand-held control device,

passengers can access dozens of TV entertainment channels, an up-to-the-minute news

service, computer games and a menu of information-processing options.

For example, a customer who wants to book a hotel room, reserve a hire car, order

flower deliveries or buy duty-free goods, can do so via the screen and control device.

Payment for the services or goods ordered is made by swiping a credit card through a slot

built into the seat’s armrest. Confirmation of the transactions is shown on the screen. The

system can also transmit a passenger’s own data. A notebook computer can be plugged

into the system and a faxed hard copy of the information sent back to the office.

Behind the new service is a communications system which includes the Inmarsat satellite

and BA’s central booking database in London. The database directs credit card details to

the card company and, on authorization, transmits the customer’s orders and reservations

to the respective companies. The airline views such technology as important in its efforts

to provide a superior service.

‘The concept is based on providing customers with a total media center from their seats.

We have the opportunity to provide customers with a whole range of products and

services where they will be able to choose what they want to do rather than be fed with

entertainment.’

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CUSTOMER PROCESSING TECHNOLOGIES:

Unlike materials and information processing technology, there is no universally accepted

categorization for customer processing technologies. (This is why the typology used in

the third edition is slightly different to the one we used in the second edition – things

have moved on). Nevertheless customer processing technologies are becoming

increasingly important. They do however present unique challenges for the operations

manager. The main one is that many customer processing technologies require the

customer to operate the technology. Customers unfortunately are not always skilled in

doing this. Thus the nature of the customer technology interfaces becomes particularly

important.

For example, a European retail bank was concerned that its customers were getting

frustrated when using its automatic telling machines (ATMs). The ATMs took the

customer through a whole series of decisions, offering services, asking whether a receipt

was necessary and so on. This process enabled customers to partake of a wide range of

services but was lengthy. Customers who only wanted to get money quickly still had to

work through a series of questions. After testing customers reactions, they decided to

simplify the ATM questions in order to speed up the process. While this may have

satisfied some customers, it also upset others. The ones who were upset at the reduction

in service complained more vocally than those who were (presumably) pleased that the

transaction was faster. What the bank had forgotten was that, even if most of its

customers did want a faster service, they had come to expect the longer but richer level of

service which the old system offered. Customers had become trained.

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WHAT IS JOB DESIGN?

The process of job design has been defined as, “...specification of the contents, methods,

and relationships of jobs in order to satisfy technological and organizational requirements

as well as the social and personal requirements of the job holder.” (Buchanan, 1979)

Job design primarily focuses in on designing the process of transformation of inputs into

outputs and considers the human and organizational factors that impact that

transformation.

ASPECTS OF JOB DESIGN Work Organization

Rearranging or replacing work (e.g. automating, teaming, work groups, division

of labor)

Giving the worker additional responsibility/tasks (job enlargement)

Job rotation

Job Structuring

Giving responsibility for different types/levels of work (job enrichment)

Granting control over work (autonomy)

Self-Organization (time/process management)

Location/Scheduling

Telecommuting (part or full off-site work)

Alternative scheduling (4 day work week, flextime, etc.)

Virtual Office/Virtual Organization

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WHAT JOB DESIGN CHANGES ARE TO BE IMPLEMENTED?

Conclusions of research show that at the individual level, design jobs with

(1) Optimum variety

(2) A meaningful whole task

(3) Optimum work cycle

(4) Control over work standards and feedback of results

(5) Preparation and auxiliary tasks

(6) Use of valued skill, knowledge and effort

(7) Perceivable contribution to end product.

At group level, work organization should provide:

Job rotation or physical proximity where individual jobs are interdependent or are

stressful or make no perceivable contribution to the end product and

Grouping of interdependent jobs to provide a whole task that contributes to the

end product or control over standards and feedback of results and control over

boundary tasks

communication channels

Promotion channels.

TYPES OF PROCESS DESIGN

Simply put, a business process is how work gets done. Processes that are stable,

repeatable, and produce consistent results allow managers to accurately gauge how

change to a business system will affect an outcome. When processes and systems (a set of

interacting processes) are defined and have predictable outcomes, business managers are

able to accurately predict costs, outputs, and schedules. Process designs play a large role

in how well the processes meet business needs. Three categories of process design can be

used to differentiate the types of process design:

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Analytical

Experimental

Procedural

Analytical or Attribute Centered Design:

Attributes of the objects required for the design are the primary point of

consideration. When all attributes desired are met, the objectives of this design

type are considered completed. For example, if a new process has a set of criteria,

and the available resources have a set of constraints, when the completed design

meets both the criteria and constraint, the design is considered adequate.

Procedural or Operation Centered Design:

This design type focuses on changing a specific object or process to have a

desired set of traits or attributes. Review of what the process is currently capable

of and what changes need to be made to accommodate the new criteria is the

primary focus. Specific procedures or methods are applied to the addressing the

object or processes current deficiencies and how changes can be made. Process

changes typically fall within this design type as they focus on existing and

implemented processes which can be altered to accommodate new requirements,

though design of new processes and systems may be an outcome of the design

process as the old processes may be determined to be inadequate.

Experimental Object or Search Centered Design:

Experimental object design focuses on testing specific objects to determine

suitability. This type of design heavily focuses on experiments and outcomes. The

list of possibilities are captured up front, and each possibility (or object) is

reviewed, tested, or prototyped to determine which has the best set of attributes

which meet the design needs.

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BPM LIFE-CYCLE:

Business process management activities can be grouped into six categories: vision,

design, modeling, execution, monitoring, and optimization.

Functions are designed around the strategic vision and goals of an organization. Each

function is attached with a list of processes. Each functional head in an organization is

responsible for certain sets of processes made up of tasks which are to be executed and

reported as planned. Multiple processes are aggregated to function accomplishments and

multiple functions are aggregated to achieve organizational goals.

Design:

Process Design encompasses both the identification of existing processes and the design

of "to-be" processes. Areas of focus include representation of the process flow, the

factors within it, alerts & notifications, escalations, Standard Operating Procedures,

Service Level Agreements, and task hand-over mechanisms.

Good design reduces the number of problems over the lifetime of the process. Whether or

not existing processes are considered, the aim of this step is to ensure that a correct and

efficient theoretical design is prepared.

The proposed improvement could be in human-to-human, human-to-system, and system-

to-system workflows, and might target regulatory, market, or competitive challenges

faced by the businesses.

Modeling:

Modeling takes the theoretical design and introduces combinations of variables (e.g.,

changes in rent or materials costs, which determine how the process might operate under

different circumstances).

It also involves running "what-if analysis" on the processes: "What if I have 75% of

resources to do the same task?" "What if I want to do the same job for 80% of the

current cost?"

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Execution

One of the ways to automate processes is to develop or purchase an application that

executes the required steps of the process; however, in practice, these applications rarely

execute all the steps of the process accurately or completely. Another approach is to use a

combination of software and human intervention; however this approach is more

complex, making the documentation process difficult.

As a response to these problems, software has been developed that enables the full

business process (as developed in the process design activity) to be defined in a computer

language which can be directly executed by the computer. The system will either use

services in connected applications to perform business operations (e.g. calculating a

repayment plan for a loan) or, when a step is too complex to automate, will ask for

human input. Compared to either of the previous approaches, directly executing a process

definition can be more straightforward and therefore easier to improve. However,

automating a process definition requires flexible and comprehensive infrastructure, which

typically rules out implementing these systems in a legacy IT environment.

Business rules have been used by systems to provide definitions for governing behavior,

and a business rule engine can be used to drive process execution and resolution.

Monitoring:

Monitoring encompasses the tracking of individual processes, so that information on their

state can be easily seen, and statistics on the performance of one or more processes can

be provided. An example of the tracking is being able to determine the state of a

customer order (e.g. order arrived, awaiting delivery, invoice paid) so that problems in its

operation can be identified and corrected.

In addition, this information can be used to work with customers and suppliers to

improve their connected processes. Examples of the statistics are the generation of

measures on how quickly a customer order is processed or how many orders were

processed in the last month. These measures tend to fit into three categories: cycle time,

defect rate and productivity.

The degree of monitoring depends on what information the business wants to evaluate

and analyze and how business wants it to be monitored, in real-time, near real-time or ad-

hoc. Here, business activity monitoring (BAM) extends and expands the monitoring tools

generally provided by BPMS.

Process mining is a collection of methods and tools related to process monitoring. The

aim of process mining is to analyze event logs extracted through process monitoring and

to compare them with an a priori process model. Process mining allows process analysts

to detect discrepancies between the actual process execution and the a priori model as

well as to analyze bottlenecks.

Optimization:

Process optimization includes retrieving process performance information from modeling

or monitoring phase; identifying the potential or actual bottlenecks and the potential

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opportunities for cost savings or other improvements; and then, applying those

enhancements in the design of the process. Overall, this creates greater business value.

Re-engineering:

When the process becomes too noisy and optimization is not fetching the desired output,

it is recommended to re-engineer the entire process cycle. BPR has become an integral

part of organizations to achieve efficiency and productivity at work.

PROCESS FLOW CHART:

Operations management transforms inputs (labor, capital, equipment, land, buildings,

materials and information) into outputs (goods and services) that provide added value to

customers. Exhibit summarizes the transformation process. The arrow labeled

“Transformation System” is the critical element in the model that will determine how

well the organization produces goods and services that meet customer needs. It does not

matter whether the organization is a for-profit company, a non-profit organization

(religious organizations, hospitals, etc.), or a government agency; all organizations must

strive to maximize the quality of their transformation processes to meet customer needs.

The 3M Company is a good example of the strategic importance of transforming inputs

into outputs that provide competitive advantage in the marketplace. 3M manufactures a

top-quality adhesive tape called “Magic Tape”. Magic Tape is used for everyday taping

applications, but it offers attractive features that most other tapes do not, including

smooth removal from the tape roll, an adhesive that is sticky enough to hold items in

place (but not too sticky that it cannot be removed and readjusted if necessary!), and a

non-reflective surface. For several decades, 3M has enjoyed a substantial profit margin

on its Magic Tape product because 3M engineers make the manufacturing equipment and

design the manufacturing processes that produce Magic Tape. In other words, 3M enjoys

a commanding competitive advantage by controlling the transformation processes that

turn raw material inputs into the high value-added Magic Tape product. Controlling the

transformation process makes it extremely difficult for competitors to produce tape of the

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same quality as Magic Tape, allowing 3M to reap significant profits from this superior

product.

An opposite example of the strategic implications of the input/output transformation

process is 3M’s decision in the 1980s to stop manufacturing VHS tape for video players

and recorders. In the VHS tape market 3M had no proprietary manufacturing advantage,

as there were many Asian competitors that could produce high-quality VHS tape at lower

cost. Since 3M had no proprietary control over the transformation process for VHS tape

that would allow the company to protect its profit margins for this product, it dropped

VHS tape from its offerings. The two 3M examples of Magic Tape and VHS tape show

how important the transformation process and operations management can be to

providing and protecting an organization’s competitive advantage.

A service example of the strategic importance of the transformation process is ING Bank,

a banking company that conducts all banking transactions through the Internet, phone,

and mail. ING maintains no traditional bank facilities, except for the buildings that house

the employees that execute remote transactions with ING’s customers. This strategy

results in tremendous cost savings and competitive advantage to ING by not having to

spend capital resources on land and buildings that traditional banks must spend.

Consequently, ING can offer its customers higher interest rates on savings accounts and

lower interest rates on loans.

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CAPACITY PLANNING

Capacity planning is the process of determining the production capacity needed by an

organization to meet changing demands for its products. In the context of capacity

planning, "design capacity" is the maximum amount of work that an organization is

capable of completing in a given period, "effective capacity" is the maximum amount of

work that an organization is capable of completing in a given period due to constraints

such as quality problems, delays, material handling, etc. The phrase is also used in

business computing as a synonym for Capacity Management.

The goal of capacity planning is to minimize this discrepancy. Demand for an

organization's capacity varies based on changes in production output, such as increasing

or decreasing the production quantity of an existing product, or producing new products.

Capacity planning using overall factors:

*Simplest rough cut capacity planning technique

*uses the Master Production Schedule to:

1. Find standard time

2. Find historical work center usage percentage

Capacity planning using capacity bills:

Requires more information than Capacity Planning Using Overall Resources.

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Capacity Bills uses Bills of Materials information, routing, and standard time

data.

Generally generates more precise capacity estimates

This method approximates the capacity required for setups.

The Capacity Bill calculates a standard setup time per unit by dividing the

standard setup time by actual lot size (if it is available) or can estimate lot size

(average lot size).

Capacity planning using resource profiles:

The Resource Profiles method extends Capacity Bills approach by considering

lead time information.

Resource Profiles Capacity Planning requires lead time for each component

operation to estimate work center loads

Lead time for a component in a given work center is the sum of the setup,

processing and queue (waiting time that the component order experiences).

DEFINING AND MEASURING CAPACITY

Definition of capacity:

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Capacity refers to the maximum productive capability of a facility or the maximum rate

of output from a process .It is measured as a quantity of output per unit of time.

Measuring capacity could be difficult for companies with diver’s product lines.

Capacity is calculated: (number of machines or workers) × (number of shifts) ×

(utilization) × (efficiency).

The broad classes of capacity planning are lead strategy, lag strategy, and match strategy.

Lead strategy is adding capacity in anticipation of an increase in demand. Lead

strategy is an aggressive strategy with the goal of luring customers away from the

company's competitors. The possible disadvantage to this strategy is that it often

results in excess inventory, which is costly and often wasteful.

Lag strategy refers to adding capacity only after the organization is running at

full capacity or beyond due to increase in demand (North Carolina State

University, 2006). This is a more conservative strategy. It decreases the risk of

waste, but it may result in the loss of possible customers.

Match strategy is adding capacity in small amounts in response to changing

demand in the market. This is a more moderate strategy.

The importance of capacity planning

Too much capacity can cause the inventory level to rise, or it may under us the

company's work force and equipment

Too little capacity cause loss of customers to competitors

Capacity Decisions are also very important

Building capacity usually requires significant capital

The company can incur significant losses if its capacity needs are reduced

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WHAT ARE THE WAYS FOR VIEWING MAXIMUM CAPACITY?

This planning encompasses a time period for two or eighteen months

It involves determining the best quantity to produce and selecting the low-cost

method that will provide flexibility in capacity while meeting production

requirement.

In broad terms aggregate planners look at the demand forecast or expected

demand from the perspective of both quantity and timing. That is, if the total

demand and total capacity do not match, the planners will aver to find ways to

reach a balance of demand and capacity for aggregate planning purposes.

Two of these methods are referred to as pure operation strategies. The rest are virtually a

combination of these two (an example of pure operation strategy).

Chase strategy: Is a strategy in which planners adjust production rates or work

force levels to match the demand requirements of the planning period.

Level strategy: Is a strategy in which planners maintain a constant production

rate or work force level for the duration of the plan.

Mixed strategy: Involves period fluctuations in both inventory levels and work

force and production rates in often most appropriate.

Design capacity: It is the target output rate, or maximum capacity, for which the

production facility was designed

Effective capacity: Refers to the maximum rate of output achievable, given the

quality standards, scheduling constraints and so forth

Actual capacity: Reflects the rate of output that the plant actually achieves

Bottleneck: Refers to any operation that limits output in the production or service

sequence.

MEASURES OF PRODUCTION SYSTEM EFFECTIVENESS

Capacity Utilization=Actual Capacity/Design Capacity

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Capacity Efficiency=Actual Capacity/Effective Capacity

Efficiency is a short- and medium- range measure of how well the company is

using its production system.

A FIRM'S CAPACITY STRATEGY IS BASED ON:

A company typically bases its capacity strategy on as eries of assumptions and

predictions about technological innovations, long-term marketing, and the behavior of

competitors, including:

1)The predicted growth and variability of primary demand

2)The costs of building and operating plants of different sizes

3)The rate and direction of technological innovation

4)The likely behavior of competitors

5)The anticipated effects of international competitors, markets, and resources

of supply

There are three aspects of capacity:

1. Capacity cushion:

*Capacity cushion=100- Capacity Utilization

2. Strategic timing of capacity change

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*Strategy 1: Anticipate and Lead Demand

*Strategy 2: Closely follow Demand

*Strategy 3: Lag Demand

3. Sizing capacity changes

The level of capacity at which the average unit costs is at a minimum is called the best

operating level: at low levels of output a few units must absorb the fixed costs of the

facilities, which produce high average unit costs of output. As the out increase, average

costs of costs decrease, until the company achieves some minimum average unit costs.

MAKING CAPACITY PLANNING DECISIONS

There are five major reasons that companies initiate Capacity:

Planning projects

Increasing Demand

Dropping Demand

Changing Technology

Changing Environment

Spotting Opportunities

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STEPS IN CAPACITY PLANNING PROCESS

There are 8 steps in a Capacity Planning process:

1. Audit and Evaluate Existing Capacity and Facilities

2. Forecast Capacity or Facilities Requirements

3. Define Alternatives for Meeting Requirements

4. Perform Financial Analyses of Each Alternative

5. Asses Key Qualitative Issues for Each Alternative

6. Select One Alternative to Pursue

7. Implement Alternative Chosen

8. Audit and Review Actual Needs

ANALYSIS

Decision tree analysis:

A decision tree is a graphic model of a set of alternatives and their consequences. It

provides a clear picture of capacity decisions and their outcomes overtime.

Break-Even Analysis:

A break-even analysis is commonly used choose between processing alternative. These

alternatives can either be shown graphically or algebraically

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AGGREGATE CAPACITY PLANNING

The Concept of Aggregation

Aggregate Planning is a medium- term capacity planning that typically encompasses a

time period of two to eighteen months. It involves determining the best quantity to

produce and selecting the lowest-costs method that will provide flexibility in capacity.

Aggregation is done according to:

Products: a product family is a group of products that are manufactured similar

and have common labor and materials requirements.

Labor: a company can aggregate work force by product family

Time: the time period is usually about 1 year.

AGGREGATE PRODUCTION PLANNING INVOLVES MANAGING:

Work Force levels are the number of workers required for production.

Production Rate is the number of units produced per time period.

Inventory levels are the balance of unused units carried forward from the

previous period.

COMMON OBJECTIVES

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Aggregate Product Planning takes place in a complex environment that has a number of

external and internal factors.

Among the common objectives of Production planning are to:

1. Minimize costs

2. Maximize profits

3. Minimize inventory levels

4. Minimize changes in work force levels.

5. Minimize use of overtime

6. Minimize use of subcontracting

7. Minimize changes in production rates

8. Minimize number of machine setups

9. Minimize idle time for plant and personnel

10. Maximize customer service

WAYS TO MODIFY THE DEMAND

Price incentives: are useful for reducing peak demand and stimulating off-peak

demand.

Reservations: requiring customers to reserve capacity in advance can influence

demand

Backlogs: companies can modify demand asking customers to wait for orders. .

Advertising/ promotion: can stimulate demand from peak periods to slack

periods.

WAYS TO MODIFY THE SUPPLY

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Hiring/ firing workers: entails certain costs, both tangible and intangible.

Overtime/Slack time: It is much less severe than hiring/ firing and is quicker and

easier to implement.

Part-time/Temporary labor: Is attractive because of flexibility it affords, and

because companies can pay part-time or temporary workers less and not provide

them with fringe benefits.

Subcontracting: can have disadvantages, including higher costs and lack of

control of product quality.

AGGREGATE PRODUCTION PLANNING VARIABLE COST

Hiring/ firing costs: hiring costs include the recruitment, screening and training

that enable the employee to become fully productive. Firing costs include

severance, certain employee benefits, the costs of realigning the reaming work

force, and certain intangibles.

Overtime/slack time costs: Overtime costs usually consist of regular wages plus a

premium of 50 of 100%.Employers incurs slack time costs when they use workers

at less than the capacity.

Part-time/Temporary labor costs: part-time or temporary labor costs usually are

less than those associated with full time employees because of the difference in

benefits and because part-time or temporary workers are simply pay less.

Subcontracting costs: it is simply the subcontractor's fee to provide the needed

production. Subcontracting can be more or less costly than taking the units at the

company's own facilities.

Cooperative arrangements costs: it is analogous to a subcontracting cost and again

can be more or less than the cost of making the units at the company's own

facilities.

Inventory carrying costs: They include not only storage and the costs of tying up

money that could be invested elsewhere but also the costs of insurance,

obsolescence, breakage, spoilage,

Back order or stock out costs: these costs arise when companies make an order

from existing inventories.

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TECHNIQUES FOR AGGREGATE PRODUCTION PLANNING

They are categorized as follows:

Trial-and error method.

Mathematical techniques

linear decision rule

Management coefficient model

Parametric production planning

Search decision rule

Production switching heuristic

Linear programming (simple method)

AGGREGATE PLANNING IN SERVICE COMPANIES

Service companies do not produce inventories, they typically make to order rather than

make to stock.

IMPLEMENTING AGGREGATE PRODUCTION PLANS

When an aggregate production plan goes into effect, the company has to state its

production schedule in terms of units of specific products or services

HIERARCHICAL PRODUCTION PLANNING(HPP)

An approach to analyze aggregate capacity incorporates a philosophy of matching

product aggregations to decision-making levels in the organization.

Hierarchical production planning is the term used to describe the process of tailoring the

planning structure to the organization.

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THE QUEUING THEORY

What is Queuing Theory ?

The primary tool for studying the problem of congestion is known as Queuing Theory.

Any system in which arrivals place a demand upon a finite capacity, a limited space or

limited resources may be termed a Queuing System. Queuing Theory is a branch of

statistics which deals with arrival times of people (or transport) and service rates (time

taken for change, or buying something, tickets, gates, etc.).

What are some of the applications of queuing theory?

Queuing theory is useful in crowd safety management, turnstile design, entry and

exit systems, concession planning and crowd flow assessment, venue ticket sales,

queuing race design and transport loading (to and from a venue), density

and emergency egress analysis, traffic control and planning, determining the

sequence of computer operations.

predicting computer performance, telecommunications, health services (eg.

control of hospital bed assignments), airport traffic, airline ticket sales, the mining

industry, layout of manufacturing systems, capacity planning for busses and

trains, dwell time analysis at stations and many more logistic problems that can

effect a venue.

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It is even useful in determining when to remove a goalie in a hockey game!

THE BASIC PRINCIPLES

The single-channel queuing model with poisson arrivals and exponential service times.

The basic principles are that queues have an arrival rate, a service rate, and a discipline.

The accepted method of defining a queue uses the following symbols.

λ = Expected number of arrivals per time period (mean arrival rate)

μ = Expected number of services possible per time period (mean service rate)

Using the following assumptions:-

The queue has a single channel

The pattern of arrivals follow a Poisson probability distribution

The service times follow an exponential probability distribution

The queue discipline is first come, first served

Formulae for calculating the following:

Probability that there is no-one in the queue (P0)

Probability of N people in the system (PN)

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The average number of people in the queue (Lq)

The average number of people in the system (L)

The average time a person spends waiting in the queue (Wq)

The average time a person spends in the system (W)

The probability that a person has to wait in the queue (Pw)

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QUEUE DISCIPLINE

Organizations can determine the order of service based on:

First come first served (everyone is equal - MacDonald’s)

Urgency of need (triage in hospitals)

Processing time (express checkout in supermarkets)

Stratified (economy, business, first class check-in at airports)

Value to the organization (Qantas club, business queues in banks)

However, customers need to know the rules and employees need to be able to

manage the lines

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OPERATIONAL AND RISK MANAGEMENT

Avoiding the Common Causes of Project Failure

For small businesses holding government contracts, there are multiple challenges

to ensuring a successful engagement. It is important to identify these challenges

and adequately plan to avoid common causes of project failure.

Typical causes of project failure occur when the following criteria for

success are not met:

on time delivery,

on or under budget,

Acceptance by client based on stated scope of work.

Only a few projects achieve all three criteria. Many more are delivered which fail on one

or more of these criteria, and a substantial number fail badly enough that they are

cancelled. You can take certain actions which will ensure your contracts do not fail.

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FAILURE MANAGEMENT

Projects often fail because of one or more of the following five reasons:

1. Poor planning,

2. Lack of leadership,

3. Inadequate knowledge,

4. People problems,

5. Lifecycle problems.

Reason 1: Poor Planning:

Poor planning can include:

− Lack of communication.

− Not breaking down development into phases or steps.

− Not prioritizing operational activities, objectives.

− Not obtaining stakeholder approval.

− No business plan or inadequate business plan.

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− Unrealistic expectations set, e.g., financial investment, time required, set-up costs.

− Inadequate funding/capital or poor use of funds/capital.

− Lack of time commitment.

− Unrealistic scheduling.

Reason 2: Lack of Leadership

Lack of leadership can include:

− Not defining ownership or the leadership structure or not identifying decision makers.

− Not making decisions timely or decisively.

− Lacking relevant business and management expertise in areas such as finance,

purchasing, selling, production, and hiring and managing employees.

− Neglecting your leadership role.

− Not having a strategic vision.

− Holding unrealistic expectations of others.

Reason 3: Inadequate Knowledge

Inadequate knowledge can include:

− Lacking skills and a proven approach to project management.

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− Failing to price your product or service correctly.

− Not addressing potential risks due to inexperience.

− Not estimating, monitoring, or controlling expenditures.

− Not putting a process in place for measuring and tracking results.

− Having an incomplete or vague project work plan.

− Using inadequate control systems

Reason 4: People Problems

People problems can include:

− Lacking contact with senior management.

− Lacking leadership.

− Lacking effective project team integration between clients, the supplier team, and the

supply chain.

− Being unable to resolve conflicts.

− Not having adequate resources due to under/over estimation of work

Reason 5: Lifecycle Problems

Lifecycle problems can include:

− Failing to clearly and completely define the requirements, resulting in building the

wrong features or gaps in the features needed.

− Using new or state of the art technology that cause unanticipated problems.

− Using a poor technical design that does not allow for modification or is not scalable.

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− Changing requirements late in the project and continuing change requests which

cause the project to drift.

− Using technology components that do not fit together as designed.

8 COMMON ISSUES TO ADDRESS

1. Lack of clear links between the project and the organization's key strategic

priorities, including agreed measures of success.

2. Lack of clear senior management ownership and leadership.

3. Lack of effective engagement with project stakeholders.

4. Lack of skills and proven approach to project management and risk management.

5. Too little attention to breaking developments and implementation into manageable

steps.

6. Evaluation of proposals driven by initial price rather than long-term value for

money (especially securing delivery of business benefits).

7. Lack of understanding of, and contact with the industry at senior levels in the

organization.

8. Lack of effective project team integration between clients, the supplier team and

the supply/resource chain.

Issue #1

1. Lack of clear links between the project and the organization's key strategic

priorities, including agreed measures of success.

– Do we know how the priority of this project compares and aligns with our

other delivery and operational activities?

– Have we defined the critical success factors (CSFs) for the project?

– Do we have a clear project plan that covers the full period of the planned

delivery and all business change required, and indicates the means of benefits

realization?

– Is the project founded upon realistic timescales, taking account of statutory

lead-times, and showing critical dependencies such that any delays can be

handled?

– Are the lessons learned from relevant projects being applied?

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Has an analysis been undertaken of the effects of any slippage in time, cost, scope or

quality? In the event of a problem/conflict at least one must be sacrificed.

Issue #2

2. Lack of clear senior management ownership and leadership.

– Does the project management team have a clear view of the

interdependencies between projects, the benefits, and the criteria against

which success will be judged?

– If the project traverses organizational boundaries, are there clear

governance arrangements to ensure sustainable alignment with the

business objectives of all organizations involved?

– Are all proposed commitments and announcements first checked for

delivery implications?

– Are decisions taken early, decisively, and adhered to, in order to facilitate

successful delivery?

– Does the SRO have the ability, responsibility and authority to ensure that

the business change and business benefits are delivered?

– Does the SRO have a suitable track record of delivery? Where necessary,

is this being optimized through training?

Issue #3

3. Lack of effective engagement with project stakeholders.

– Have we identified the right stakeholders?

– Have we as intelligent customers, identified the rationale for doing so (e.g.

the why, the what, the who, the where, the when and the how)?

– Have we secured a common understanding and agreement of stakeholder

requirements?

– Does the business case take account of the views of all stakeholders

including users?

– Do we understand how we will manage stakeholders (e.g. ensure buy-in,

overcome resistance to change, allocate risk to the party best able to

manage it)?

– Has sufficient account been taken of the existing organizational culture?

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While ensuring that there is clear accountability, how can we resolve any conflicting

priorities?

Issue #4

4. Lack of skills and proven approach to project management and risk

management

– Is there a skilled and experienced project team with clearly defined roles

and responsibilities? If not, is there access to expertise, which can benefit

those fulfilling the requisite roles?

– Are the major risks identified, weighted and treated by the SRO, the

Director, and Project Manager and/or project team?

– Has sufficient resourcing, financial and otherwise, been allocated to the

project, including an allowance for risk?

– Do we have adequate approaches for estimating, monitoring Do we have

effective systems for measuring and tracking the realization of benefits in

the business case?

– Are the governance arrangements robust enough to ensure that "bad news"

is not filtered out of progress reports to senior managers until an adequate

resolution is highlighted?

– If external consultants (subcontractors) are used, are they accountable and

committed to help ensure successful and timely delivery?

– and controlling the total expenditure on projects?

–

Issue #5

5. Too little attention to breaking developments and implementation into

manageable steps.

– Has the approach been tested to ensure it is appropriate in scope (e.g. in

IT-enabled projects)?

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– Has sufficient time been built-in to allow for planning applications in

Property & Construction projects for example?

– Have we done our best to keep delivery timescales short so that change

during development is avoided?

– Have enough review points been built-in so that the project can be

stopped, if changing circumstances mean that the business benefits are no

longer achievable or no longer represent value for money?

– Is there a business continuity plan in the event of the project delivering

late or failing to deliver at all?

Issue #6

6. Evaluation of proposals driven by price rather than long-term value

(especially securing delivery of business benefits).

– Do we have a proposed evaluation approach that allows us to balance

financial factors against quality and security of delivery?

– Is the evaluation based on whole-life value for money, taking account of

capital, maintenance and service costs?

– Does the evaluation approach take account of business criticality and

affordability?

Issue #7

7. Lack of understanding of, and contact with the industry at senior levels in

the organization.

– Have we tested that the industry understands our approach and agrees that

it is achievable?

– Have we asked suppliers to state any assumptions they are making against

their proposals?

– Have we checked that the project will attract sufficient competitive

interest?

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Issue #8

8. Lack of effective project team integration between clients, the supplier team

and the supply/resource chain

– Has a market evaluation been undertaken to test market responsiveness to the

requirements being sought?

– Are the procurement routes that allow integration of the project team being

used?

– Is there early supplier involvement to help determine and validate what

outputs and outcomes are sought for the project?

– How to Prevent Project Failure

How to Require weekly status reports that include:

– Project start and completion dates.

– Which milestones you’ve passed.

– Percentage of the project that is complete.

– Any accomplishments worth mentioning.

– Important meetings attended.

– Any threats or potential risks to the projected timeline.

– Description of any problems you’ve encountered and resolved.

– Personnel or equipment limitations.

– Budget status.

Build an effective team by considering:

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– Employee skill, experience, participation ability, the projects they are

already working on, and morale.

– Pair newer resources with mentors.

Set a realistic schedule and stick with it.

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SIX SIGMA

DEFINITION:

Six Sigma seeks to improve the quality of process outputs by identifying and

removing the causes of defects (errors) and minimizing variability in

manufacturing and business processes.

Six Sigma is a methodology focused on creating breakthrough improvements by

managing variation and reducing defects in processes across the enterprise. Sigma

is a Greek symbol represented by "σ".

INTRODUCTION:

Six Sigma is a business management strategy that was initially developed by

Motorola in the 1980’s, it became well known after Jack Welch made it a central

focus of his business strategy at General Electric in 1995, and today it is widely

used in many sectors of industry and now is used in many Fortune 500 companies

and sectors of industry. It is used primarily to identify and rectify errors and

defect in a manufacturing or business process. Six Sigma uses a number of quality

methods and tools that are used by professionals within the organization, who

have been trained on Six Sigma techniques.

It uses a set of quality management methods, including statistical methods, and

creates a special infrastructure of people within the organization ("Black Belts",

"Green Belts", etc.) who are experts in these methods. Each Six Sigma project

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carried out within an organization follows a defined sequence of steps and has

quantified financial targets (cost reduction and/or profit increase).

The term Six Sigma originated from terminology associated with manufacturing,

specifically terms associated with statistical modeling of manufacturing

processes. The maturity of a manufacturing process can be described by a sigma

rating indicating its yield, or the percentage of defect-free products it creates. A

six sigma process is one in which 99.99966% of the products manufactured are

statistically expected to be free of defects (3.4 defects per million). Motorola set a

goal of "six sigma" for all of its manufacturing operations, and this goal became a

byword for the management and engineering practices used to achieve it.

HISTORICAL OVERVIEW:

Six Sigma originated as a set of practices designed to improve manufacturing processes

and eliminate defects, but its application was subsequently extended to other types of

business processes as well. In Six Sigma, a defect is defined as any process output that

does not meet customer specifications, or that could lead to creating an output that does

not meet customer specifications.

The core of Six Sigma was “born” at Motorola in the 1970s out of senior executive Art

Sundry's criticism of Motorola’s bad quality. As a result of this criticism, the company

discovered a connection between increases in quality and decreases in costs of

production. At that time, the prevailing view was that quality costs extra money. In fact,

it reduced total costs by driving down the costs for repair or control. Bill Smith

subsequently formulated the particulars of the methodology at Motorola in 1986.Six

Sigma was heavily inspired by the quality improvement methodologies of the six

preceding decades, such as quality control, Total Quality Management (TQM), and Zero

Defects, based on the work of pioneers such as Shewhart, Deming, Juran, Crosby,

Ishikawa, Taguchi, and others.

Like its predecessors, Six Sigma doctrine asserts that:

Continuous efforts to achieve stable and predictable process results (i.e., reduce

process variation) are of vital importance to business success.

Manufacturing and business processes have characteristics that can be measured,

analyzed, improved and controlled.

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Achieving sustained quality improvement requires commitment from the entire

organization, particularly from top-level management.

Features that set Six Sigma apart from previous quality improvement initiatives include:

A clear focus on achieving measurable and quantifiable financial returns from any

Six Sigma project.

An increased emphasis on strong and passionate management leadership and

support.

A special infrastructure of "Champions", "Master Black Belts", "Black Belts",

"Green Belts", "Red Belts" etc. to lead and implement the Six Sigma approach.

A clear commitment to making decisions on the basis of verifiable data, rather

than assumptions and guesswork.

The term "Six Sigma" comes from a field of statistics known as process capability

studies. Originally, it referred to the ability of manufacturing processes to produce a very

high proportion of output within specification. Processes that operate with "six sigma

quality" over the short term are assumed to produce long-term defect levels below 3.4

defects per million opportunities (DPMO). Six Sigma's implicit goal is to improve all

processes to that level of quality or better.

Six Sigma is a registered service mark and trademark of Motorola Inc. As of 2006

Motorola reported over US$17 billion in savings from Six Sigma. Other early adopters of

Six Sigma who achieved well-publicized success include Honeywell (previously known

as AlliedSignal) and General Electric, where Jack Welch introduced the method. By the

late 1990s, about two-thirds of the Fortune 500 organizations had begun Six Sigma

initiatives with the aim of reducing costs and improving quality.

In recent years, some practitioners have combined Six Sigma ideas with lean

manufacturing to create a methodology named Lean Six Sigma. The Lean Six Sigma

methodology views lean manufacturing, which addresses process flow and waste issues,

and Six Sigma, with its focus on variation and design, as complementary disciplines

aimed at promoting "business and operational excellence”. Companies such as IBM use

Lean Six Sigma to focus transformation efforts not just on efficiency but also on growth.

It serves as a foundation for innovation throughout the organization, from manufacturing

and software development to sales and service delivery functions.

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SIX SIGMA TRAINING AND CERTIFICATION:

Champion:

The champion can be defined as a person in a company’s organization who 'champions' a

Six Sigma project. It can be used more specifically to refer to a senior manager who

champions the project, ensures that it is properly resourced and uses their authority to

overcome organizational barriers.

Master Black Belt:

The Master Black Belt is a expert with extensive experience and technical expertise in all

aspects of Six Sigma. The Master Black Belt is responsible for selecting, training and

mentoring black belts within an organization. The Master Black Belt will often be

involved in the selection of and approach to projects. They will also be responsible for

ensuring that the standards of the Six Sigma program are maintained.

Black Belt:

A Black Belt is a full-time professional who acts as a team leader responsible for the

operation and outcomes of Six Sigma projects. To become a Black Belt it is required that

the person demonstrate mastery of Six Sigma tools, through an examination and

experience. Black Belt training course can involve four to five weeks of classroom

training in methods, statistical tools, and team skills, in addition to a completed project.

The American Society for Quality (ASQ) offers a Certified Six Sigma Black Belt

qualification.

Green Belt:

A Green Belt is a member of an organization who has been trained on in Six Sigma

methodology and participates in projects as part of their full time job. They may either

work as part of a team, led by a Black Belt, or lead smaller projects, with a Black Belt

acting as mentor.

Yellow Belt:

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Yellow Belt means the individual knows how to incorporate Six Sigma methodologies in

order to improve production as well as other transactional procedures to meet customer

expectations. Improving the bottom line for their company is the main objective. Yellow

Belts do not lead Six Sigma projects. This is not a leadership position like a Black Belt,

for instance. Certified SSYB’s are team players who facilitate the projects designed and

implemented by the Black Belts or Master Black Belts. Another name for a Six Sigma

Yellow Belt certified individual is SME, or subject matter expert. Much of the time, they

are put in charge of running smaller process improvement projects.

Sponsor:

The project sponsor is a senior manager who can sign off on the resources, defines the

objectives and evaluate the outcomes. The project sponsor is sometimes known as the

project champion, although the champion can be used to describe anybody who

champions a Six Sigma project.

Change Agent:

A Change Agent is a person who leads change within the organization by championing

the change and managing and planning its implementation. The Change Agent position

can be official or voluntary.

Big Y and Little y:

The important high level measure that a Six Sigma project seeks to improve is known as

the Big Y. Big Y should be linked to the critical customer requirements. The Big Y is

often used to generate little y operational objectives that must be improved to achieve Big

Y improvements.

DEFINE FOR SIX SIGMA (DFSS) AND SIX SIGMA METHODS

DFSS is used to design a new process, product or service, or to redesign an existing

process, product or service from scratch. This contrasts with the normal Six Sigma

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approach that is used to improve existing processes, products or services. DFSS uses the

DMADV sequence rather than the DMAIC sequence.

Methods:

Six Sigma projects follow two project methodologies inspired by Deming's Plan-Do-

Check-Act Cycle. These methodologies, composed of five phases each, bear the

acronyms DMAIC and DMADV.

DMAIC is used for projects aimed at improving an existing business process.

DMAIC is pronounced as "duh-may-ick".

DMADV is used for projects aimed at creating new product or process designs.

DMADV is pronounced as "duh-mad-vee".

DMADV:

DMADV refers to the sequence of steps used in Design for Six Sigma (DFSS), instead of

the DMAIC sequence which is used in regular Six Sigma. The DMADV sequence can

also be referred to as DMADOV where the additional O stands for Optimize.

Define - Define the project objectives, similar to DMAIC.

Measure - Measure the expectations of all the stakeholders, particularly the

customers. Also use benchmarking and competitor analysis.

Analyze - Identify and analyze the alternative solutions

Design - Carry out the detailed design

Optimize - Use experimental design, simulation etc. to optimize the solution

Verify - Verify the design through pilot studies and then evaluation as it goes into

service

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DMAIC:

The term DMAIC stands for the five main steps in the Six Sigma process; Define,

Measure, Analyze, Improve and Control. DMAIC is a step-by-step approach for

improving existing business processes. The Six Sigma DMAIC approach combines

statistical and quality management tools to ensure that processes exhibit peak

performance, resulting in a dramatic increase in customer satisfaction, productivity, and

shareholder value.

Define

Define the customer and their 'Critical to Quality' issues and expectations

Define the business processes that are involved

Define the boundaries of the project

Create a process map

Decide on the metrics including Big Y and little y's

Form a project team

Develop a project charter

Measure

Measure the existing processes by gathering data

Analyze

Analyze the data that has been gathered

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Identify the gaps between existing and desired performance

Identify sources of variation

Decide on the processes that will be improved

Improve

Propose solutions

Carry out pilot studies, test and evaluate the proposed solutions

Develop an implementation plan

Control

Implement systems and procedures to ensure the improvements are sustained

Develop procedures, control plans and train staff

QUALITY MANAGEMENT TOOLS AND METHODS USED IN SIX

SIGMA

Within the individual phases of a DMAIC or DMADV project, Six Sigma utilizes many

established quality-management tools that are also used outside Six Sigma. The following

table shows an overview of the main methods used:

5 Whys

Analysis of variance

ANOVA Gauge R&R

Axiomatic design

Business Process Mapping

Cause & effects diagram (also

known as fishbone or Ishikawa

diagram)

Check sheet

Chi-squared test of independence

and fits

Control chart

Correlation

Cost-benefit analysis

CTQ tree

Design of experiments

Failure mode and effects analysis

(FMEA)

General linear model

Histograms

Pareto analysis

Pareto chart

Pick chart

Process capability

Quality Function Deployment

(QFD)

Quantitative marketing research

through use of Enterprise Feedback

Management (EFM) systems

Regression analysis

Rolled throughput yield

Root cause analysis

Run charts

Scatter diagram

SIPOC analysis (Suppliers, Inputs,

Process, Outputs, Customers)

Stratification

Taguchi methods

Taguchi Loss Function

TRIZ

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IMPLEMENTATION ROLES

One key innovation of Six Sigma involves the "professionalizing" of quality management

functions. Prior to Six Sigma, quality management in practice was largely relegated to the

production floor and to statisticians in a separate quality department. Formal Six Sigma

programs adopt a ranking terminology (similar to some martial arts systems) to define a

hierarchy (and career path) that cuts across all business functions.

Six Sigma identifies several key roles for its successful implementation.

Executive Leadership includes the CEO and other members of top management.

They are responsible for setting up a vision for Six Sigma implementation. They

also empower the other role holders with the freedom and resources to explore

new ideas for breakthrough improvements.

Champions take responsibility for Six Sigma implementation across the

organization in an integrated manner. The Executive Leadership draws them from

upper management. Champions also act as mentors to Black Belts.

Master Black Belts, identified by champions, act as in-house coaches on Six

Sigma. They devote 100% of their time to Six Sigma. They assist champions and

guide Black Belts and Green Belts. Apart from statistical tasks, they spend their

time on ensuring consistent application of Six Sigma across various functions and

departments.

Black Belts operate under Master Black Belts to apply Six Sigma methodology to

specific projects. They devote 100% of their time to Six Sigma. They primarily

focus on Six Sigma project execution, whereas Champions and Master Black

Belts focus on identifying projects/functions for Six Sigma.

Green Belts are the employees who take up Six Sigma implementation along

with their other job responsibilities, operating under the guidance of Black Belts.

Some organizations use additional belt colors, such as Yellow Belts, for employees that

have basic training in Six Sigma tools and generally participate in projects and 'white

belts' for those locally trained in the concepts but do not participate in the project team.

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ORIGIN AND MEANING OF THE TERM "SIX SIGMA PROCESS"

The term "six sigma process" comes from the notion that if one has six standard

deviations between the process mean and the nearest specification limit, as shown in the

graph, practically no items will fail to meet specifications. This is based on the

calculation method employed in process capability studies.

Capability studies measure the number of standard deviations between the process mean

and the nearest specification limit in sigma units. As process standard deviation goes up,

or the mean of the process moves away from the center of the tolerance, fewer standard

deviations will fit between the mean and the nearest specification limit, decreasing the

sigma number and increasing the likelihood of items outside specification.

Graph of the normal distribution, which underlies the statistical assumptions of the Six

Sigma model. The Greek letter σ (sigma) marks the distance on the horizontal axis

between the mean, µ, and the curve's inflection point. The greater this distance, the

greater is the spread of values encountered. For the green curve shown above, µ = 0 and σ

= 1. The upper and lower specification limits (USL and LSL, respectively) are at a

distance of 6σ from the mean. Because of the properties of the normal distribution, values

lying that far away from the mean are extremely unlikely. Even if the mean were to move

right or left by 1.5σ at some point in the future (1.5 sigma shift, colored red and blue),

there is still a good safety cushion. This is why Six Sigma aims to have processes where

the mean is at least 6σ away from the nearest specification limit.

SOFTWARE USED FOR SIX SIGMA

There are generally four classes of software used to support Six Sigma:

Analysis tools, which are used to perform statistical or process analysis

Program management tools, used to manage and track a corporation's entire Six

Sigma program

DMAIC and Lean online project collaboration tools for local and global teams

Data Collection tools that feed information directly into the analysis tools and

significantly reduce the time spent gathering data

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ANALYSIS TOOLS

ARENA

ARIS Six Sigma

Bonita Open Solution BPMN2 standard and KPIs for statistic monitoring

JMP

Microsoft Visio

Minitab

R language (The R Project for Statistical Computing. Open source software:

statistical and graphic functions from the base installation can be used for Six

Sigma projects.

SDI Tools

Sigma XL

Software AG web Methods BPM Suite

SPC XL

Stat graphics

Statistic

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APPLICATION

Six Sigma mostly finds application in large organizations. An important factor in the

spread of Six Sigma was GE's 1998 announcement of $350 million in savings thanks to

Six Sigma, a figure that later grew to more than $1 billion. According to industry

consultants like Thomas Pyzdek and John Kullmann, companies with fewer than 500

employees are less suited to Six Sigma implementation, or need to adapt the standard

approach to make it work for them. This is due both to the infrastructure of Black Belts

that Six Sigma requires, and to the fact that large organizations present more

opportunities for the kinds of improvements Six Sigma is suited to bringing about.

In healthcare:

Six Sigma strategies were initially applied to the healthcare industry in March 1998. The

Commonwealth Health Corporation (CHC) was the first health care organization to

successfully implement the efficient strategies of Six Sigma Substantial financial benefits

were claimed, for example in their radiology department throughput improved by 33%

and costs per radiology procedure decreased by 21.5%;Six Sigma has subsequently been

adopted in other hospitals around the world.

Critics of Six Sigma believe that while Six Sigma methods may have translated fluidly in

a manufacturing setting, they would not have the same result in service-oriented

businesses, such as the health industry.

The Six Sigma methodology, DMAIC (Define, Measure, Analyze, Improve, Control), is

used when a product or process is in existence but is not meeting customer specifications

or is not performing adequately.

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Six Sigma – 14 steps of problem solving

Six Sigma is the method / philosophy of increasing customer satisfaction through stable

processes applying mathematical and soft tools. The training and application of Six

Sigma is based on the 14 step method.

ADVANTAGES OF SIX SIGMA

Six Sigma is driven by the customer and thus aims to achieve maximum customer

satisfaction and minimizing the defects. It targets the customer delight and new

innovative ways to exceed the customer expectations.

Implementation of Six Sigma methodology leads to rise of profitability and

reduction in costs. Thus improvements achieved are directly related to financial

results.

Six Sigma is successfully implemented in virtually every business category

including return on sales, return on investment, employment growth and stock

value growth.

Six Sigma targets Variation in the processes and focuses on the process

improvement rather than final outcome.

Six Sigma is prospective methodology as compared to other quality programs as it

focuses on prevention on defects rather than fixing it.

It is attentive to the entire business processes and training is integral to the

management system where the top down approach ensures that every good thing

is capitalized and every bad thing is quickly removed.

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DISADVANTAGES OF SIX SIGMA

Applicability of Six Sigma is being argued among the Six Sigma critics. They

opined that the quality standards should be according to specific task and

measuring 3.4 defects per million as standard leads to more time spent in areas

which are less profitable.

Six Sigma gives emphasis on the rigidity of the process which basically

contradicts the innovation and kills the creativity. The innovative approach

implies deviations in production, the redundancy, the unusual solutions,

insufficient study which are opposite to Six Sigma principles.

People argue that Six Sigma is a bit gimmicky and simply a rebranding of the

continues improvement techniques and tools as practiced by Toyota. It thus

promotes outsourcing of improvement projects with lack of accountability.

Six Sigma implementation constantly require skilled man force. Thus control and

employee dedication are hard to accomplish if it’s not implemented regularly.

While converting the theoretical concepts into practical applications there are lot

to real time barriers which needs to be resolved.

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LEAN MANAGEMENT

A fusion of Japanese and US management principles focusing on the reduction of:

Waste

Inventory

Customer response time.

It is defined as the key managerial values and attitudes needed to sustain continuous

improvement in the long run. These core management principles are articulated around

the twin pillars of Continuous Improvement (relentless elimination of waste) and Respect

for People (engagement in long term relationships based on continuous improvement and

mutual trust). This formalization stems from problem solving. The overall philosophy of

Lean/JIT is to pursue a system that functions efficiently with minimal levels of

inventories, space, and transactions.

The main benefits of lean operations systems are:

Reduced cost through reduced inventory levels

Higher quality

Reduced lead time

Increased productivity

Reduced amounts of waste

Inventories should never be used as the solution to fix machine malfunctions. One

method that JIT systems uses to minimize inventory is to have suppliers deliver goods

directly to the production floor. Overall, carrying low inventories offers many benefits

such as less carrying cost, less space needed, and less rework to complete in case of a

product recall. Lean systems can also be referred to as "just-in-time" (JIT) systems. The

object of a lean system is to create a system that is demand driven, and provides supply

based on demand at any given point. Lean systems tend to concentrate on waste reduction

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and have continuous improvement. There are four building blocks that contribute to the

building of a lean system. They are:

Product design

Process design

Personnel/organizational elements

Manufacturing planning and control

Each process is crucial and contributes to an effective lean system.

Product design consists of standard parts (workers have fewer parts to deal

with), modular design (an extension of standard parts, they are separate parts

clustered together and treated as one unit), highly capable production systems

with quality built in ( JIT requires highly capable production systems), and

concurrent engineering (keeping engineering practices shouldn't change to avoid

disruptions).

Process Design consists of small lot sizes (optimal one unit), setup time

reductions, manufacturing cells (specialized and efficient production centers,

quality improvement, production flexibility, a balanced system (distributing

workload evenly among the workstations), little inventory storage, and fail safe

methods (incorporate ways to reduce or eliminate the potential for errors during

the process). Lean systems have an extremely effective production method.

Personnel/organizational elements includes workers as assets (A JIT

philosophy), Cross-trained workers (perform several parts of the process and

operate several machines), cost accounting, and leadership/project management

(a two-way communication process between managers and workers). The last

building block is manufacturing planning and control. It includes level

loading,(achieving stable, level daily mix schedules) pull systems (work moves

on in response to demand from the next stage in the process), visual systems (A

kanban card used as authorization to move or work on parts), limited work-in-

process, close vendor relationships, reduced transaction processing(logistical,

balancing, quality, or change transactions), preventive maintenance and

housekeeping(keeping the workplace clean and free of unneeded material.

BACKGROUND

John Krafcik, an Massachusetts Institute of Technology (MIT) researcher in the

late-1980s coined the term Lean Manufacturing. He had been involved in a study

into best practice in automobile manufacture. The MIT study had examined the

methodology developed at Japanese auto giant Toyota under the direction of

production engineer Taichi Ohno. At the end of World War II with Toyota

needing to improve brand image and market share, Ohno reputedly turned to

Henry Ford’s classic book, “Today and Tomorrow” for inspiration. One of Ford’s

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guiding principles had been the elimination of waste (The Japanese word for

waste is muda). Ohno identified seven wastes (“the 7Ws”): Defects, Over-

Production, Waiting, Transporting, Movement, Inappropriate Processing and

Inventory.

Defects

The simplest form of waste is components or products that do not meet the

specification. The key point came with the switch from Quality Control to Quality

Assurance - efforts devoted to getting the process right, rather than inspecting the

results.

Over-Production

A key element of JIT was making only the quantity required of any component or

product. Another Toyoto engineer who contributed to this change was Shigeo

Shingo who led the move long machine tool set-ups to “Single Minute Exchange

of Die” (SMED).

Waiting

Time not being used effectively is a waste. Ohno looked at the reasons for

machines or operators being under-utilised and set about addressing them all.

Transporting

Items being moved unnecessarily incur a cost.

Movement

People moving unnecessarily also incur a cost.

Inappropriate Processing

A basic principle of the TPS is doing only what is appropriate.

Inventory

Ohno was also influenced by the way shoppers in the USA were then beginning to

purchase products from supermarket shelves, using a “take what’s needed, when

it’s needed” approach. His response to this observation became known in the

West as Just in Time (JIT).

Womack and Jones, the leaders of the MIT Study, suggested an 8th

waste:

“designing and making products, which do not meet the customer's

requirements”, though this could perhaps be classified within Ohno's

Inappropriate Processing.

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LEAN OPERATIONS

Lean operations began as lean manufacturing in the 1900’s, and were developed by the

Japanese automobile manufacturer, Toyota. The Japanese were sensitive to waste and

inefficiency issues. The goal was to eliminate all waste from the process. Waste was

identified by them as anything that interfered with the process or simply did not add

value. Companies began adopting the lean approach and to do so realized that they had to

do major changes in their organization and with their culture in the organization. Lean

methods have demand-based operations, flexible operations with rapid changeover

capability, effective worker behaviors, and continuous improvement efforts.

The terms used in the lean approach are the following:

Muda: Waste and inefficiency. The philosophy that waste and inefficiency can be

minimized using the following tactics:

Kanban: Manual system used to control the movement of parts and materials

responding to the need to deliver them

Pull System: To produce only what is needed

Heijunka: Volume and variety must be leveled

Kaizen: Continuous improvement

Jidoka: Quality at the source

Poka-yoke: Safeguards built into the process to reduce error

Team concept: Use small team workers for process improvements

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GLOBAL NEED

Globalization and demands for increased competitiveness mean that more and more

companies must adapt to a resource-restricted production system - LEAN - in order to

maintain or increase market share and profitability. LEAN affects all levels in the

company and means that one looks for and eliminates all forms of waste and at the same

time increase customer satisfaction. The journey to LEAN can be divided into a number

of main steps:

Base decision on long-term thinking, even at the cost of short-term financial

goals.

Create process flows that bring the problems up to the surface.

Allow demand to steer, avoid over-production.

Even out the workload.

Stop the process if necessary to solve problems so that the quality is right from

the beginning.

Standardized tasks are the basis for continued improvements and for the

involvement of the employees.

Check visually so that no problems remain hidden.

Use only tried and tested technology that suits the personnel and processes.

Cultivate leaders who really understand the work, follow the company's

philosophy and teach others to do so.

Develop remarkable people and groups who follow the company's philosophy.

Respect partners and suppliers by challenging them and helping them to become

better.

Go and see with your own eyes in order to understand the situation properly.

Make decisions slowly and in agreement with others, carry them out quickly.

Become a learning organization by unrelentingly reflecting and continuously

improving.

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LEAN MANAGEMENT TECHNIQUES

One of the fundamentals of Lean is that by improving efficiency you reduce costs and

increase capacity thereby improving profits. Oh if the recycling business was only so

easy! This of course pre-supposes that you have a steady supply of inbound waste.

Some of the tools used in Lean include:

Flowcharting

Building cells

The 5Ss

Pull Systems

Kanban Design

Value-add/non-value-added analysis

Setup reduction

Brainstorming

Flowcharting:

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Flowcharts can be very powerful for a variety of reasons. First of all they help

standardize a process and also provide an easy to follow visual representation of the steps

in a process. For external stakeholders such as customers and the environment agency

they provide a level confidence that the recycler is a professional outfit. There are three

basic steps to flowcharting – gathering information about the process steps; categorizing

and sequencing the steps and mapping out the process in a diagram.

Building cells:

In the Lean culture another technique for removing inefficiencies is building cells. Many

traditional recycling processes are serial lines with specific stations that in some cases are

far apart and people have to move material considerable distances from one process to the

next. The philosophy behind cells is that you move the process to the people and not the

other way around. This obviously yields the greatest benefit in manual intensive

processes. As a quick guide to building cells you should:

Calculate the process time for the existing process

Determine bottlenecks or pacing operations (which steps take the longest)

Brainstorm to come up with a new arrangement

Move some stations and machines

Man it, run it and time it, move it again if necessary

Document new process when you are happy

Generally, it is best to arrange equipment and materials in a U-shaped pattern leaving as

little room between machines or stations as possible, safety permitting.

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5S:

5S is a Lean management method used to standardise processes and make problems and

opportunities for improvement highly visible. The 5S’s were originally devised in Japan

and are translated as follows:

Seiri -Sort and eliminate

Seiton - Order

Seiso - Clean

Seiketsu - Maintain

Shitsuke - Discipline

Pull systems:

Pull systems applied to manufacturing has three primary objectives: provide a signal for

action; synchronize flow through the process; limit inventories. This makes perfect sense

particularly in a build-to-order scenario. The customer orders the product which creates a

signal in the form of a work order. The product is built using a repeatable process that

pulls parts from small inventory buffers that have reorder signals. The product is built to

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order so there is no buildup of finished goods inventory. So material costs are optimized

and so labor costs as the product is only built when an order is placed.

Kanban Design:

A Kanban system is a means to achieve Just-in-time (JIT) production. It works on the

basis that each process on a production line pulls just the number and type of components

the process requires, at just the right time. The mechanism used is a Kanban card. This is

usually a physical card but other devices can be used.

Value-add/non-value-added analysis:

No Value Added (NVA) is a management term loosely related to the Lean

Manufacturing movement as codified in the 1980s by a landmark MIT study of the

automobile industry, which explained lean production for the first time .No Value Added

programs can be formal or whimsical. Generally, they involved seeking input and opinion

from every level of the organization about rules, processes or process elements which are

said to be “no value added.”

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Step Reduction:

These can offer the simplest short term reduction to inefficiencies and can be applied

throughout the business. Typically, projects can target a 90% reduction over standard

operating procedure. Many of the previous techniques can and should be applied to help

reduce setup time. For example, standardizing locations for material and information,

ensuring that required tools are in their place so you don’t need to search for them. The

basics of setup reduction revolve around the following areas:

Ensuring that areas are organized and uncluttered. “A place for everything and

everything in its place”.

Establishing point-of-use storage for tooling and material close to the work

station.

Staging inbound waste near the point of processing and outbound materials in an

outbound container near the point of shipment.

Information

Method

Brainstorming:

Brainstorming is a group or individual creativity technique by which efforts are made to

find a conclusion for a specific problem by gathering a list of ideas spontaneously

contributed by its member(s). The term was popularized by Alex Faickney Osborn in the

1953 book Applied Imagination. Osborn claimed that brainstorming was more effective

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than individuals working alone in generating ideas, although more recent research has

questioned this conclusion.

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Hailey College of Commerce

University of the Punjab, Lahore, Pakistan

Field: B.com (hons.)/M.Com

Area of interest: Operations management

Visit Purpose: Analysis of operational management in production unit.

Students contacts E-mails

Amna Fayyaz 0302-4094179 amnafayyaz89@yahoo.com

Sara Baig 0343-4899256 sublime_idea2002@yahoo.com

Rida Zarnish 0333-4536820 Bint-e-adam786@hotmail.com

Sadia Parveen 0332-8309869 sadia.parveen76@yahoo.com

Iqra Azahar 0315-4108029 azhar.iqra@yahoo.com

Visit area: Shaikhpura

Milk Plant Manager: Mr.Mumtaz

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