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7/27/2019 MM ZG511-L18
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BITS PilaniPilani Campus
Manufacturing Organization
and Management
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BITS PilaniPilani Campus
Review SessionLecture 18
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BITS Pilani, Pilani Campus
Factor Product
A B C
Expected sales each year 600 900 1200
Unit cost of production $680 $900 $1200
Unit selling price $760 $1000 $1290
Fixed cost incurred before production $200000 $350000 $500000
Expected product life 3 5 8
Problem-1
A company is planning to introduce a new product. It must select one productfrom three available and has estimated the data shown in the table. Whichproduct would you recommend?
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BITS Pilani, Pilani Campus
i) The breakeven point for each product are calculated from
N = FC/(UP – UC)
So for each product we have
A : N = 200,000/(760 - 680) = 2500
B : N = 350,000/(1000 – 900) = 3500
C : N = 500,000/(1290 – 1200) = 5556If the company wants the lowest break – even point it would select product A.
ii) Time taken to break even:
Time taken to break even = break-even point/demand
For each product this gives:
A : 2500/600 = 4.2 years
B : 3500/900 = 3.9 years
C : 5556/1200 = 4.6 years
In this case, product B would be least.
Answer-1
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iii) To maximize long term profit
Total profit = revenue – total cost
With :
Revenue = lifetime * annual demand * unit profit
Total cost = lifetime * annual demand * unit cost + fixed cost
So:
Total profit = L * D * (UP - UC) – FCWhere :
L = lifetime
D = Demand
For each product the lifetime profit is:
A : 3 * 600 * ( 760 – 680) – 200,000 = -56,000
B : 5 * 900 * (1000 – 900) – 350,000 = 100,000
C : 8 * 1200 * (1290 – 1200) – 500,000 = 364,000
Product A would make a net loss over its expected life while producer C would give the best profit.
Overall, we can only say that the best decision would depend on the objectives of the company, but product B
seems useful.
Answer-1 cont…
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Activity predecessors duration
A - 7
B A 8C A 10
D A 6
E A 2
F B,C 5
G F,D,E 8
H E 7I F 5
J I,G,H 2
Problem-2
A project has activities with duration and precedence requirement asgiven in Table. Draw the network diagram for this project.
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Answer-2
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The Madras Plumbing Supply Company stocks thousand ofplumbing item sold to regional plumbers, contractors and retailers.Mr. Chelladurai, firm’s general manager, wonders how much money
could be saved annually if EOQ were used instead of the firm’s
present rules of thumb. He instructs Prabhakaran an inventory
analysist to conduct an analysis of one material only (Material #4000a brass valve) to see if significant saving might result from using theEOQ.
Prabhakaran develops the following estimates from accounting
information: Annual demand 200000 valves per year, quantity 8000valves per order, carrying cost $0.60 per valve per year and set upcost $10.50 per order. Find the EOQ and annual savings in stockingcosts.
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The present total annual stocking costs:
TSC1 = (Q/2) + (D/Q)S = = 2400 + 262.5 = 2662.5
EOQ is calculated :
EOQ = = 2645.75
Total annual stocking costs if EOQ were employed:
TSC2 = (Q/2) + (D/Q)S = = 793.725 + 793.725 = 1587.45
The estimated annual savings in stocking
Savings = TSC1 – TSC2 = 2662.5 - 1587.45 = $1075.05
Thus, the savings from EOQ would be significant.
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Discuss the steps required for good purchasing with asuitable example. Draw a chart of the process involvedwhen a person goes to a bank and ask for a personalloan.
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(a) The primary objective of a good purchasing is to contribute towards the profits of the
manufacturing activity. Another important objective is to ensure the availability of materials so thatdelivery schedules can be maintained, thus keeping the customer satisfied.
The complete purchasing cycle consists of the following steps
Receipt and analysis of the purchase requisition
Selection of potential sources of supply
Issuance of requests for quotationsReceipt and analysis of quotations
Selection of the right source
Determination of the right price
Issuance of the purchase order
Follow up to ensure scheduled delivery
Analysis of receiving reports Analysis and approval of vendor’s invoice for payment
For example, when purchasing a standard item from an old and established source, it is oftenassumed that price and terms of purchase are right and the purchase order will be placed uponreceipt of the purchase requisition.
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Process chart : Personal bank loan
Step number Description
O p e r a t i o n
M o v e m e n t
I n s p e c t i o n
D e l a y
S t o r a g e
Time distance
(min) ( meters)
Comment
1
2
3
4
5
6
7
8
9
10
1112
13
14
15
Customer selects banks & visits
Initial screening
Move to loans office
Wait
Discuss with loans officer
Complete application forms
Carry forms to verifier
Forms are checked
Wait as credit analysis verification is done
Supply further information
Move back to loans officeWait
Forms are checked
Complete arrangement
Leave
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
5
2 15
10
15
15
2
2 10
25
5
2 15
205
15
Summary:
Sno : No Time
Operation 5 55
Movements 5 6
Inspections 2 7
Delays 3 55
Storage 0 0
Total : 15 123
Time : 123
min Distance : 40
meters
(b) Process chart:
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Explain the significance of organization planning inmanufacturing environment.
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Explain the factors to be considered for determining thenumber of machine required in a plant.
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Ans: The number of machines required in a plant isdependent upon:
Quantity of parts to be manufactured.
Number of working hours in the plant.
Production rates on the operations to be performed.
Set up time
Operating efficiency of the plant.
Scrap loss
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A manufacturing unit has six departments A, B, C, D, E andF. they are located as shown in figure. The dailyexpected load transaction are: From A to B 20 tons,From B to A 10 tons, From B to C 15 tons, From A to F
25 tons, From C to D 30 tons, From D to C 50 tons, FromE to F 10 tons, From E to A 10 tons. Check whether thegiven arrangement of department is optimal or not. If notsuggest a best layout.
A B C
D E F
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To
From
A B C D E F
A - 20 25
B 10 - 15
C - 30
D 50 -
E 10 - 10
F -
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Differentiate between intermittent and continuousmanufacturing with respect to volume of production,product variety, frequency to change the setup,equipment, labor force, capital cost and unit cost in a
tabular form.
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Intermittent Manufacturing Continuous Manufacturing
Volume of production o Low to medium
Volume of production o Very high
Product variety
o Many, varied
Product variety
o Very few
Frequency to change the setup
o Very easy to change the set up for different
product variety
Frequency to change the setup
o It is fixed and cannot be modified easily and
involves top management commitment based on
demand of the product /market
Equipment
o It uses general purpose equipment
Equipment
o It uses special purpose equipment
Labor force
o Workers are required to have wide range of skills
so as to handles all types of equipment involved
in the layout
o Work force is more
Labor force
o As here most of the process is automated the
workers are expected to serve as a equipment
monitor
o Work force is less as compared to intermittent
process
Capital cost
o Initial cost of the equipment is high
Capital cost
o It involves high investment in plant & equipment
installation as the process is to be highly
automated
Unit cost
o Cost of the unit is very high because of slow
operation speed of the general purpose
equipment used
Unit cost
o Cost of the unit is low as the volume of
production is high but may increase if there is a
dis- economies of scale
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Discuss the advantage of value analysis. Discuss thestrength and weakness of line type organization.
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(a) Value analysis is the application of a set of techniques to an existing
product with a view to improving its value. It is thus a remedial process.Value engineering is the application of exactly the same set of techniques toa new products at the design stage , project concept or preliminary designwhen no hard ware exists to ensure that bad features are not added. Value
engineering is thus a preventive process.
As a value engineering/ value analysis aims at
Simplifying the product
Use cheaper and better materials
Modify and improve the design of productUse of efficient processes
Reduce the product cost
Increase the utility of the product by economical means
Save money & increase the profits
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Value Engineering helps the organization in bringing out the following advantages whenimplemented
Value engineering is a much faster cost reduction technique as it reduces the operating andmaintenance cost
It is less expensive technique
Value engineering reduce production costs and adds value to sales income of the products
Improves quality management
Improves resource efficiency
Simplifies the complex procedures & Increases procedural efficiency
Minimizes paperwork
Helps to compete more successfully in marketplace
Value Engineering helps the individuals you to learn how to
Improve your career skillsSeparate "Symptoms" from "problems"
Solve "root cause" problems and capture opportunities
Become more competitive by improving "benchmarking" process
Take command of a powerful problem solving methodology to use in any situation
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Thank You