OPERATIONS MANAGEMENT

RECENT TRENDS IN OPERATIONS MANAGEMENT

Operation as an open system

Over time operations has had the need to interact with the external environment and as the

environment is dynamic, operation needs to change and adapt to these changes. Some of the

new dynamics to operations include:-

I. Market Focus

Awareness that market controls production

Old view

A market exists to get rid of products produced

Products are commodities

New view

Products are produced to meet market needs

Products should be differentiated and targeted at distinct niches to capture maximum value

from products

II. Globalization

Reduction in trade barriers

Globalization of major companies

Global sourcing

Improved transportation capabilities

Increased interest in products from around the world - new opportunities for variety

Changing business models example Retailers Are Becoming Global and their Scope is

increasing

Companies are expanding in both directions

Vertically to control supply chains and also horizontally to extend business capabilities or the

ability to meet customer needs

III. Lean production

Many aspects introduced by the U.S. after the war

Three Principles:

1. Quality comes first.

2. Continual Improvement of product and process.

3. Elimination of waste.

- Just-In-Time

IV. Quality Management Systems

Importance of quality management has finally been recognized. Companies have introduced

Internal and external quality systems. The concept of TQM (Total Quality Management) is

widely adopted by many companies

ISO Certifications

Government regulations

V. Business Process Analysis, Improvement or Reengineering

Business processes can be optimized by ignoring the way things were done in the past

Focus on what has to be done. This has also been used to disguise downsizing

VI. Supply Chain Management

There is an importance of considering the entire supply chains rather than single firms.

Therefore there is a need to create closer relationships with suppliers and ensuring that

coordination and decision making is spread through the chain.

Electronic Data Exchange - EDI

Efficient Consumer Response - ECR

VII. Service Operations Management

- Rise in service employment since 1960's.

- Service jobs outnumber manufacturing jobs.

- measuring performance is much more difficult

- Productivity increases much more difficult to achieve.

- By 2005 only 20% of the population will be involved in industrial production

VIII. Environmental, Social and ethical

- Consumer awareness social issues

- Impact on global organizations

- Cultural differences

- Environmental concern

- Government regulation

- ISO

- Outsourcing production to 3rd world plants

- Minimizing the environmental impact of products - EU has regulations that force

product design to include consideration of the ultimate disposal of the product.

IX. New Technologies

- Robotics

- Computer controlled manufacturing

- Biotechnology

- Global positioning systems

CURRENT ISSUES IN OPERATION MANAGEMENT

1) Coordinating the relationships between mutually supportive but separate organizations

2) Optimizing global supplier, production and distribution network

3) Increased co-production of goods and services

4) Managing customer touch points

SERVICE OPERATIONS

Service operations has been defined as the transformation process in which there is a high

degree of interaction between the customer and the organization and which the output may be

primarily or partly tangible.

Service can be divided into the following:-

1) Public services this includes the government and non-profit making organizations

2) Social services they range from health industry to catering industry

3) Business services these are knowledge based-services offered to business

organizations or persons that include finance, banking, consultations

4) Trade services these will include services offered in relation to a physical object like

installation, distribution, repair and maintenance

5) Infrastructural services these mostly deal with communications and infrastructure

TRANSFORMATION PROCESS

INPUT/OUTPUT MODEL

This model is also referred to as the Production function. A transformation process uses

resources to convert input into desired outputs. There are various categories of transformation

as explained below.

CATEGORIES OF TRANSFORMATION PROCESSES

1) Physical This is found in manufacturing industries e.g. Oranges to orange juices,

Sugarcane to sugar

2) Locational This occurs in transportation and it involves shifting from one location to

another

3) Exchange This is in retailing business where products change hands in exchange for

money of any other product

4) Storage in warehousing

5) Physiological This is found mostly in service based businesses like health care systems

6) Informational telecommunications

Operations managers must make decisions on three levels:-

1. Strategic

2. Tactical

3. Operating

STRATEGIC DECISIONS:

These are longer term decisions usually made at the senior management level e.g.

Product and service strategy

Competitive priorities

Positioning strategy

Location, capacity

Long term partnerships

Quality system and overall approach to quality

TACTICAL DECISIONS

They are medium term decisions, tactical in nature made by middle and senior managers e.g.

Process design

Technology management

Job design and workforce management

Capacity management

Facility location

Facility layout

INPUT TRANSFORMATION

PROCESS

OUTPUT

FEEDBACK

OPERATING DECISIONS

Shorter term decisions made at middle and lower management levels e.g.

Forecasting

Materials management

Inventory management

Aggregate planning

Master production scheduling

Production control

Scheduling

OPERATIONS STRATEGY STRATEGY

This can be defined as a plan of how the organization will achieve its future goals and

objectives. Basically a strategy will:-

Define how the mission of a company is accomplished

Provide direction for achieving a mission

Unite the organization

Provide consistency in decisions and,

Keep organization moving in the right direction

GOALS OF STRATEGY

1) To satisfy and if possible to delight customers This is where the organization focuses

on the market requirements in order to best understand the customers needs in order

to develop products and services that will best satisfy the customers.

2) Optimization of resources through strategy a firm will conduct an internal analysis of

its capabilities and limitations with regards to their resources so that it can better

formulate strategies that will best exploit their resource capabilities

3) Development of competitive advantage Another aim of strategy is to come up with

superior capabilities that the competition cannot copy. Something that the company

does best compared to other firms in the same industry.

LEVELS OF STRATEGY

1) Corporate Strategy

This defines the direction of the organization in terms of defining the vision, mission, and

corporate values. It identifies the business the organization will be in or is already in. Global

objectives are identified here. This strategy provides a framework for business style and

influences the business strategy. E.g. outsourcing, diversification

2) Business strategy

This strategy deals with SBUs strategic business units. This strategy must have an identifiable

and definable product range, market segment and competitor set. Business strategies may be

classified as cost leadership or product differentiation strategies

3) Functional / operational strategy

This is concerned with the implementation of the above 2 strategies through efficient resource

utilization. Operation decisions are made in the context of the firm as a whole. The market

place which is the firms customers for its products and services shapes the firms corporate

strategy. This strategy is based in the corporate mission and it reflects how the firm plans to use

all its resources and functions in order to gain competitive advantage.

As such the operation strategy specifies how the firm will employ its production capabilities to

support its corporate strategy.

STRATEGY FORMULATION PROCESS

1) External environmental analysis

This will involve a look into the changes that are happening outside the organization in terms of

the environment and the industry. The environmental analysis may use PEST analysis model

that will look into changes in the Political, Economic, Social and Technological environment.

The industry analysis may be done using the Porters five forces model which looks at the

bargaining power of buyers, bargaining power of suppliers, threat of new entrants, threats of

substitutes and rivalry among the existing competitors.

2) Internal analysis

This basically involves the assessment of the organizations internal strengths and weaknesses

and comparing them with the external opportunities and threats (SWOT analysis).

3) Developing strategic alternatives

This is where the organization will develop a number of strategies based on aligning the firms

capabilities with the opportunities identified.

4) Selecting the best strategic alternative

After the identification of a number of alternative strategy alternatives, comes the moment of

deciding which the best alternative to adopt is. The alternative that will be chosen is one that

will match the internal capabilities to better exploit the opportunities presented by the

environment and also fight the threats posed by the same environment. Basically this is what is

referred to as strategic fit

TYPES OF STRATEGIES

Firms can pursue either of the following two strategies: Resource based strategies or Market

led strategies

1) MARKET LED STRATEGIES

This strategy was advanced and popularized by Michael Porter whereby he proposes that firms

should seek opportunities in new and existing markets, or market niches and then align the firm

with these opportunities. Thus an emphasis will be on evaluating which markets are attractive

and which markets the firm should exit.

This strategy was used when the opportunities identified were attractive to the firm and thus

the in house capabilities would be formulated to exploit such opportunities. The danger with

this strategy is that the firm may end up competing in markets in which it may not have

sufficient capabilities to do so effectively.

2) RESOURCE BASED STRATEGIES

This will occur where a firm chooses to compete on its capabilities or strengths. This strategy

gained prominence in the early 1990s with an emphasis on core competencies. This was argued

that the main means of sustaining a competitive advantage for a firm comes from developing

and protecting the firms core competencies and capabilities.

This means that the firm out to have done a through internal audit in order for them to best

understand their capabilities. The challenges with this strategy are that the firm may involve

themselves in making products that the customers do not want.

STRATEGIC RESONANCE

This is defined as an ongoing, dynamic, strategic process whereby customer requirements and

organizational capabilities are in harmony and resonate. This strategy ensures harmonization

between

The market and the firms operations capabilities

The firms strategy and its operational capabilities

All functions and levels within the firm.

Strategic resonance ensures there is no conflict between market led and resource based

strategies.

SERVICE OPERATIONS STRATEGIES

1) Customer-oriented focus

This strategy focuses on providing a wide range of services to a limited range of customers

using a customer-centered database and developing new offerings to existing customers

2) Service-oriented focus

Firms pursuing this strategy will seek to provide a focused, limited menu of services to a wide

range of customers usually through specialization in a narrow range of services

3) Customer and service oriented focus

This is done through providing a limited range of services to a highly targeted set of customers

MITIGATING SERVICE FAILURES

At times service failures occur whereby maybe the service is unavailable, very slow or even it

doesnt meet the organizational or customer standards. There are ways in which a firm can

mitigate this through:-

1) Service guarantees

This is whereby a firm will offer guarantees as a way of ensuring customer satisfaction. This is

mostly offered to the customers before any failures have occurred.

2) Service recovery

This is to mitigate problems that may arise with the service. This may be through allowing the

customer to become a partner to the service delivery system. E.g. self-service cafes, ATMs in

bank

OPERATION RESOURCES

They are the 5 Ps of OM which includes:-

1) People direct and indirect workforce

2) Plants factories or service branches where production is carried out

3) Parts materials and or supplies that go through the system

4) Processes steps by which the production takes place

5) Planning and control systems these are the procedures and information management

used to operate the system

Developing an Operations Strategy

1. Segment the markets by product groups

2. Identify product requirements, demand patterns and profit margins for each

group

3. Determine market qualifying and order winning attributes for each product

group

4. Convert these attributes into specific performance characteristics - most focus

will be on order winning.

COMPETITIVE PRIORITIES

These are also known as competitive advantage, distinctive competencies or performance

objectives. They are the elements in which operations must excel in order to support corporate

strategy.

A company cannot excel on all dimensions and must select the ones most important to its

operations and organizational strategy. (Market qualifying vs. order winning)

A) QUALITY

This can be defined as the consistent conformance to the customers expectations or doing

things right. This is also minimizing defect rates or conforming to design specifications. At

times quality is the most visible part of what operation does since it is something that the

customer finds relatively easy to judge about operation.

What does quality mean in a hospital or a bank?

Benefits of Quality

1) Reduces cost in the sense that the fewer the mistakes made by each process in the

operation the lesser time will be needed to correct the mistakes and the less confusion

and irritation will be there whether for internal customers or external customers. E.g.

dispatch of wrong goods to a companys branch

2) Increases dependability

B) SPEED

This simply means the elapsed time between customers requesting for a product or service and

the receipt of them. I.e. short lead time or fast delivery ("speed"). The operation should have

the ability to meet requested and promised delivery schedules, ensure on-time delivery

("reliability") and speed in developing and introducing new products or services

Speed in a hospital

Time between requiring treatment and received is kept to a minimum

Time for test results, x-rays to be returned kept to a minimum

What does speed mean in a supermarket or a bank?

Benefits of speed

1) Speed reduces risks forecasting of tomorrows events is far less risky than forecasting

next year events. Therefore the further ahead companies forecast the more likely they

are to get it wrong. Thus the faster the throughput time of a process the later

forecasting can be left

C) DEPENDABILITY

This means doing things on time for customers to receive their goods and services exactly when

they are needed or at least when they were promised. Dependability can only be judged after

the goods or services have been delivered. This can be achieved through producing a product

which meets (or exceeds) customer expectations for quality and providing consistent quality

("dependability")

What dependability means in a hospital:-

Test results returned as promised

Keeping to appointment times

Proportion of appointments which are cancelled kept to a minimum

What dependability means in a Supermarket:-

Predictability of opening hours

Keeping to reasonable opening hours

Constant availability of parking

D) FLEXIBILITY

This is being able to change the operation is some way. This can be defined as the ability to

respond to rapid changes in customer demand and requirements for existing products or

services. This may be the ability to adjust to changes in product mix, production volume, or

design. This may mean changing what the operation does, how it is doing it or when it is doing

it. Customers will need the operation to change in order for it to provide 4 types of flexibility

requirements:-

i) Product and service flexibility this is the ability to introduce new or modified products

and services

ii) Mix flexibility is the ability to produce a wide range or mix of products and services

iii) Volume flexibility is ability to change the levels of output/activity to produce different

quantities or volumes of products and service over time

iv) Delivery flexibility ability to change the timing of the delivery of products and services

What flexibility is in a hospital:-

Introduction of new types of treatment

A wide range of available treatments

Ability to adjust the number of patients treated

Ability to reschedule appointments

Benefits of flexibility

1) Flexibility speeds up response fast services often depends on the operation being

flexible e.g. in a hospital that is receiving patients from a road accident. A flexible

hospital will be able to transfer skilled personnel to the emergency department and be

able to offer a fast service the patients need

2) Flexibility saves time The operation must ensure that staff are well equipped with

knowledge and skills to offer a variety of services and the availability of equipment

where necessary in order to save on time when changing over from one task to another.

3) Flexibility maintains dependability Internal flexibility helps to keep the operational

schedule when unexpected events disrupt the operations plans. E.g . Hospitals can

reserve theatres to be used when there is a sudden influx of road accident victims in

order not to inconvenience patients who had been scheduled for surgery earlier.

E) COST

For companies that compete directly on price, cost will be their major operation objective. The

lower the costs are, the lower the prices to their customers. Thus the major aim will be on the

production and distribution of a product or service with a minimum of expenses or wasted

resources leading to low cost production and distribution and ultimately low price product or

service

Waste elimination

Relentlessly pursuing the removal of all waste

Examination of cost structure

Looking at the entire cost structure for reduction potential

Lean production

Providing low costs through disciplined operations

The operation spends its money on:-

Staff, Materials and Facilities, equipment & technology.

Keeping Operation costs down

Productivity ratios

This is the measure most frequently used to indicate how successful an operation is in reducing

costs in productivity. This is the ratio of the output from an operation to the inputs of the same

operation. i.e. what is produced by an operation to what is required to produce it.

Productivity = output from the operation

Input into the operation

At times partial measures of an input factor are used so that comparisons can be made. This is

known as Single Factor Measure of Productivity. This will allow different operations to be

compared on one unit of input excluding the effects of other inputs

Single factor Productivity = output from the operation

One Input into the operation

Multi/Total Factor Productivity is where all inputs factors are used when measuring the

productivity of an operation

Multi/total factor Productivity = output from the operation

All Inputs into the operation

Example

A supermarket has 50 employees and processes 2000 customers per week. Each employee

works 40 hours per week. The supermarkets weekly total wage bill is Kes 400,000 and its total

overhead expenses are Kes 200,000 per week.

Required:

a) Calculate the supermarkets single factor labour productivity

i) Labour = 50, customers = 2000

= 2000/50

= 40 customers/employee

ii) Labour hours = (50 x 40)= 200, customers = 2000

= 2000/200

= 10 customers/labour hour

b) Calculate the supermarkets multifactor productivity

Customers = 2000, total cost = (400000+200000) = 600000

= 2000/600000

= 0.0033 customers/kes

Ways of improving productivity

1) Reducing the cost of input while maintaining the level of outputs involves reducing the

costs of some or all of its transformed and transforming resource inputs. E.g. A bank can

relocate its call centre to a place where rent is minimum, an IT firm can relocate its

entire operations to India or China where labour costs are low

2) By making better use of inputs to the operation this is through reduction of waste

whether waste of staff time, material or waste through underutilization of facilities

Market Qualifying/Order Winning Priorities

Market qualifying priorities

These are the characteristics a product must have to be in the market

Order winning priorities

They are the characteristics that make a product different and cause customers to buy

PRODUCT DESIGN, PRODUCT DEVELOPMENT AND SERVICE DESIGN PRODUCT LIFECYCLE

Introduction

This is when a product has been introduced into the market. Proper research and forecasting

must be done to ensure that the product/service is adequate and for a specific time. Most

buyers will be the ones trying to purchase the new innovation.

Growth

The sales volumes increase as more customers are attracted to the product. Quality and price

become more important here.

Maturity

The sales volumes get to their peak and thus stable. This product at this stage may take much

time because it must repay all the investments that went into its development and also fund

the next generation of product development

Decline

The sales volumes decrease.

PRODUCT DESIGN

This refers to those activities involved in creating the styling, look and feel of the product,

deciding on the product's mechanical architecture, selecting materials and processes, and

engineering the various components necessary to make the product work. Basically a product

design: -

Defines appearance of product

Sets standards for performance

Specifies which materials are to be used

Determines dimensions and tolerances

PRODUCT DEVELOPMENT

This refers collectively to the entire process of identifying a market opportunity, creating a

product to appeal to the identified market, and finally, testing, modifying and refining the

product until it is ready for production.

The impetus for a new product normally comes from a perceived market opportunity or from

the development of a new technology. Consequently, new products are broadly categorized as

either market-pull products or technology-push products.

Market-pull

With a market-pull product, the marketing center of the company first determines that sales

could be increased if a new product were designed to appeal to a particular segment of its

customers. Engineering is then asked to determine the technical feasibility of the new product

idea. This interaction is reversed with a technology-push product. When a technical

breakthrough opens the way for a new product, marketing attempts to determine the idea's

prospects in the market place.

Technology-push

In many cases, the technology itself may not actually point to a particular product, but instead,

to new capabilities and benefits that could be packaged in a variety of ways to create a number

of different products. Marketing would have the responsibility of determining how the

technology should be packaged to have the greatest appeal to its customers. With either

scenario, manufacturing is responsible for estimating the cost of building the prospective new

product, and their estimations are used to project a selling price and estimate the potential

profit for the company.

Advantages of an effective Design Process

1. matches product or service characteristics with customer requirements

2. ensures that customer requirements are met in the simplest and least costly manner

3. reduces time required to design a new product or service

4. minimizes revisions necessary to make a design workable

STAGES OF NEW PRODUCT DEVELOPMENT

Initial concept

This involves idea generation and idea screening and there are a number of sources that

include:-

a) suggestions from customer

b) Research and development departments

c) Consumer research into what customers want by means of buying patterns analyses,

focus groups and consumer surveys

d) Reverse engineering or stripping down competitors products to discover design

improvements that can be adopted for your product

e) Government regulations that create a demand for new products

Lots of ideas are generated about the new product. Out of these ideas many are implemented.

The ideas are generated in many forms. Many reasons are responsible for generation of an

idea.

Idea Generation or Brainstorming of new product, service, or store concepts - idea generation

techniques can begin when you have done your OPPORTUNITY ANALYSIS to support your ideas

in the Idea Screening Phase (shown in the next development step).

The objective of idea screening is to eliminate unsound concepts prior to devoting resources to

them.

The screeners should ask several questions:

1. Will the customer in the target market benefit from the product?

2. What is the size and growth forecasts of the market segment / target market?

3. What is the current or expected competitive pressure for the product idea?

4. What are the industry sales and market trends the product idea is based on?

5. Is it technically feasible to manufacture the product?

6. Will the product be profitable when manufactured and delivered to the customer at the

target price?

Feasibility study

Feasibility studies will be conducted on the demand of the product, production methods,

associated costs and return on investments. Estimate likely selling price based upon

competition and customer feedback. Estimate sales volume based upon size of market and

estimate profitability and break-even point

Preliminary product design

The design team will include representatives from most of the organizations departments.

Develop the marketing and engineering details; Investigate intellectual property issues and

search patent databases. Seek to answer the following questions:-

1. Who is the target market and who is the decision maker in the purchasing process?

2. What product features must the product incorporate?

3. What benefits will the product provide?

4. How will consumers react to the product?

5. How will the product be produced most cost effectively?

6. Prove feasibility through virtual computer aided rendering and rapid prototyping

7. What will it cost to produce it?

Testing the Concept by asking a number of prospective customers what they think of the idea -

usually via Choice Modeling.

Prototype testing

Produce a physical prototype or mock-up. Prototypes may include life-size models or computer

visualizations such as computer animations and virtual reality. Test the product (and its

packaging) in typical usage situations

Conduct focus group customer interviews or introduce at trade show. Make adjustments where

necessary. Produce an initial run of the product and sell it in a test market area to determine

customer acceptance

Finalized product and production design

At this stage the design team will be concerned with ensuring that the product meets the

customers requirements. It involves decisions relating to how the product is to be made,

including details of processes, quality specifications, materials to be used, and the supply chain

e.t.c. Others will include:-

New program initiation

Finalize quality management system

Resource estimation

Requirement publication

Publish technical communications such as data sheets

Engineering operations planning

Department scheduling

Supplier collaboration

Logistics plan

Resource plan publication

Program review and monitoring

Contingencies - what-if planning

Piloting product and production

These will involve marketing and production. The product will be tried out on a sample of the

customers. Production will ensure that the product moves smoothly through the various stages

of manufacture. Feedback will be obtained about the ability of the product to satisfy the

customers expectations.

Release for commercial manufacture

This is the stage at which the product is commercially produced for the market. Here the firm

launches the product; produce and place advertisements and other promotions and fills the

distribution pipeline with product

Dreyfuss (1967) lists five critical goals that industrial designers bring to a team when developing

new products:

Utility: The product's human interfaces should be safe, easy to use, and intuitive. Each

feature should be shaped so that it communicates its function to the user.

Appearance: Form, line, proportion, and color are used to integrate the product into a

pleasing whole.

Ease of Maintenance: Products must also be designed to communicate how they are to

be maintained and repaired.

Low Costs: Form and features have a large impact on tooling and production costs, so

they must be considered jointly by the team.

Communication: Product designs should communicate the corporate design philosophy

and mission through the visual qualities of the products.

SERVICE DESIGN Services

These are acts, deeds, or performances

Characteristics of Services

Services are inseparable from delivery

Services tend to be decentralized and dispersed

Services are consumed more often than products

Services can be easily emulated

Services are intangible

Service output is variable

Services have higher customer contact

Services are perishable

Service Design Process

MANUFACTURING PROCESS/SYSTEM CHOICES

TYPE OF PRODUCTION METHODS

1) Job Production

It involves the production of a single product at a time. A single product is produced from start

to finish as a result of an individual customer order. Can suit both small scale production e.g. a

tailor made suit, and large scale production e.g. a cruise liner tends to be a labour-intensive

production process

Job shop production are characterized by manufacturing of one or few quantity of products

designed and produced as per the specification of customers within prefixed time and cost. The

distinguishing feature of this is low volume and high variety of products. A job shop comprises

of general purpose machines arranged into different departments. Each job demands unique

technological requirements, demands processing on machines in a certain sequence.

Job production occurs when a firm produces a one-off product for a specific customer. The

production of kitchens by country kitchens could be considered as job production since each

kitchen is designed to suit the specific needs of individual customers.

Characteristics

The Job-shop production system is followed when there is:

1. High variety of products and low volume.

2. Use of general purpose machines and facilities.

3. Highly skilled operators who can take up each job as a challenge because of uniqueness.

4. Large inventory of materials, tools, parts.

a) Detailed planning is essential for sequencing the requirements of each product,

capacities for each work centre and order priorities.

Advantages

1. Each piece is made to the customers exact requirements

2. Job satisfaction is high for the worker

3. Quality of the goods is very high

4. The design is flexible and can be changed

5. Able to produce unique orders to meet customers individual needs

6. More likely to motivate workers (see end results)

7. Fairly simple way of production (one a time)

8. The main advantage of job production is that it allows the firm to make customized

products for individual consumers.

9. Because the product or service is customized to meet the specific requirements of a

customer the firm is able to charge a higher price.

10. Job production also allows for greater flexibility which means that plans can be changed

or adapted at the buyers request even after production has begun.

11. Because each job is unique, worker motivation should be high.

12. Because of general purpose machines and facilities variety of products can be produced.

13. Operators will become more skilled and competent, as each job gives them learning

opportunities.

14. Full potential of operators can be utilized.

15. Opportunity exists for creative methods and innovative ideas.

Disadvantages

1. The products are very expensive

2. The work is very time consuming

3. The advantages of economies of scale are lost

4. Labor intensiveness and high costs

5. High selling costs

6. Not fit for mass production and large demand

7. Job production increases the average cost of production since it requires the use of

specialist labor.

8. Job production can also be very time consuming.

9. In job production there are very few opportunities to automate the production process

10. Higher cost due to frequent set up changes.

11. Higher level of inventory at all levels and hence higher inventory cost.

12. Production planning is complicated.

13. Larger space requirements.

2) Batch Production

Batch production is defined by American Production and Inventory Control Society (APICS) as a

form of manufacturing in which the job passes through the functional departments in lots or

batches and each lot may have a different routing. It is characterized by the manufacture of

limited number of products produced at regular intervals and stocked awaiting sales.

This involves dividing the work into a number of different operations, or a method that involves

completing one operation at a time on all units before performing the next.

It is used to produce a number of similar products - a batch. When an order has been

completed another batch is produced. Most manufacturing occurs through batch production.

For example clothes manufacturers use batch production to produce a given item, such as a

blazer, in batches of different sizes or colours.

All of the items in the batch are the same, so production is speeded up. This reduces the cost

of labour and results in the final product being less expensive for the customer

Batch production occurs whenever a number of identical (or in some cases similar) products are

produced in a batch. In batch production the products are not necessarily produced for a

particular customer but are made at regular intervals and then sold to a number of customers.

Batch production is often used in bakeries where a batch of one product for example brown

bread is made before moving on to the production of some other good for example white

bread.

Characteristics

Batch production system is used under the following circumstances:

1. When there is shorter production runs.

2. When plant and machinery are flexible.

3. When plant and machinery set up is used for the production of item in a batch and

change of set up is required for processing the next batch.

4. When manufacturing lead time and cost are lower as compared to job order production.

Advantages

1. Suitable for a wide range of similar products

2. Reducing the need for skilled workers

3. More standardized products and less machinery needed

4. Workers may specialise to some degree

5. Labour costs reduced so final price is lower

6. Machinery may be used

7. Production is faster

8. Begins to take advantage of economies of scale

9. The main advantage of batch production as opposed to job production is that it reduces

costs since there is less need for a skilled and flexible workforce.

10. Batch production also allows the firm to buy material in bulk and therefore avail of

economies of scale.

11. Batch production allows workers to specialize and use specialist machinery which

improves productivity.

Disadvantages

1. Higher unit costs for small batch

2. Less motivated workers for repetitive one operation

3. Careful planning needed to reduce idle machines or worker waiting

4. The work is less interesting and very repetitive

5. More space is required for working and storage

6. Larger stocks of raw materials must be kept

7. Machines have to be re-set between batches, losing time

8. The main problem with batch production is that all equipment must be stopped cleaned

and reset in between jobs. This down time increases the cost of production.

9. Batch production means that goods cannot be customized to meet the specific needs of

individual consumers.

10. Batch production also means that goods have to be stored which can be costly.

11. Because batch production leads to greater specialization it can led to de-motivation as

workers get bored doing the same job all day every day.

12. Material handling is complex because of irregular and longer flows.

13. Production planning and control is complex.

14. Work in process inventory is higher compared to continuous production.

15. Higher set up costs due to frequent changes in set up.

3) Mass Production

Manufacture of discrete parts or assemblies using a continuous process are called mass

production. This production system is justified by very large volume of production. The

machines are arranged in a line or product layout. Product and process standardization exists

and all outputs follow the same path.

Characteristics of mass production

Mass production is used under the following circumstances:

1. Standardization of product and process sequence.

2. Dedicated special purpose machines having higher production capacities and output

rates.

3. Large volume of products.

4. Shorter cycle time of production.

5. Lower in process inventory.

6. Perfectly balanced production lines.

7. Flow of materials, components and parts is continuous and without any back tracking.

8. Production planning and control is easy.

9. Material handling can be completely automatic.

Advantages

Following are the advantages of mass production:

a. Higher rate of production with reduced cycle time.

b. Higher capacity utilization due to line balancing.

c. Less skilled operators are required.

d. Low process inventory.

e. Manufacturing cost per unit is low.

Limitations

Following are the limitations of mass production:

a. Breakdown of one machine will stop an entire production line.

b. Line layout needs major change with the changes in the product design.

c. High investment in production facilities.

d. The cycle time is determined by the slowest operation.

4) Continuous Production

Production facilities are arranged as per the sequence of production operations from the first

operations to the finished product. The items are made to flow through the sequence of

operations through material handling devices such as conveyors, transfer devices, etc.

Characteristics

Continuous production is used under the following circumstances:

1. Dedicated plant and equipment with zero flexibility.

2. Material handling is fully automated.

3. Process follows a predetermined sequence of operations.

4. Component materials cannot be readily identified with final product.

5. Planning and scheduling is a routine action.

Advantages

Following are the advantages of continuous production:

a. Standardization of product and process sequence.

b. Higher rate of production with reduced cycle time.

c. Higher capacity utilization due to line balancing.

d. Manpower is not required for material handling as it is completely automatic.

e. Person with limited skills can be used on the production line.

f. Unit cost is lower due to high volume of production.

Limitations

Following are the limitations of continuous production:

a. Flexibility to accommodate and process number of products does not exist.

b. Very high investment for setting flow lines.

c. Product differentiation is limited

ENTERPRISE RESOURCE PLANNING (ERP)

Its a business management system that integrates all the departments or function of an

enterprise

Advantages

1) Leads to faster inventory turnovers

2) Improved customer service 5 R of marketing

3) Higher quality work

4) Timely revenue collection and improved cash flows

5) Better inventory accuracy and fewer audits

Disadvantages

1) Difficult to implement because it involves a change from functional to process approach

of business

2) Expensive systems because of customization of standard modules to accommodate

different processes is involved

3) Cost of training employees is high

JUST-IN-TIME PRODUCTION

The following comprehensive definition of JIT is provided by the American Production and

Inventory Control Society:

A philosophy of manufacturing based on planned elimination of all waste and continuous

improvement of productivity. It encompasses the successful execution of all manufacturing

activities required to produce a final product from design engineering to delivery and including

all stages of conversion from raw material onward. The primary elements include having only

the required when needed; to improve to zero defects; to reduce lead time by reducing set-up

times, queue lengths and lot sizes; to incrementally revise the operations themselves; and to

accomplish these things at minimum cost.

From the above definitions, it can be seen that JIT is more than delivering an item where and

when required and at the right time. JIT is both a production scheduling and inventory control

technique and an aspect of total quality management (TQM). As a production control

technique, it is concerned with adding value and eliminating waste by ensuring that any

resources needed for production operation whether raw material, finished product or

anything in between are produced and available precisely when needed. This emphasis on

waste elimination means that JIT is an essential element in lean production. As a philosophy

that aims at zero defects or never allowing defective units from preceding process to flow into

and disrupt a subsequent process, it is an aspect of TQM.

A useful distinction may be made between its two forms:

BIG-JIT or lean production focusing on all sources of waste, as outlined in the first of the

above definitions

Little-JIT focusing more narrowly on scheduling goods, inventories and providing

resources where needed.

The background of JIT

JIT is generally agreed to have been developed by Talichi Ohno, a vice-president of the Japanese

Toyota motor company in the 1960s. It should be noted, however, that Henry Ford practiced

mass production with a JIT approach in 1921. By 1924, the production cycle of the Model T

from processing the core material to the final product was only for days.

JIT Objectives

These have been concisely summarized as:

Zero defects all products will more than meet the quality expectations of the customer

Zero set-up time no set-up time results in shorter production time, shorter production

cycles and smaller inventories

Zero inventories, inventories, including work-in-progress, finished goods and sub-

assemblies, will be reduced to zero this is the opposite of the traditional

manufacturing philosophy of maintaining buffer stocks as precaution against unreliable

suppliers or fluctuating demand

Zero handling the elimination, so far as possible, of all non-value-adding activities

Zero lead time in some markets, this is impossible, but the aim is to increase flexibility

by using small batches of components of assemblies

Lot size of one this makes it possible to adapt quickly when demand is changing so if, for

example, the lot size is 200 and demand is changing, either the supplier or customer

ends up with a quantity of inventory that will either never or only very slowly reduce

KEY ELEMENTS OF JUST-IN-TIME SYSTEMS

1. material flow system

2. Lot sizes are small

3. There is short setup times

4. uniform Master Production Schedule

5. standardization of components and work methods

6. consistent, high quality

7. close supplier ties

8. flexible work force

9. product focus

10. preventative maintenance

11. continuous improvement

BENEFITS OF JIT

The potential benefits of JIT to an organization and its purchasing function in particular, have

been summarized by Schonberger and Ansari as follows:

Part costs - low scrap costs, low inventory carrying costs

Quality - fast detection and correction of unsatisfactory quality and, ultimately, higher

quality of purchased parts

Design - fast response to engineering change requirements

Administrative efficiency - fewer suppliers, minimal expediting and order release work,

simplified communications and receiving activities

Productivity - reduced rework, reduced inspection, reduced parts-related delays

Capital requirements - reduced inventories of purchased parts, raw materials, work-in-

progress and finished goods

Other benefits of JIT

1. Reduced inventory

2. Improved quality

3. Lower costs

4. Reduced space requirements

5. Shorter lead time

6. Increased productivity

7. Greater flexibility

8. Better relations with suppliers

9. Simplified scheduling and control activities

10. Increased capacity

11. Better use of human resources

12. More product variety

POSSIBLE DISADVANTAGES OF JIT

Some organizations have experienced problems with JIT for the following reasons:

Faulty forecasting of demand and inability of suppliers to move quickly to changes in

demand

JIT requires the provision of the necessary systems and methods of communication

between purchasers and suppliers, ranging from vehicle telephones to EDI, so problems

will arise if there is inadequate communication both internally from production to

purchasing and externally from purchasing to suppliers and vice versa

Organizations with, ideally, no safety stocks are highly vulnerable to supply failures

Purely stockless buying is a fallacy lack of low-cost C class items can halt a production

line as easily as a failure in the delivery of high-priced A class items

The advantages of buying in bulk at lower prices may outweigh the savings negotiated

for JIT contracts as suppliers may increase their prices to cover costs of delivery,

paperwork and storage required for JIT

JIT is not suitable for flow than batch production and may require a change from batch

to flow methods, with consequent changes in the systems required to support the new

methods.

Even for manufacturers that mass-produce items, a substantial percentage of

components are made by number, if not value, in batches, as well as a small number of

high-value components, on dedicated flow lines

PROJECT MANAGEMENT PROJECT

A project is a unique endeavor to produce a set of deliverables within clearly specified time,

cost and quality constraints.

CHARACTERISTICS OF A PROJECT

1) Projects are unique in nature mostly they dont involve repetitive processes

2) Have a defined time scale clearly stated start and finish dates

3) Have approved budgets a level of financial expenditure is allocated to a project

4) Have limited resources

5) They involve an element of risk this is because of many uncertainties involved

6) Leads to achievement of beneficial change

Other characteristics

1) Are goal oriented

2) Lead to a specific accomplishment

3) Involves resource utilization

4) Targets a market place

PROJECT MANAGEMENT

It is the application of knowledge, skills, tools and techniques to project objectives to meet

stakeholders needs and expectation.

PROJECT SUCCESS FACTORS

1) Stakeholders involvement communication is key

2) Executive management support top management should sponsor the project

3) Clear statement of vision and objectives

4) Proper planning

5) Realistic expectations should be set

6) Smaller project milestones

7) Competent, hardworking and focused staff

PROJECT MANAGEMENT PROCESS

A) PROJECT INITIATION

Involves identifying a problem and developing a proposal that entails the objective, scope and

structure of the project

i) Proposal development this includes a detailed definition of the problem,

analysis of the potential options, recommended solution to the problem and the

time and financial requirements

ii) Feasibility study this is done through pilot tests and is done to assess the

possibility of a particular option achieving the benefits stated in the proposal,

whether the estimated costs are reasonable and whether the suggested risks

and issues management are good enough

iii) Establishment of terms of reference this defines the vision, objectives, scope

and outputs of the project. It also defines the roles and responsibilities of each

person, summarizes activities, costs, risks and issues of the project

iv) Appointment of a project team detailed job description for each role is

prepared

v) Phase review this is a checkpoint to ensure that the project has achieved its

stated objectives

B) PROJECT PLANNING

This stage involves creating a plan for all activities, time resources, finance and risk and basically

involves

Project

Resource

Financial

Quality

Risk

Communication

Procurement planning

C) PROJECT EXECUTION

This stage involves implementation of each activity specified in the project planning. It

involves:-

a) Construct outputs this is the generation of outputs that are acceptable to all

the stakeholders

b) Monitor and control this involves

i) Time management record time spent by staff in project activities is

recorded against the project

ii) Cost management identifying costs and recording approval and

payment of such costs

iii) Quality management involves assurance and control of project outputs

iv) Change management changes to the project scope, output and

timelines are evaluated and approved

v) Risk management identification, quantification and management of

project risks

vi) Procurement management sourcing of products from external suppliers

vii) Communication management formal communication messages are

identified, created, reviewed and communicated.

D) PROJECT CLOSURE

This involves releasing the final output to the stakeholders, handing over project documents,

terminating supplier contracts, releasing project resources and communicating project closure

to all stakeholders.

Work Breakdown Structure

Breaks a project into components, subcomponents, activities, and tasks

PROJECT SCHEDULING

Steps followed when carrying scheduling

1. Define activities

2. Sequence activities

3. Estimate time

4. Develop schedule

Techniques used

1. Graphical methods e.g. Gantt chart

2. Network methods e.g. CPM/PERT

A) GRAPHICAL METHOD

Use bar charts, time lines, or other pictorial methods to illustrate activity durations, activity

start and finish times, precedence relationships, milestone events, etc.

Examples

Bar charts, time lines, Gantt charts

GANTT CHART

This may involve the use of a graph or bar chart. The bars represent the time for each task and

may also indicate status of tasks. Its advantage is that it provides a visual display of project

schedule

Slack

Amount of time an activity can be delayed without delaying the project

Example of Gantt chart

B) NETWORK METHODS

Network representation of projects: treat the project as a set of related activities that can be

displayed visually in a network diagram consisting of nodes (circles) and arcs (arrows) that

depict the relationships between activities

Examples

PERT (Program Evaluation and Review Technique) and CPM (Critical Path Method) which have

been combined into one method CPM/PERT

Activity-on-node (AON)

Nodes represent activities

Arrows show precedence relationships

Activity-on-arrow (AOA)

Arrows represent activities

Nodes are events for points in time

Event

Completion or beginning of an activity in a project

CRITICAL PATH

This is the longest path through a network

Minimum project completion time

A: 1-2-4-7 3 + 2 + 3 + 1 = 9 months

B: 1-2-5-6-7 3 + 2 + 1 + 1 + 1 = 8 months

C: 1-3-4-7 3 + 1 + 3 + 1 = 8 months

D: 1-3-5-6-7 3 + 1 + 1 + 1 + 1 = 7 months

PROJECT CRASHING

COST AND RESOURCE CONSIDERATIONS IN PROJECT PLANNING

"crashing an activity" ("crashing the network"): reducing the time required to complete an

activity (in hopes that this will reduce the completion time of the entire project) by assigning

additional resources to that activity but reducing the duration time of the activities on the

critical path may change the critical path

normal time (NT): the expected time to complete an activity

normal cost (NC): the cost to complete the activity in its normal time

crash time (CT): the shortest possible time in which the activity can be completed

crash cost (CC): the cost to complete the activity in the shortest possible time (i.e. the

cost to complete the activity in its crash time)

crash cost per time period = (CC - NC) / (NT - CT)

APPROACHES TO CRASHING A PROJECT NETWORK

A) "minimum-time schedule" method:

1. use the normal times for each activity to determine the critical path

2. crash every activity from its normal time to its crash time (minimum duration time) - this

gives the minimum-time schedule

If you must make the minimum time but you want to reduce the cost you can uncrash activities

that aren't critical, beginning with those that are most expensive.

B) "Minimum-cost schedule" method:

1. use the normal times for each activity to determine the critical path

2. crash the activity on the critical path that has the lowest cost to crash per unit time,

until: the activity duration time cannot be reduced any further; or another path

becomes critical; or the additional costs of crashing outweigh savings from crashing

3. repeat step 2 until the cost of continuing to crash the project is greater than the savings

from crashing

4. when there is more than one critical path, it may be necessary to simultaneously crash

an activity on each path if so, select the activities that give the lowest total cost per unit

time

Example 3

Activity Predecessors Normal Time Crash Time Normal Cost Crash Cost Crash Cost/Week

A - 4 3 11,000 11,700 700

B A 3 1 7,000 9,000 1000

C A 2 1 5,000 5,600 600

D B 4 3 14,000 16,000 2,000

E B, C 1 1 2,000 2,000 -

F C 3 2 8,700 10,000 1,300

G E, F 4 2 23,000 28,000 2,500

H D 3 2 10,000 11,200 1,200

Total 80,700 93,500

Time-Cost Relationship

Crashing costs increase as project duration decreases

Indirect costs increase as project duration increases

Reduce project length as long as crashing costs are less than indirect costs

Time-Cost Tradeoff

OPERATION PLANNING

INTRODUCTION AND MEANING

Operations planning and scheduling systems concern with the volume and timing of outputs,

the utilization of operations capacity at desired levels for competitive effectiveness. These

systems must fit together activities at various levels, from top to bottom, in support of one

another, as shown in Fig. 5.3. Note that the time orientation ranges from long to short as we

progress from top to bottom in the hierarchy. Also, the level of detail in the planning process

ranges from broad at the top to detail at the bottom.

COMPONENTS OF OPERATIONS PLANNING AND SCHEDULING SYSTEM

1. The Business Plan

The business plan is a statement of the organizations overall level of business activity for the

coming six to eighteen months, usually expressed in terms of outputs (in volume of sales) for its

various product groups, a set of individual products that share or consume common blocks of

capacity in the manufacturing process. It also specifies the overall inventory and backlog levels

that will be maintained during the planning period.

The business plan is an agreement between all functional areasfinance, production,

marketing, engineering, R & Dabout the level of activity and the products they are committed

to support.

The business plan is not concerned with all the details and specific timing of the actions for

executing the plan. Instead, it determines a feasible general posture for competing to achieve

its major goals. The resulting plan guides the lower-level, more details decisions.

2. Aggregate Production (Output) Planning

The process of determining output levels of product groups over the coming six to eighteen

months on a weekly or monthly basis. It identifies the overall level of outputs in support of the

business plan. The plan recognizes the divisions existing fixed capacity and the companys

overall policies for maintaining inventories and backlogs, employment stability and

subcontracting.

3. Aggregate Capacity Planning

It is the process of testing the feasibility of aggregate output plans and evaluating overall

capacity utilization. A statement of desired output is useful only if it is feasible. Thus, it

addresses the supply side of the firms ability to meet the demand. As for aggregate output

plans, each plant, facility, or division requires its own aggregate capacity plan.

Capacity and output must be in balance, as indicated by the arrow between them in Fig. 1.5. A

capacity plan translates an output plan into input terms, approximating how much of the

divisions capacity will be consumed. Although these basic capacities are fixed, management

can manipulate the short-term capacities by the ways they deploy their work force, by

subcontracting, or by using multiple work shifts to adjust the timing of overall outputs. As a

result, the aggregate planning process balances output levels, capacity constraints, and

temporary capacity adjustments to meet demand and utilize capacity at desired levels during

the coming months. The resulting plan sets limits on the master production schedule.

4. Master Production Scheduling (Mps)

MPS is a schedule showing week by week how many of each product must be produced

according to customer orders and demand forecasts. Its purpose is to meet the demand for

individual products in the product group. This more detailed level of planning disaggregates the

product groups into individual products and indicates when they will be produced.

The MPS is an important link between marketing and production. It shows when incoming sales

orders can be scheduled into production, and when each shipment can be scheduled for

delivery. It also takes into account current backlogs so that production and delivery schedules

are realistic.

5. Resource Requirement Planning

Resource requirement planning (rough-cut capacity planning) is the process of testing the

Feasibility of master production schedule in terms of capacity. This step ensures that a

proposed MPS does not inadvertently overload any key department, work centre, or machine,

making the MPS unworkable.

6. Material Requirement Planning

Material requirement planning (MRP) is a system of planning and scheduling the time phased

material requirements for releasing materials and receiving materials that enable the master

production schedule to be implemented. Thus, the master production schedule is the driving

force for material requirements planning. MRP provides information such as due dates for

components that are subsequently used for shop floor control. Once this information is

available, it enables managers to estimate the detailed requirements for each work centres.

7. Capacity Requirement Planning

Capacity requirement planning (CRP) is an iterative process of modifying the MPS or planned

resources to make capacity consistent with the production schedule. CRP is a companion

process used with MRP to identify in detail the capacity required to execute the material

requirement planning. At this level, more accurate comparisons of available and needed

capacity for scheduled workloads are possible.

8. Shop Floor Control

Shop floor control involves the activities that execute and control shop operations namely

loading, sequencing, and detailed scheduling and expediting jobs in production. It coordinates

the weekly and daily activities that get jobs done. Individual jobs are assigned to machines and

work centres (loading), the sequence of processing the jobs for priority control is determined,

start times and job assignments for each stage of processing are decided (detailed scheduling )

and materials and work flows from station to station are monitored and adjusted (expediting).

9. Loading

Each job (customer order) may have its unique product specification and, hence, it is unique

through various work centres in the facility. As new job orders are released, they are assigned

or allocated among the work centres, thus establishing how much of a load each work centre

must carry during the coming planning period. This assignment is known as loading (sometimes

called shop loading as machine loading).

10. Sequencing

This stage establishes the priorities for jobs in the queues (waiting lines) at the work centres.

Priority sequencing specifies the order in which the waiting jobs are processed; it requires the

adoption of a priority sequencing rule.

11. Detailed Scheduling

Detailed scheduling determines start times, finish times and work assignments for all jobs at

each work centre. Calendar times are specified when job orders, employees, and materials

(inputs), as well as job completion (outputs), should occur at each work centre. By estimating

how long each job will take to complete and when it is due, schedulers can establish start and

finish dates and develop the detailed schedule.

12. Expediting

Expediting is a process of tracking a jobs progress and taking special actions to move it through

the facility. In tracking a jobs progress, special action may be needed to keep the job moving

through the facility on time. Manufacturing or service operations disruptions-equipments

breakdowns, unavailable materials, last-minute priority changes, require managers to deviate

from plans and schedules and expedite an important job on a special handling basis.

13. Input/ Output Control

Input/output control related to the activities to monitor actual versus planned utilization of a

Work centres capacity. Output plans and schedules call for certain levels of capacity at a work

centre, but actual utilization may differ from what was planned. Actual versus planned

utilization of the work centres capacity can be monitored by using input-output reports and,

when discrepancies exist, adjustments can be made. The important components of operations

planning and scheduling system has been explained in detail in the following paragraphs.

AGGREGATE PLANNING

Aggregate planning is an intermediate term planning decision. It is the process of planning the

quantity and timing of output over the intermediate time horizon (3 months to one year).

Within this range, the physical facilities are assumed to 10 be fixed for the planning period.

Therefore, fluctuations in demand must be met by varying labour and inventory schedule.

Aggregate planning seeks the best combination to minimize costs.

Aggregate Planning Strategies

The variables of the production system are labour, materials and capital. More labour effort is

required to generate higher volume of output. Hence, the employment and use of overtime

(OT) are the two relevant variables. Materials help to regulate output. The alternatives

available to the company are inventories, back ordering or subcontracting of items. These

controllable variables constitute pure strategies by which fluctuations in demand and

uncertainties in production activities can be accommodated by using the following steps:

1. Vary the size or the workforce: Output is controlled by hiring or laying off workers in

proportion to changes in demand.

2. Vary the hours worked: Maintain the stable workforce, but permit idle time when there

is a slack and permit overtime (OT) when demand is peak.

3. Vary inventory levels: Demand fluctuations can be met by large amount of inventory.

4. Subcontract: Upward shift in demand from low level. Constant production rates can be

met by using subcontractors to provide extra capacity.

Aggregate Planning Guidelines

The following are the guidelines for aggregate planning:

1. Determine corporate policy regarding controllable variables.

2. Use a good forecast as a basis for planning.

3. Plan in proper units of capacity.

4. Maintain the stable workforce.

5. Maintain needed control over inventories.

6. Maintain flexibility to change.

7. Respond to demand in a controlled manner.

8. Evaluate planning on a regular base.

MASTER PRODUCTION SCHEDULE (MPS)

Master scheduling follows aggregate planning. It expresses the overall plans in terms of specific

end items or models that can be assigned priorities. It is useful to plan for the material and

capacity requirements.

Time interval used in master scheduling depends upon the type, volume, and component lead

times of the products being produced. Normally weekly time intervals are used. The time

horizon covered by the master schedule also depends upon product characteristics and lead

times. Some master schedules cover a period as short as few weeks and for some products it is

more than a year.

Functions of MPS

Master Production Schedule (MPS) gives formal details of the production plan and converts this

plan into specific material and capacity requirements. The requirements with respect to labour,

material and equipment are then assessed.

The main functions of MPS are:

1. To translate aggregate plans into specific end items: Aggregate plan determines level of

operations that tentatively balances the market demands with the material, labour and

equipment capabilities of the company. A master schedule translates this plan into

specific number of end items to be produced in specific time period.

2. Evaluate alternative schedules: Master schedule is prepared by trial and error. Many

computer simulation models are available to evaluate the alternate schedules.

3. Generate material requirement: It forms the basic input for material requirement

planning (MRP).

4. Generate capacity requirements: Capacity requirements are directly derived from MPS.

Master scheduling is thus a prerequisite for capacity planning.

5. Facilitate information processing: By controlling the load on the plant. Master schedule

determines when the delivery should be made. It coordinates with other management

information systems such as, marketing, finance and personnel.

6. Effective utilization of capacity: By specifying end item requirements schedule

establishes the load and utilization requirements for machines and equipment.

MATERIAL REQUIREMENT PLANNING (MRP)

MATERIAL REQUIREMENTS PLANNING MRP

An MRP system entails a computer-based system used to synchronize the supply of material,

components and sub-assemblies with production planning and scheduling so that inventory

may be limited to the absolute minimum.

Definition:

An MRP system is a computerized information system that integrates the scheduling

and control of materials through logically related records, procedures and decision rules

with the master production schedule (MPS) into time phased net requirements for

each inventory item.

MRP refers to the basic calculations used to determine components required from end

item requirements. It also refers to a broader information system that uses the

dependence relationship to plan and control manufacturing operations.

Materials Requirement Planning (MRP) is a technique for determining the quantity and

timing for the acquisition of dependent demand items needed to satisfy master

production schedule requirements.

The MRP system uses planned production to determine what and how much should be

ordered, when to order and on what date delivery should take place. The basic function of MRP

system includes inventory control, bill of material processing and elementary scheduling. MRP

helps organizations to maintain low inventory levels. It is used to plan manufacturing,

purchasing and delivering activities.

This is invariably an IT-based system that helps determine when items are required for a

production line and in what quantities. It can operate manually but this is very rare and would

really only work for finished goods that contain few components.

MRP is based on a master production schedule (MPS). This is derived from the companys sales

forecast, updated with the latest actual sales information. This provides an estimate of orders

that will need to be satisfied during the time period under consideration. "Manufacturing

organizations, whatever their products, face the same daily practical problem - that customers

want products to be available in a shorter time than it takes to make them. This means that

some level of planning is required."

Companies need to control the types and quantities of materials they purchase, plan which

products are to be produced and in what quantities and ensure that they are able to meet

current and future customer demand, all at the lowest possible cost. Making a bad decision in

any of these areas will make the company lose money. A few examples are given below:

If a company purchases insufficient quantity of an item used in manufacturing (or the

wrong item) it may be unable to meet contract obligations to supply products on time.

If a company purchases excessive quantities of an item, money is wasted - the excess

quantity ties up cash while it remains as stock and may never even be used at all.

Beginning production of an order at the wrong time can cause customer deadlines to be

missed.

MRP is a tool to deal with these problems. It provides answers for several questions:

What items are required?

How many are required?

When are they required?

MRP can be applied both to items that are purchased from outside suppliers and to sub-

assemblies produced internally, that are components of more complex items.

Once the MPS has been produced, the next stage is to explode it. This means that the

computer software calculates how many of each component is required in order to

manufacture the finished products specified in the MPS. The document that results from this

process is known as of materials (BOM).

We can illustrate this by reference to our fictional forklift manufacturer, suppose the MPS

shows that 200 1,000kg capacity trucks are to be produced. The BOM will show that 800 wheels

are required (four per truck), meaning 4,000 wheel nuts (five per wheel) and so on. The BOM

will follow this process for every component and subassembly the entire truck. This is

illustrated in Figure 7.2

The inventory status file: this tells us which of the required items we already have in

stock and in what quantities

The delivery lead times for all of the items required

All of these pieces of information should tell us what we need to order, in what

quantities and when we need to place the orders. This should then ensure that the right

quantities of the right items are delivered to us not too long before being required by

the production line. This is not quite just in time but it s moving in that direction.

With items being used regularly, it is not uncommon to place them on call-off orders or

to use consignment stocking. This is particularly true of items with short lead times and

which are readily available.

Obtain updated sales forecast updated with latest actual sales information.

Use sales forecast, customer orders and production policy to form master production

schedule. (MPS)

Use MRP software to compute material requirements by exploding end product

requirements into successively lower levels in the product structure. This gives the gross

requirement for each material and component.

Use the inventory status file to determine materials and components already in stock.

Deduct this from the gross requirement to arrive at the net requirement for each

material and component (i.e. the quantities we need to order from suppliers).

Assess the net requirement in the light of supplier lead times in order to determine the

schedule for ordering materials and components.

Place orders with suppliers via the purchasing function

Receive goods and issue them to the production line.

The data that must be considered include:

The end item (or items) being created. This is sometimes called Independent Demand or

Level 0 on BOM (Bill of materials).

How much is required at a time.

When the quantities are required to meet demand.

Shelf life of stored materials.

Inventory status records. Records of net materials available for use already in stock (on

hand) and materials on order from suppliers.

Bills of materials. Details of the materials, components and sub-assemblies required to

make each product.

Planning Data. This includes all the restraints and directions to produce the end items.

This includes such items as: Routings, Labor and Machine Standards, Quality and Testing

Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. Fixed Lot Size,

Lot-For-Lot, and Economic Order Quantity), Scrap Percentages, and other inputs.

Inputs

The following inputs are essential for the successful implementation of materials requirements:

-

- A master production schedule (MPS):- this specifies the firms requirements for final

products by time period.

- A bill of material (BOM): - This is for each final product in the MPS, which defines the

components that the final assembly process needs to complete that product.

- Inventory status file: - This provides information on the status of all scheduled incoming

components.

- The planned lead-time of every process required. These represents the total time

needed to produce a product.

Outputs

There are two outputs and a variety of messages/reports:

Output 1 is the "Recommended Production Schedule" which lays out a detailed

schedule of the required minimum start and completion dates, with quantities, for each

step of the Routing and Bill of Material required satisfying the demand from the Master

Production Schedule (MPS).

Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates that

the purchased items should be received into the facility AND the dates that the

Purchase orders, or Blanket Order Release should occur to match the production

schedules.

Messages and Reports:

Purchase orders. An order to a supplier to provide materials.

Reschedule notices. These recommend cancelling, increasing, delaying or speeding up

existing orders.

Characteristics of MRP System

It uses electronic data-processing equipment to calculate in advance the inventory

requirements for a particular period.

- Inventory holding is reduced to a bare minimum by synchronizing materials flow and

production scheduling.

- The MPRS is the guiding tool for MRP system.

- The demand for materials can be calculated by means of MRP system, which is more

reliable than forecasting.

- The MRP system eminently suited to the supply of production materials in

manufacturing enterprises.

- There must be a master production schedule exploded into a bill of materials

- All inventory items must be identified.

- The bill of materials must exist at planning stage.

- The inventory status of all items is needed

- File data must have integrity.

- Lead times for each material and component must be known and update on an ongoing

basis.

- All of the quantity relationships to end products must be known

- There must be reliable, flexible suppliers who are committed to supplying against MRP

schedules and who will make the system work,

Objectives of MRP

1. Inventory reduction: MRP determines how many components are required when they

are required in order to meet the master schedule. It helps to procure the materials/

components as and when needed and thus avoid excessive build up of inventory.

2. Reduction in the manufacturing and delivery lead times: MRP identifies materials and

component quantities, timings when they are needed, availabilities and procurements

and actions required to meet delivery deadlines. MRP helps to avoid delays in

production and priorities production activities by putting due dates on customer job

order.

3. Realistic delivery commitments: By using MRP, production can give marketing timely

information about likely delivery times to prospective customers.

4. Increased efficiency: MRP provides a close coordination among various work centres

and hence help to achieve uninterrupted flow of materials through the production line.

This increases the efficiency of production system.

Advantages of MRP System

- Forges closer linkages with suppliers and user departments

- Decrease in inventories of purchased parts.

- Fewer outstanding orders.

- Elimination of expediting.

- Improvement of accuracy of record and control information.

- Improved accuracy fro purchasing planning and scheduling.

- It reduces inventory.

- It is sensitive to change. Data can be updated as frequently as is necessary. It provides a

look into the future by forecasting what products are to be produced and what

materials will be needed to produce them.

- Inventory control is action-oriented rather than clerically-oriented.

- Order quantities are related to requirements. This is one of the main reasons why MRP

reduces inventory.

- MRP reduces routine time in the purchasing job. This is particularly true if

requirements are known for a relatively long period of time and remain steady during

that time.

- It integrates the thinking and action of personnel in purchasing, production and

marketing. This is because it requires information from all three departments as we

have seen above.

Possible Disadvantages/Difficulties

- Because lead times have to be short and very reliable, suppliers and placed under

pressure which may damage supplier relations.

- Low inventory levels place greater pressure on the purchasing function.

- Purchasing quantities are largely inflexible since the quantities are determined by the

system.

- Too much reliance on purchasing information on the availability and lead times, which

influences the success of MRP system.

- It only applies to dependent demand items.

- Its payback on own-value items (Category C items: see Pareto analysis in Chapter 4) may

be doubtful. This is because it might be advantageous just to keep fairly large quantities

of these items in stock. This would mean that the items would be available when

required without costing too much to hold in stock. This would mean that they would

also only need to be ordered infrequently, so that the cost of ordering would be low.

- It depends on an accurate forecast which is not always possible.

- It does not apply to many jobbing manufacturers who must keep raw materials on

hand to meet what amounts to emergency production orders.

MANUFACTURING RESOURCE PLANNING (MRP II)

MRP II has been defined as a system built around materials requirement planning and also

including the additional planning functions of production planning, master production

scheduling and capacity requirements planning.

MRP II has wider implications than MRP I. MRP II is concerned with virtually any resource

entering into production, including manpower, machines and money in addition to materials.

The development of the MRP system into MRP II system has produced a useful aid for the

entire management of business.

Material requirements planning (MRP) is a production planning and inventory control system

used to manage manufacturing processes. Most MRP systems are software-based, while it is

possible to conduct MRP by hand as well.

This is not exclusively a software function, but a marriage of people skills, dedication to

database accuracy, and computer resources. It is a total company management concept for

using human resources more productively

An MRP II system is intended to simultaneously meet three objectives:

- Ensure materials are available for production and products are available for delivery to

customers.

- Maintain the lowest possible material and product levels in store

- Plan manufacturing activities, delivery schedules and purchasing activities.

MRP is concerned primarily with manufacturing materials while MRPII is concerned with the

coordination of the entire manufacturing production, including materials, finance, and human

relations. The goal of MRP II is to provide consistent data to all players in the manufacturing

process as the product moves through the production line.

Paper-based information systems and non-integrated computer systems that provide paper or

disk outputs result in many information errors, including missing data, redundant data,

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