om short notes.pdf

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Operations Management NOTES MBA-025

UNIT-1

OPERATIONS MANAGEMENT Operations management is an area of management concerned with overseeing, designing,

and controlling the process of production and redesigning business operations in the production

of goods and/or services. It involves the responsibility of ensuring that business operations areefficient in terms of using as few resources as needed, and effective in terms of meetingcustomer requirements. It is concerned with managing the process that converts inputs (in theforms of materials, labor, and energy) into outputs (in the form of goods and/or services). Therelationship of operations management to senior management in commercial contexts can becompared to the relationship of line officers to highest-level senior officers in military science. The highest-level officers shape the strategy and revise it over time, while the line officers maketactical decisions in support of carrying out the strategy. In business as in military affairs, the

boundaries between levels are not always distinct; tactical information dynamically informsstrategy, and individual people often move between roles over time.

According to the U.S. Department of Education, operations management is the field concernedwith managing and directing the physical and/or technical functions of a firm or organizat ion, particularly those relating to development, production, and manufacturing. Operationsmanagement programs typically include instruction in principles of general management,manufacturing and production systems, plant management, equipment maintenancemanagement, production control, industrial labor relations and skilled trades supervision,strategic manufacturing policy, systems analysis, productivity analysis and cost control, andmaterials planning [1][2 ][3] . Management, including operations management, is like engineering inthat it blends art with applied science. People skills, creativity, rational analysis, and knowledgeof technology are all required for success.
http://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Business_operationshttp://en.wikipedia.org/wiki/Efficiencyhttp://en.wikipedia.org/wiki/Effectivehttp://en.wikipedia.org/wiki/Senior_managementhttp://en.wikipedia.org/wiki/Line_officerhttp://en.wikipedia.org/wiki/Military_sciencehttp://en.wikipedia.org/wiki/Strategyhttp://en.wikipedia.org/wiki/Military_tacticshttp://en.wikipedia.org/wiki/Operations_management#cite_note-1http://en.wikipedia.org/wiki/Operations_management#cite_note-3http://en.wikipedia.org/wiki/Operations_management#cite_note-3http://en.wikipedia.org/wiki/Engineeringhttp://en.wikipedia.org/wiki/Applied_sciencehttp://en.wikipedia.org/wiki/Applied_sciencehttp://en.wikipedia.org/wiki/Engineeringhttp://en.wikipedia.org/wiki/Operations_management#cite_note-3http://en.wikipedia.org/wiki/Operations_management#cite_note-1http://en.wikipedia.org/wiki/Operations_management#cite_note-1http://en.wikipedia.org/wiki/Military_tacticshttp://en.wikipedia.org/wiki/Strategyhttp://en.wikipedia.org/wiki/Military_sciencehttp://en.wikipedia.org/wiki/Line_officerhttp://en.wikipedia.org/wiki/Senior_managementhttp://en.wikipedia.org/wiki/Effectivehttp://en.wikipedia.org/wiki/Efficiencyhttp://en.wikipedia.org/wiki/Business_operationshttp://en.wikipedia.org/wiki/Management


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Introduction

The very essence of any business is to cater needs of customer by providing services and goods,and in process create value for customers and solve their problems. Production and operationsmanagement talks about applying business organization and management concepts in creation ofgoods and services.

Production

Production is a scientific process which involves transformation of raw material (input) intodesired product or service (output) by adding economic value. Production can broadly categorizeinto following based on technique:

Production through separation: It involves desired output is achieved through separation orextraction from raw materials. A classic example of separation or extraction is Oil into variousfuel products.

Production by modification or improvement: It involves change in chemical and mechanical parameters of the raw material without altering physical attributes of the raw material. Annealing process (heating at high temperatures and then cooling), is example of production bymodification or improvement.

Production by assembly: Car production and computer are example of production by assembly.

Importance of Production Function and Production Management

Successful organizations have well defined and efficient line function and support function.Production comes under the category of line function which directly affects customer experienceand there by future of organization itself.

Aim of production function is to add value to product or service which will create a strong andlong lasting customer relationship or association. And this can be achieved by healthy and

productive association between Marketing and Production people. Marketing function people arefrontline representative of the company and provide insights to real product needs of customers.

An effective planning and control on production parameters to achieve or create value forcustomers is called production management.


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Operations Management

As to deliver value for customers in products and services, it is essential for the company to dothe following:

1. Identify the customer needs and convert that into a specific product or service (numbers of products required for specific period of time)2. Based on product requirement do back-ward working to identify raw material requirements3. Engage internal and external vendors to create supply chain for raw material and finished goods

between vendor production facility customers.

Operations management captures above identified 3 points.

Production Management v/s Operations Management

A high level comparison which distinct production and operations management can be done onfollowing characteristics:

Output: Production management deals with manufacturing of products like (computer, car, etc)while operations management cover both products and services.

Usage of Output: Products like computer/car are utilized over a period of time whereas servicesneed to be consumed immediately

Classification of work: To produce products like computer/car more of capital equipment andless labour are required while services require more labour and lesser capital equipment.

Customer Contact: There is no participation of customer during production whereas for servicesa constant contact with customer is required.

Production management and operations management both are very essential in meeting objective

of an organization.


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Integrated Product and Process Development - Meaning,Advantages and Key Factors

Introduction

Objective of any organization is to provide customer satisfaction by building product andservices, which not only satisfy needs and want but also create value for them.

This requires product design based on the customer feedback and production process which notonly minimizes cost but also provides a competitive advantage. However, most organizationstend to follow conventional production method and process.

However, in the global age of new technology and competition organization have to re-invent theway they cater to needs of customer, focus on specialization and customization is everincreasing. Given this scenario it is imperative for the organization to integrate technology andinnovation within the framework of integrated product and process development.

Integrated Product and Process Development(IPPD)

Integrated product and process development combines the product design processes alongwith the process design process to create a new standard for producing competitive andhigh-quality products .

Integration of new technologies and methods provide a complete new dimension to productdesign process. This process starts with defining of the requirements of products based on thecustomer feedback while considering the design layout and other constraints. Once the finerdetails are finalized, they are fed into CAD models where extensive testing and modeling aredone to get the best product.

With integration of production method and technology with product design, it is natural forintegration of product design and process design. Therefore, integrated product and processdevelopment can be defined as a process starting from product idea to development of final

product through modern technology and process management practices while minimizing costand maximizing efficiency.

Advantages of Integrated Product and Process Development (IPPD)

Organization stands to benefit greatly from the implementation of IPPD. Some of the advantagesare as follows:


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Using modern technologies and implement logical steps in production design, the actual production is likely to come down, thereby reducing product delivery time.

Through optimum usage of resources and using efficient process, organizations are able tominimize cost of production thus improving profitability of the organization.

Since extensive uses of CAD model are employed chances are of product or design failure aregreatly reduced thus reducing risk for organization.

As the focus is solely in delivering value to customer, quality is paramount importance andachieved through technology and methods.

Key Factors for IPPD

There are certain factors, which can vastly improve IPPD. These factors are as follows:

IPPD success is greatly dependent on agreement on the end objective which is the successfuladdress to customer requirements. All the stakeholders and management should be aligned to thesingle objective.

Since this is a scientific approach, its success dependent on building up of plan, implementation

of plan and constant review of the implemented plan. With implementation of modern methods and technology comes usage of modern tools andsystems. This tools, and systems need to be integrated within the organization framework.

Skilled manpower is another essential; therefore, organization need to make investment in humancapital.

Customer is the focal point of IPPD. Therefore, constant feedback from them is essential forIPPD to be a success.

Therefore, IPPD is approach design to address all the concern of modern organization in theglobalized world.


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Classification of Manufacturing (Production) System

A. Continuous Production- In this system the item are produced for the stocks and not for

specific orders. In this system the inputs are standardized and a standard set of process andsequence of process can be adopted.

Features of Continuous Production

Continuity in demand Standardize production Appropriate plant and equipment Specific material Balanced process

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. Themachines are arranged in a line or product layout. Product and process standardization exists andall outputs follow the same path.

Characteristics of Mass Production 1. Standardization of product and process.

3. Larger volume of products.4. Shorter production cycle time.5. Low process inventory.6. Production lines are perfectly balanced.7. Flow of materials, components and parts is continuous8. Easy production planning and control

Advantages of Mass Production 1. Higher rate of production2. Reduced production cycle time.2. line balancing lead to higher capacity utilization3. Requirement of less skill operator4. Lower process inventory.5. Low manufacturing cost per unit

Limitations of Mass Production 1. Breakdown of one machine will stop an entire production line.2. Line layout needs major change with the changes in the product design.3. High investment in production facilities.


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

PROCESS PRODUCTION A production process, that runs for very long periods without the start-and-stop behavior

associated with intermittent production such as those used by chemical plants or refineries. High

capital investments are required for highly automated facilities that use special-purpose

equipment designed for high volumes of production and little or no variation in the type of

outputs.

Characteristics of Process Production

1. Extended form of mass production system2. More automatic machines

3. One basic raw material is transferred into several products at several stages.

4. Less highly skilled workers required

5. More human problems foreseen

6. Highly standardized system

Intermittent Production System - Production is performed on a start-and-stop basis, such as forthe manufacture of made-to-order products. The goods are manufacture especially to full fillorder by customer rather than for keeping stock.

Characteristics of Intermittent Production System

Production in smaller quantities Machine and equipment are aligned as requirement of process High skill labor required

Larger in-process inventory

Flexible


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JOB SHOP PRODUCTION

Job shop production are characterized by manufacturing of one or few quantity of productsdesigned and produced as per the specification of customers within prefixed time and cost. Thedistinguishing feature of this is low volume and high variety of products. A job shop comprisesof general purpose machines arranged into different departments. Each job demands uniquetechnological requirements, demands processing on machines in a certain sequence.

Characteristics 1. High variety of products and low volume.2. Highly skilled operators required.3. Large inventory of materials, tools, parts.4. High capital investment

5. High per unit cost of production5. Detailed planning is for required of each product, capacities for each work center and order priorities.

Advantages 1. Because of general purpose machines and facilities variety of products can be produced.2. Operators will become more skilled and competent, as each job gives them learningopportunities.3. Full potential of operators can be utilized.4. Opportunity exists for creative methods and innovative ideas.

Limitations 1. Higher cost because of regular changes2. Higher inventory cost due to higher level of inventory at all levels3. Production planning is difficult4. Larger space requirements.

BATCH PRODUCTION It is a form of manufacturing in which the job passes through the functional departments in lotsor batches and each batch may have a different routing. It is characterized by the manufacture oflimited number of products produced at regular intervals and stocked awaiting sales.

Characteristics Highly specialized Human resource is requiredHighly specialized multitasking machinesMachines are sh ared.Production in batchesProduction lots are based on customer demand or order.


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No single sequence of operationFinished goods are heterogeneous

Advantages

1. Plant and machinery are better utilized2. Functional specialization.3. Lower cost per unit of production as compare to job production4. Lower investment required5. Flexibility in process

Limitations 1. Material handling is complex due to irregular an larger flow of material2. Production planning and control is difficult

Here is the Comparative study of different production systems


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Effective Product Design

Introduction

Organization success is dependent on customer satisfaction and delight. Customer satisfaction isachieved through development of product and service, which have all attributes required by thecustomer. A success product or services do not only have attractive package design but should bealso able to provide robust performance.

Thus, product design must be practical enough for production and powerful enough to provide acompetitive advantage.

Product Design

A good product design has following common features:

Utility: The product design should make product utility as per expectation of customers and provide steady performance through the product life.

Aesthetics: Product aesthetics is important in success of the product. The product aesthetics isdependent on market and end customer.

Producible: Product design should enable effective production of product through available production methods.

Profitability: Product design should make economic sense as to deliver value to customer andsustainability to the organization.

Differentiable: A good product design should enable product to be differentiate among itscompetition. This can be achieved by attractive packaging and also by providing additionalservice on the product.

Objectives of Product Design

The essence of product design is to satisfy customer and maximizes the value for the customer atminimum cost. The product or service should also be able to meet primary needs and desire ofthe customer. This may not require development of new product, but enhancement to existing

product or service.

Stages of Product Design

Product design is a creative process which looks at all the available options and beyond. The process is can be divided into three stages:

1. First stage: His stage involves brainstorming, bringing ideas and analysis of customer andmarket feedback.

2. Second Stage: Idea is converted into a feasible solution to satisfy the customer expectation, usingavailable resource and technology.

3. Third Stage: This is the last stage in which the product is introduced in the market.


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Factors Affecting Product Design

A successful product design is combination factors as follows:

Correct Team Selection: This is very essential to get the correct team in place which has expert

designers who are not only aware and comfortable with technology but also understanding ofcustomer expectation.

Customer Involvement: Involvement of customer in product design and testing can provideinsight into the direction of the project

Prototyping and testing: Product design is high risk concept as it involves commitment ofcapital and man-power; therefore, it is imperative that extensive prototyping and testing are donewith customer and market.

Raw Material: It is essential that raw material to be used in the production meets the quality

standards of the end product. Furthermore, procurement system needs to be in place to ensurecontinuous, cost effective supply.

Production method and process layout: Feasibility of production method and process layoutdetermines future success of the product.

External Factors: Environmental and government regulations plays an important part in productdesign. And these norms are updated from time to time, so product design should have theflexibility to adapt.

Product Selection

Production selection process is done through a combination of financial analysis, risk analysis,existing product portfolio, raw material supply and pre-determined product criteria.


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Process Design and Analysis

Introduction

The objective of organization is to provide service and product, which satisfy customer andcreate value for them. A product and service designed is based on the customer feedback andrequirement of the market. Process design is where the product is broken down into parts, whichfurther can be helpful in the actual manufacturing process.

A product, for example, has attractive packaging to provide the right aesthetics plus has functionand features, which provide value to customers. Process design ensures that there is smooth andcontinuous relationship between required output and all the intermediate process.

For example, manufacturing of Air-Conditioners, process design has to be such that maximumsupply is achieved during the hot months of summer when demand of the product is at thehighest. So people, process and machines need to align to give continuous production throughoutthe year as to satisfy seasonal demand.

Process Planning

Process development for process design can be summarized through following steps:

1. Process Requirement: The very 1st step is to collect and gather information to give structurewith the end objective. That is to make process requirement document highlighting variousstages, risk and stakeholders for production. This will include assessment of available technology,raw material requirement, factory/plant layout and demand forecast.

2. Team Building: Once the process requirements are finalized, for each objective, a team isfinalized based on skill level and experience. Function of the team is to get familiarize with thewhole process.

3. Planning and Implementation: Process planning team will develop module; policies and procedure require for production, which are after required approval internal as well as external isimplemented.

4. Audit: A regular audit is carried out to ensure that process thus implemented is in line anddelivering value to customers.

5. End of Life: Over a course of time there may be enhancement of the product or product may getdiscontinued in these circumstances, process thus develop is discontinued.

Production Process

Based on the nature of product and service production or conversion process can be divided intotwo broad categories, continuous production (assembly line, oil refinery) and intermittent

production (job work, service).

Production process for both manufacturing industry and service industry can be classified into broad categories based on standardization of product or service. It can range from single project


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assignment like a building or bridge (manufacturing) to interior design (service) and mass production project like a car (manufacturing) to a fast-food joint (Services).

Process Design

A successful process design has to take into account the appropriateness of the process to overallorganization objective. Process design requires a broad view of the whole organization andshould not have a myopic outlook. And the process should deliver customer value with constantinvolvement of the management at various stages.

In order to achieve a good process design, effective process strategy is required, which dealswith a singular line items required to manufacture the end product. Effective process strategydeals with raw material procurement, customer participation, technology investment, etc.

Over a period of time process design has undergone change and new concepts like FlexibleManufacturing Systems have been developed, which delivers efficient and effective production

design and analysis.

Facility Location - Factors Influencing theLocationFacility Location is the right location for the manufacturing facility, it will have sufficient accessto the customers, workers, transportation, etc. For commercial success, and competitive

advantage following are the critical factors:

Overall objective of an organization is to satisfy and delight customers with its product andservices. Therefore, for an organization it becomes important to have strategy formulated aroundits manufacturing unit. A manufacturing unit is the place where all inputs such as raw material,equipment, skilled labors, etc. come together and manufacture products for customers. One ofthe most critical factors determining the success of the manufacturing unit is the location.

Facility location determination is a business critical strategic decision. There are severalfactors, which determine the location of facility among them competition, cost andcorresponding associated effects . Facility location is a scientific process utilizing various

techniques.Location Selection Factors

For a company which operates in a global environment; cost, available infrastructure, labor skill,government policies and environment are very important factors. A right location providesadequate access to customers, skilled labors, transportation, etc. A right location ensures successof the organization in current global competitive environment.


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Industrialization

A geographic area becomes a focal point for various facility locations based on many factors, parameters and issues. These factors are can be divided into primary factors and secondaryfactors. A primary factor which leads to industrialization of a particular area for particular

manufacturing of products is material, labor and presence of similar manufacturing facilities.Secondary factors are available of credit finance, communication infrastructure and insurance.

Errors in Location Selection

Facility location is critical for business continuity and success of the organization. So it isimportant to avoid mistakes while making selection for a location. Errors in selection can bedivided into two broad categories behavioral and non-behavioral. Behavioral errors are decisionmade by executives of the company where personal factors are considered before success oflocation, for example, movement of personal establishment from hometown to new locationfacility. Non-behavioral errors include lack of proper investigative practice and analysis,

ignoring critical factors and characteristics of the industry.

Location Strategy

The goal of an organization is customer delight for that it needs access to the customers atminimum possible cost. This is achieved by developing location strategy. Location strategy helpsthe company in determining product offering, market, demand forecast in different markets, bestlocation to access customers and best manufacturing and service location.

Factors Influencing Facility Location

If the organization can configure the right location for the manufacturing facility, it will havesufficient access to the customers, workers, transportation, etc. For commercial success, andcompetitive advantage following are the critical factors:

Customer Proximity: Facility locations are selected closer to the customer as to reducetransportation cost and decrease time in reaching the customer.

Business Area: Presence of other similar manufacturing units around makes business areaconducive for facility establishment.

Availability of Skill Labor: Education, experience and skill of available labor are another

important, which determines facility location.

Free Trade Zone/Agreement: Free-trade zones promote the establishment of manufacturingfacility by providing incentives in custom duties and levies. On another hand free tradeagreement is among countries providing an incentive to establish business, in particular, country.

Suppliers: Continuous and quality supply of the raw materials is another critical factor indetermining the location of manufacturing facility.


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Environmental Policy: In current globalized world pollution, control is very important,therefore understanding of environmental policy for the facility location is another critical factor.

Facility Layout - Objectives, Design and Factors Affecting theLayout

Introduction

For an organization to have an effective and efficient manufacturing unit, it is important thatspecial attention is given to facility layout. Facility layout is an arrangement of different aspectsof manufacturing in an appropriate manner as to achieve desired production results. Facilitylayout considers available space, final product, safety of users and facility and convenience ofoperations.

An effective facility layout ensures that there is a smooth and steady flow of production material,equipment and manpower at minimum cost. Facility layout looks at physical allocation of spacefor economic activity in the plant. Therefore, main objective of the facility layout planning is todesign effective workflow as to make equipment and workers more productive.

Facility Layout Objective

A model facility layout should be able to provide an ideal relationship between raw material,equipment, manpower and final product at minimal cost under safe and comfortableenvironment. An efficient and effective facility layout can cover following objectives:

To provide optimum space to organize equipment and facilitate movement of goods and to createsafe and comfortable work environment.

To promote order in production towards a single objective To reduce movement of workers, raw material and equipment To promote safety of plant as well as its workers To facilitate extension or change in the layout to accommodate new product line or technology

upgradation To increase production capacity of the organization

An organization can achieve the above-mentioned objective by ensuring the following:

Better training of the workers and supervisors. Creating awareness about of health hazard and safety standards Optimum utilization of workforce and equipment Encouraging empowerment and reducing administrative and other indirect work


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Factors affecting Facility Layout

Facility layout designing and implementation is influenced by various factors. These factors varyfrom industry to industry but influence facility layout. These factors are as follows:

The design of the facility layout should consider overall objectives set by the organization. Optimum space needs to be allocated for process and technology. A proper safety measure as to avoid mishaps. Overall management policies and future direction of the organization

Design of Facility Layout

Principles which drive design of the facility layout need to take into the consideration objectiveof facility layout, factors influencing facility layout and constraints of facility layout. These

principles are as follows:

Flexibility: Facility layout should provide flexibility for expansion or modification. Space Utilization: Optimum space utilization reduces the time in material and people movement

and promotes safety. Capital: Capital investment should be minimal when finalizing different models of facility

layout.

Design Layout Techniques

There are three techniques of design layout, and they are as follows:

1. Two or Three Dimensional Templates: This technique utilizes development of a scaled-downmodel based on approved drawings.

2. Sequence Analysis: This technique utilizes computer technology in designing the facility layout by sequencing out all activities and then arranging them in circular or in a straight line.3. Line Balancing: This kind of technique is used for assembly line.

Types of Facility Layout

There are six types of facility layout, and they are as follows:

Line Layout Functional Layout Fixed Position Layout Cellular Technology Layout Combined Layout, and Computerized Relative Allocation of Facility Technique

Capacity Planning

The production system design planning considers input requirements, conversion process andoutput. After considering the forecast and long-term planning organization should undertake


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capacity planning.

Capacity is defined as the ability to achieve, store or produce. For an organization, capacityould be the ability of a given system to produce output within the specific time period . In

operations, management capacity is referred as an amount of the input resources available to

produce relative output over period of time.

In general, terms capacity is referred as maximum production capacity, which can be attainedwithin a normal working schedule.

Capacity planning is essential to be determining optimum utilization of resource and plays animportant role decision-making process, for example, extension of existing operations,modification to product lines, starting new products, etc.

Strategic Capacity Planning

A technique used to identify and measure overall capacity of production is referred to as strategiccapacity planning. Strategic capacity planning is utilized for capital intensive resource like plant,machinery, labor, etc.

Strategic capacity planning is essential as it helps the organization in meeting the futurerequirements of the organization. Planning ensures that operating cost are maintained at aminimum possible level without affecting the quality. It ensures the organization remaincompetitive and can achieve the long-term growth plan.

Capacity Planning Classification

Capacity planning based on the timeline is classified into three main categories long range,medium range and short range.

Long Term Capacity: Long range capacity of an organization is dependent on various othercapacities like design capacity, production capacity, sustainable capacity and effective capacity.Design capacity is the maximum output possible as indicated by equipment manufacturer underideal working condition.

Production capacity is the maximum output possible from equipment under normal workingcondition or day.

Sustainable capacity is the maximum production level achievable in realistic work condition andconsidering normal machine breakdown, maintenance, etc.

Effective capacity is the optimum production level under pre-defined job and work-schedules,normal machine breakdown, maintenance, etc.

Medium Term Capacity: The strategic capacity planning undertaken by organization for 2 to 3years of a time frame is referred to as medium term capacity planning.


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Short Term Capacity: The strategic planning undertaken by organization for a daily weekly orquarterly time frame is referred to as short term capacity planning.

Goal of Capacity Planning

The ultimate goal of capacity planning is to meet the current and future level of the requirementat a minimal wastage. The three types of capacity planning based on goal are lead capacity planning, lag strategy planning and match strategy planning.

Factors Affecting Capacity Planning

Effective capacity planning is dependent upon factors like production facility (layout, design,and location), product line or matrix, production technology, human capital (job design,compensation), operational structure (scheduling, quality assurance) and external structure (

policy, safety regulations)

Forecasting v/s Capacity Planning

There would be a scenario where capacity planning done on a basis of forecasting may notexactly match. For example, there could be a scenario where demand is more than productioncapacity; in this situation, a company needs to fulfill its requirement by buying from outside. Ifdemand is equal to production capacity; company is in a position to use its production capacity tothe fullest. If the demand is less than the production capacity, company can choose to reduce the

production or share it output with other manufacturers.


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What is Aggregate Planning ? - Importance and itsStrategies

Introduction

An organization can finalize its business plans on the recommendation of demand forecast. Once business plans are ready, an organization can do backward working from the final sales unit toraw materials required. Thus annual and quarterly plans are broken down into labor, rawmaterial, working capital, etc. requirements over a medium-range period (6 months to 18months). This process of working out production requirements for a medium range is calledaggregate planning.

Factors Affecting Aggregate Planning

Aggregate planning is an operational activity critical to the organization as it looks tobalance long-term strategic planning with short term production success . Following factorsare critical before an aggregate planning process can actually start;

A complete information is required about available production facility and raw materials. A solid demand forecast covering the medium-range period Financial planning surrounding the production cost which includes raw material, labor, inventory

planning, etc. Organization policy around labor management, quality management, etc.

For aggregate planning to be a success, following inputs are required;

An aggregate demand forecast for the relevant period Evaluation of all the available means to manage capacity planning like sub-contracting,

outsourcing, etc. Existing operational status of workforce (number, skill set, etc.), inventory level and production

efficiency

Aggregate planning will ensure that organization can plan for workforce level, inventory leveland production rate in line with its strategic goal and objective.

Aggregate planning as an Operational Tool

Aggregate planning helps achieve balance between operation goal, financial goal and overallstrategic objective of the organization. It serves as a platform to manage capacity and demand

planning.


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In a scenario where demand is not matching the capacity, an organization can try to balance both by pricing, promotion, order management and new demand creation.

In scenario where capacity is not matching demand, an organization can try to balance the both by various alternatives such as.

Laying off/hiring excess/inadequate excess/inadequate excess/inadequate workforce until demanddecrease/increase.

Including overtime as part of scheduling there by creating additional capacity. Hiring a temporary workforce for a fix period or outsourcing activity to a sub-contrator.

Importance of Aggregate Planning

Aggregate planning plays an important part in achieving long-term objectives of theorganization. Aggregate planning helps in:

Achieving financial goals by reducing overall variable cost and improving the bottom line Maximum utilization of the available production facility Provide customer delight by matching demand and reducing wait time for customers Reduce investment in inventory stocking Able to meet scheduling goals there by creating a happy and satisfied work force

Aggregate Planning Strategies

There are three types of aggregate planning strategies available for organization to choose from.They are as follows.

1. Level Strategy

As the name suggests, level strategy looks to maintain a steady production rate andworkforce level. In this strategy, organization requires a robust forecast demand as toincrease or decrease production in anticipation of lower or higher customer demand.Advantage of level strategy is steady workforce. Disadvantage of level strategy is highinventory and increase back logs.

2. Chase Strategy

As the name suggests, chase strategy looks to dynamically match demand with production. Advantage of chase strategy is lower inventory levels and back logs.

Disadvantage is lower productivity, quality and depressed work force.

3. Hybrid Strategy

As the name suggests, hybrid strategy looks to balance between level strategy and chasestrategy.


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UNIT-2

Forecasting

Introduction

Forecasting is the estimation of the value of a variable (or set of variables) at some future pointin time. In this note we will consider some methods for forecasting. A forecasting exercise isusually carried out in order to provide an aid to decision-making and in planning the future.Typically all such exercises work on the premise that if we can predict what the future will belike we can modify our behaviour now to be in a better position, than we otherwise wouldhave been, when the future arrives . Applications for forecasting include:

inventory control/production planning - forecasting the demand for a product enables us tocontrol the stock of raw materials and finished goods, plan the production schedule, etc

investment policy - forecasting financial information such as interest rates, exchange rates, share prices, the price of gold, etc. This is an area in which no one has yet developed a reliable(consistently accurate) forecasting technique (or at least if they have they haven't told anybody!)

economic policy - forecasting economic information such as the growth in the economy,unemployment, the inflation rate, etc is vital both to government and business in planning for thefuture.

Think for a moment, suppose the good fairy appeared before you and told you that because ofyour kindness, virtue and chastity (well - it is a fairy tale) they had decided to grant you threeforecasts. Which three things in your personal/business life would you most like to forecast?Personally I would choose (in decreasing order of importance):

the date of my death the winning numbers on the next UK national lottery the winning numbers on the UK national lottery after that one

As you can see from my list some forecasts have life or death consequences. Also it is clear thatto make certain forecasts, e.g. the date of my death, we could (in the absence of the good fairy tohelp us) collect some data to enable a more informed, and hence hopefully more accurate,forecast to be made. For example we might look at life expectancy for middle-aged UK maleacademics (non-smoker, drinker, never exercises). We might also conduct medical tests. The

point to emphasise here is that collecting relevant data may lead to a better forecast. Of course itmay not, I could have been run over by a car the day after this written and hence be dead already.

Indeed on a personal note I think (nay forecast) that companies offering Web (digital)immortality will be a big business growth area in the early part of the 21 st century. Rememberyou saw it here first!


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Types of forecasti ng probl ems/methods

One way of classifying forecasting problems is to consider the timescale involved in the forecasti.e. how far forward into the future we are trying to forecast. Short, medium and long-term arethe usual categories but the actual meaning of each will vary according to the situation that is

being studied, e.g. in forecasting energy demand in order to construct power stations 5-10 yearswould be short-term and 50 years would be long-term, whilst in forecasting consumer demand inmany business situations up to 6 months would be short-term and over a couple of years long-term.

The basic reason for the above classification is that different forecasting methods apply in eachsituation, e.g. a forecasting method that is appropriate for forecasting sales next month (a short-term forecast) would probably be an inappropriate method for forecasting sales in five years time(a long-term forecast). In particular note here that the use of numbers (data) to which quantitativetechniques are applied typically varies from very high for short-term forecasting to very low forlong-term forecasting when we are dealing with business situations.

Forecasting methods can be classified into several different categories:

qualitative methods - where there is no formal mathematical model, often because the dataavailable is not thought to be representative of the future (long-term forecasting)

regression methods - an extension of linear regression where a variable is thought to be linearlyrelated to a number of other independent variables

multiple equation methods - where there are a number of dependent variables that interact witheach other through a series of equations (as in economic models)

time series methods - where we have a single variable that changes with time and whose future

values are related in some way to its past values.

We shall consider each of these methods in turn.

Qual i tative methods

Methods of this type are primarily used in situations where there is judged to be no relevant pastdata (numbers) on which a forecast can be based and typically concern long-term forecasting.One approach of this kind is the Delphi technique.

The ancient Greeks had a very logical approach to forecasting and thought that the best people toask about the future were supernatural beings, gods. At the oracle at Delphi in ancient Greecequestions to the gods were answered through the medium of a woman over fifty who lived apartfrom her husband and dressed in a maiden's clothes. If you wanted your question answered youhad to:

provide some cake;
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provide an animal for sacrifice; and bathe with the medium in a spring.

After this the medium would sit on a tripod in a basement room in the temple, chew laurel leavesand answer your question (often in ambiguous verse).

It is therefore legitimate to ask whether, in the depths of a basement room somewhere, there is alaurel leaf chewing government servant who is employed to forecast economic growth, electionsuccess, etc. Perhaps there is!

Reflect for a moment, do you believe that making forecasts in the manner used at Delphi leads toaccurate forecasts or not?

Recent scientific investigation (New Scientist, 1st September 2001) indicates that the mediummay have been "high" as a result of inhaling hydrocarbon fumes, specifically ethylene,emanating from a geological fault underneath the temple.

Nowadays the Delphi technique has a different meaning. It involves asking a body of experts toarrive at a consensus opinion as to what the future holds. Underlying the idea of using experts isthe belief that their view of the future will be better than that of non-experts (such as peoplechosen at random in the street). Consider - what types of experts would you choose if you weretrying to forecast what the world will be like in 50 years time?

In a Delphi study the experts are all consulted separately to avoid some of the bias that mightresult were they all brought together, e.g. domination by a strong willed individual, divergent(but valid) views not being expressed for fear of humiliation.

A typical question might be "In what year (if ever) do you expect automated rapid transit to have become common in major cities in Europe?". The answers are assembled in the form of adistribution of years, with comments attached, and recirculated to provide revised estimates. This

process is repeated until a consensus view emerges. Plainly such a method has many deficiencies but on the other hand is there a better way of getting a view of the future if we lack the relevantdata (numbers) which would be needed if we were to apply some of the more quantitativetechniques?

As an example of this there was a Delphi study published in Science Journal in October 1967which tried to look forward into the future (now, of course, we are many years past 1967 so wecan see how well they forecast). Many questions were asked as to when something might happenand a selection of these questions are given below. For each question we give the upper quartileanswer, the time by which 75% of the experts believed something would have happened.

Automated rapid transit, upper quartile answer 1985, i.e. 75% of the experts asked in 1967thought that by 1985 there would be widespread automated rapid transit in most urban areas, tellthat to anyone who lives in London!

Widespread use of sophisticated teaching machines, upper quartile answer 1990, i.e. 75% of theexperts asked in 1967 thought that by 1990 there would be widespread use of sophisticatedteaching machines, tell that to anyone who works in a UK school/university


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Widespread use of robot services, upper quartile answer 1995, i.e. 75% of the experts asked in1967 thought that by 1995 there would be widespread use of robot services

It is clear that these forecasts, at least, were very inaccurate. Indeed looking over the full set offorecasts many of the 25 forecasts made (about all aspects of life/society in the future after 1967)were wildly inaccurate.

This brings us to our first key point, we are interested in the difference between theoriginal forecast and the final outcome, i.e. in forecast error.

However, back in 1967 when this Delphi study was done, what other alternative approach did wehave if we wished to answer these questions?

In many respects the issue we need address with regard to forecasting is not whether a particularmethod gives good (accurate) forecasts but whether it is the best available method - if it is thenwhat choice do we have about using it?

This brings us to our second key point, we need to use the most appropriate (best)forecasting method, even if we know that (historically) it does not give accurate forecasts.

Regression methods

You have probably already met linear regression where a straight line of the form Y = a + bX isfitted to data. It is possible to extend the method to deal with more than one independent variableX. Suppose we have k independent variables X 1, X 2, ..., X k then we can fit the regression line

Y = a + b 1X1 + b2X2 + ... + b k Xk

This extension to the basic linear regression technique is known as multiple regression . Plainlyknowing the regression line enables us to forecast Y given values for the X i i=1,2,...,k.

M ul tiple equation methods

Methods of this type are frequently used in economic modelling ( econometrics ) where there aremany dependent variables that interact with each other via a series of equations, the form ofwhich is given by economic theory. This is an important point. Economic theory gives us someinsight into the basic structural relationships between variables. The precise numeric relationship

between variables must often be deduced by examining data.

As an example consider the following simple model, let:

X = personal income Y = personal spending I = personal investment r = interest rate


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From economic theory suppose that we have

Y = a 1 + b1(X-a 1) (spending a linear function of disposable income)I = a 2 + b2r (investment linearly related to the interest rate)

and the balancing equation

X = Y + I (income = spending + investment)

where a 1,a2,b1,b2 are constants.

Here we have 3 equations in 4 variables (X,Y,I,r) and so to solve these equations one of thevariables must be given a value. The variable so chosen is known as an exogenous variable

because its value is determined outside the system of equations whilst the remaining variablesare called endogenous variables as their values are determined within the system of equations,e.g. in our model we might regard the interest rate r as the exogenous variable and be interestedin how X, Y and I change as we alter r.

Usually the constants a 1,a2,b1,b2 are not known exactly and must be estimated from data (acomplex procedure). Note too that these constants will probably be different for different groupsof people, e.g. urban/rural, men/women, single/married, etc.

An example of an econometric model of this type is the UK Treasury model of the economywhich contains many variables (each with a time subscript), complicated equations, and is usedto look at the effect of interest rate changes, tax changes, oil price movements, etc.

For example the UK Treasury equation [New Scientist, 31st October 1993] to predict consumerspending looks like:

Dlog eCt = -0.018 + 0.0623DDlog eU t - 0.00448log eCt-1 + 0.004256log eYt-1 +0.0014336log e[(NFW t-1 + GPW t-1)/(P t-1Yt-1)] + etc

where:

t = time period (quarter) in question D = change in variable between this quarter and last quarter C = consumer non-durable spending for the quarter in question U = unemployment rate Y = real disposable income adjusted for inflation loss on financial assets

P = inflation index for total consumer spending NFW = net financial assets of the personal sector GPW = gross physical wealth of the personal sector

If you click here you will find a model that enables you to play with the UK economy.

Historically econometric techniques/methods tend to have large forecast errors when forecastingnational economies in the medium-term. However recall one of our key points above: we need to
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use the most appropriate (best) forecasting method, even if we know that (historically) itdoes not give accurate forecasts. It can be argued that such techniques are the mostappropriate/best way of making economic forecasts.

Ti me ser ies methods/analysis

Methods of this type are concerned with a variable that changes with time and which can be saidto depend only upon the current time and the previous values that it took (i.e. not dependent onany other variables or external factors). If Y t is the value of the variable at time t then theequation for Y t is

Yt = f(Y t-1, Y t-2, ..., Y 0, t)

i.e. the value of the variable at time t is purely some function of its previous values and time, noother variables/factors are of relevance. The purpose of time series analysis is to discover thenature of the function f and hence allow us to forecast values for Y t.

Time series methods are especially good for short-term forecasting where, within reason, the past behaviour of a particular variable is a good indicator of its future behaviour, at least in the short-term. The typical example here is short-term demand forecasting. Note the difference betweendemand and sales - demand is what customers want - sales is what we sell, and the two may bedifferent.

In graphical terms the plot of Y t against t is as shown below.


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The purpose of the analysis is to discern some relationship between the Y t values observed so farin order to enable us to forecast future Y t values. We shall deal with two techniques for time

series analysis in detail and briefly mention a more sophisticated method.

M oving average

One, very simple, method for time series forecasting is to take a moving average (also known asweighted moving average).

The moving average (m t) over the last L periods ending in period t is calculated by taking theaverage of the values for the periods t-L+1, t-L+2, t-L+3, ..., t-1, t so that

mt = [Y t-L+1 + Y t-L+2 + Y t-L+3 + ... + Y t-1 + Y t]/L

To forecast using the moving average we say that the forecast for all periods beyond t is just m t (although we usually only forecast for one period ahead, updating the moving average as theactual observation for that period becomes available).


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Consider the following example: the demand for a product for 6 months is shown below -calculate the three month moving average for each month and forecast the demand for month 7.

Month 1 2 3 4 5 6Demand (100's) 42 41 43 38 35 37

Now we cannot calculate a three month moving average until we have at least 3 observations -i.e. it is only possible to calculate such an average from month 3 onward. The moving averagefor month 3 is given by:

m3 = (42 + 41 + 43)/3 = 42

and the moving average for the other months is given by:

m4 = (41 + 43 + 38)/3 = 40.7m5 = (43 + 38 + 35)/3 = 38.7m6 = (38 + 35 + 37)/3 = 36.7

We use m 6 as the forecast for month 7. Hence the demand forecast for month 7 is 3670 units.

The package input for this problem is shown below.

The output from the package for a three month moving average is shown below.
http://people.brunel.ac.uk/~mastjjb/jeb/or/software.htmlhttp://people.brunel.ac.uk/~mastjjb/jeb/or/software.html


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Choosing between f orecasts

One problem with this forecast is simple - how good is it? For example we could also produce ademand forecast for month 7 using a two month moving average. This would give the following:

m2 = (42 + 41)/2 = 41.5m3 = (41 + 43)/2 = 42m4 = (43 + 38)/2 = 40.5m5 = (38 + 35)/2 = 36.5m6 = (35 + 37)/2 = 36

Would this forecast (m 6 = 3600 units) be better than our current demand forecast of 3670 units?

Rather than attempt to guess which forecast is better we can approach the problem logically. Infact, as will become apparent below, we already have sufficient information to make a logicalchoice between forecasts if we look at that information appropriately .

In an attempt to decide how good a forecast is we have the following logic. Consider the threemonth moving average given above and pretend for a moment that we had only demand data forthe first three months, then we would calculate the moving average for month 3 (m 3) as 42 (seeabove). This would be our forecast for month 4. But in month 4 the outcome is actually 38, so wehave a difference ( error ) defined by:

error = forecast-outcome = 42-38 = 4

Note here that we could equally well define error as outcome-forecast . That would just changethe sign of the errors, not their absolute values. Indeed note here that if you inspect the packageoutput you will see that it does just that.


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In month 4 we have a forecast for month 5 of m 4 = 40.7 but an outcome for month 5 of 35leading to an error of 40.7-35 = 5.7.

In month 5 we have a forecast for month 6 of m 5 = 38.7 but an outcome for month 6 of 37leading to an error of 38.7-37 = 1.7.

Hence we can construct the table below:

Month 1 2 3 4 5 6 7Demand (100's) 42 41 43 38 35 37 ?Forecast - - - m 3 m4 m5 m6

- - - 42 40.7 38.7 36.7Error - - - 4 5.7 1.7 ?

Constructing the same table for the two month moving average we have:

Month 1 2 3 4 5 6 7Demand (100's) 42 41 43 38 35 37 ?Forecast - - m 2 m3 m4 m5 m6

- - 41.5 42 40.5 36.5 36Error - - -1.5 4 5.5 -0.5 ?

Comparing these two tables we can see that the error terms give us a measure of how good theforecasting methods (two or three month moving average) would have been had we used them toforecast one period (month) ahead on the historical data that we have.

In an ideal world we would like a forecasting method for which all the errors are zero, this wouldgive us confidence (probably a lot of confidence) that our forecast for month 7 is likely to becorrect. Plainly, in the real world, we are hardly likely to get a situation where all the errors are

zero. It is genuinely difficult to look at (as in this case) two series of error terms and comparethem. It is much easier if we take some function of the error terms, i.e. reduce each series to asingle (easily grasped) number. One suitable function for deciding how accurate a forecastingmethod has been is:

average squared error

The logic here is that by squaring errors we remove the sign (+ or -) and discriminate againstlarge errors (being resigned to small errors but being adverse to large errors). Ideally averagesquared error should be zero (i.e. a perfect forecast). In any event we prefer the forecastingmethod that gives the lowest average squared error.

We have that for the three month moving average:

average squared error = [4 + 5.7 + 1.7]/3 = 17.13

and for the two month moving average:

average squared error = [(-1.5) + 4 + 5.5 + (-0.5)]/4 = 12.19


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The lower of these two figures is associated with the two month moving average and so we prefer that forecasting method (and hence prefer the forecast of 3600 for month 7 produced bythe two month moving average).

Average squared error is known technically as the mean squared deviation (MSD) or mean

squared error (MSE) .

Note here that we have actually done more than distinguish between two different forecasts(i.e. between two month and three month moving average). We now have a criteria fordistinguishing between forecasts, however they are generated - namely we prefer theforecast generated by the technique with the lowest MSD (historically the most accurateforecasting technique on the data had we applied it consistently across time).

This is important as we know that even our simple package contains many different methods fortime series forecasting - as below.

Question - do you think that one of the above forecasting methods ALWAYS gives betterresults than the others or not?

Singl e exponential smoothing

One disadvantage of using moving averages for forecasting is that in calculating the average allthe observations are given equal weight (namely 1/L), whereas we would expect the more recentobservations to be a better indicator of the future (and accordingly ought to be given greaterweight). Also in moving averages we only use recent observations, perhaps we should take intoaccount all previous observations.


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One technique known as exponential smoothing (or, more accurately, single exponentialsmoothing) gives greater weight to more recent observations and takes into account all previousobservations.

Define a constant where 0


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We have the following for = 0.9.

M1 = Y 1 = 42M2 = 0.9Y 2 + 0.1M 1 = 0.9(41) + 0.1(42) = 41.10M3 = 0.9Y 3 + 0.1M 2 = 0.9(43) + 0.1(41.10) = 42.81

M4 = 0.9Y 4 + 0.1M 3 = 0.9(38) + 0.1(42.81) = 38.48M5 = 0.9Y 5 + 0.1M 4 = 0.9(35) + 0.1(38.48) = 35.35M6 = 0.9Y 6 + 0.1M 5 = 0.9(37) + 0.1(35.35) = 36.84

As before M 6 is the forecast for month 7, i.e. 3684 units.

The package output for =0.2 is shown below.

The package output for =0.9 is shown below.


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In order to decide the best value of (from the two values of 0.2 and 0.9 considered) we choosethe value associated with the lowest MSD (as above for moving averages).

For =0.2 we have that

MSD = [(42-41)+(41.80-43)+(42.04-38)+(41.23-35)+(39.98- 37)]/5 = 13.29

For =0.9 we have that

MSD = [(42-41)+(41.10-43)+(42.81-38)+(38.48-35)+(35.35- 37)]/5 = 8.52 Note here that these MSD values agree (to within rounding errors) with the MSD values given inthe package output above.

Hence, in this case, =0.9 appears to give better forecasts than =0.2 as it has a smaller value ofMSD.

Above we used MSD to reduce a series of error terms to an easily grasped single number. In factfunctions other than MSD such as:

MAD (mean absolute deviation) = average | error |and

bias (mean error) = average error, also know as Cumulative Forecast Error

exist which can also be used to reduce a series of error terms to a single number so as to judgehow good a forecast is.


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For example, as can be seen in the package outputs above, the package gives a number of suchfunctions, defined as:

In fact methods are available which enable the optimal value of the smoothing constant (i.e. thevalue of which minimises the chosen criteria of forecast accuracy, such as mean squareddeviation (MSD)) to be easily determined. This can be seen below where the package hascalculated that the value of which minimises MSD is =0.86 (approximately).

Note here that the package can be used to plot both the data and the forecasts as generated by themethod chosen. Below we show this for the output above (associated with the value of whichminimises MSD of 0.86.


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Note here that the choice of criterion can have a large effect on the value of e.g. for ourexample the value of which minimises MAD is =0.59 (approximately) and the value of

which minimises bias is =1.0 (approximately).To illustrate the change in MAD, bias and MSD as changes we graph below MAD and biasagainst the smoothing constant ,


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and below MSD against .


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Below we graph the value of the forecast against . One particular point to note is that, for thisexample, for a relatively wide range of values for the forecast is stable (e.g. for 0.60


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Note here that the above graphs imply that in finding a good value for the smoothing constant itis not usually necessary to calculate to a very high degree of accuracy (e.g. not to within 0.001for example).

M ore advanced ti me ser ies for ecasti ng

Time series forecasting methods more advanced than those considered in our simple package doexist. These are based on AutoR egressive Integrated M oving Average ( ARIMA ) models.Essentially these assume that the time series has been generated by a probability process withfuture values related to past values, as well as to past forecast errors. To apply ARIMA modelsthe time series needs to be stationary. A stationary time series is one whose statistical propertiessuch as mean, variance and autocorrelation are constant over time. If the initial time series is not

stationary it may be that some function of the time series, e.g. taking the differences betweensuccessive values, is stationary.


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Materials and Resource RequirementPlanning

success of an operation department of any organization is dependent upon an efficient production plan. One of the key essential of a production plan is material and manufacturing planningsystem. Material requirement planning plays a pivotal role in assembly-line production. Materialrequirement planning is a system based approach, which organizes all required productionmaterial.

Material requirement planning is an information system for production planning based oninventory management. The basic components of material planning are:

Material planning provides information that all the required raw material and products areavailable for production.

Material planning ensures that inventory level are maintained at its minimum levels. But alsoensures that material and product are available whenever production is scheduled, therefore,helping in matching demand and supply.

Material planning provides information of production planning and scheduling but also providesinformation around dispatch and stocking.

Objective of Material Requirement Planning

Material requirement planning is processed which production planning and inventory controlsystem, and its three objectives are as follows:

Primary objective is to ensure that material and components are available for production, andfinal products are ready for dispatch. Another primary objective is not only to maintain minimum inventory but also ensure right

quantity of material is available at the right time to produce right quantity of final products. Another primary objective is to ensure planning of all manufacturing processes, this scheduling of

different job works as to minimize or remove any kind of idle time for machine and workers.

Advantages and Disadvantages of Material Resource Planning

As with every system based process, material resource planning also has its advantages anddisadvantages, and they are as follows:

Advantages of Material Resource Planning

It helps in maintain minimum inventory levels. With minimum inventory levels, material planning also reduces associated costs. Material tracking becomes easy and ensures that economic order quantity is achieved for all lot

orders. Material planning smoothens capacity utilization and allocates correct time to products as per

demand forecast.


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Disadvantages of Material Resource Planning

Material planning is highly dependent on inputs it receives from other systems or department. Ifinput information is not correct than output for material planning will also be incorrect.

Material planning requires maintenance of robust database with all information pertaininginventory records, production schedule, etc. without which output again would be incorrect.

Material planning system requires proper training for end users, as to get maximum out of thesystem.

Material resource planning system requires substantial investment of time and capital.

Material Resource Planning Inter dependency of Business Function

Material planning not only benefits operation department but is also beneficial to the otherdepartment of organization. They are as follows:

Material planning is useful in determining cash flow requirement based on material requirementsand final dispatch schedules.

It helps procurement team in scheduling purchase of necessary material. It helps the sales team in determining delivery dates for final products.

Implementation of Material Resource Planning

Implementation and success of material resource planning dependent on following factors:

Acceptability of by top management about advantages and benefits Proper training and participation of all workers and personnel Precision and accuracy of input data for accurate and reliable results


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UNIT-3

Production Planning and ControlIntroduction

For efficient, effective and economical operation in a manufacturing unit of an organization, it isessential to integrate the production planning and control system. Production planning andsubsequent production control follow adaption of product design and finalization of a production

process.

Production planning and control address a fundamental problem of low productivity, inventorymanagement and resource utilization.

Production planning is required for scheduling, dispatch, inspection, quality management,inventory management, supply management and equipment management. Production controlensures that production team can achieve required production target, optimum utilization ofresources, quality management and cost savings.

Planning and control are an essential ingredient for success of an operation unit. Thebenefits of production planning and control are as follows:

It ensures that optimum utilization of production capacity is achieved, by proper scheduling of themachine items which reduces the idle time as well as over use.

It ensures that inventory level are maintained at optimum levels at all time, i.e. there is no over-stocking or under-stocking.

It also ensures that production time is kept at optimum level and thereby increasing the turnovertime.

Since it overlooks all aspects of production, quality of final product is always maintained.

Production Planning

Production planning is one part of production planning and control dealing with basic conceptsof what to produce, when to produce, how much to produce, etc. It involves taking a long-termview at overall production planning. Therefore, objectives of production planning are as follows:

To ensure right quantity and quality of raw material, equipment, etc. are available during times of production.

To ensure capacity utilization is in tune with forecast demand at all the time.

A well thought production planning ensures that overall production process is streamlined providing following benefits:


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Organization can deliver a product in a timely and regular manner. Supplier are informed will in advance for the requirement of raw materials. It reduces investment in inventory. It reduces overall production cost by driving in efficiency.

Production planning takes care of two basic str ategies product planning and process planning.Production planning is done at three different time dependent levels i.e. long-range planningdealing with facility planning, capital investment, location planning, etc.; medium-range

planning deals with demand forecast and capacity planning and lastly short term planningdealing with day to day operations.

Production Control

Production control looks to utilize different type of control techniques to achieve optimum performance out of the production system as to achieve overall production planning targets.Therefore, objectives of production control are as follows:

Regulate inventory management Organize the production schedules Optimum utilization of resources and production process

The advantages of robust production control are as follows:

Ensure a smooth flow of all production processes Ensure production cost savings thereby improving the bottom line Control wastage of resources It maintains standard of quality through the production life cycle.

Production control cannot be same across all the organization. Production control is dependentupon the following factors:

Nature of production( job oriented, service oriented, etc.) Nature of operation Size of operation

Production planning and control are essential for customer delight and overall success of anorganization.


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Operations Scheduling and WorkplacePlanning

Introduction

Scheduling and workplace planning is the final step in operation planning and design.Operations scheduling and workplac e planning is implemented during transformation of input tooutput. Scheduling deals with production of required quantity of product within the required timeframe. Workplace planning deals with allocation of resources with priority to work job with firstdelivery date.

Operations Planning

Scheduling deals with both time allocations as well resource allocation for production ofrequired quantity. Operations planning is done as part of short term planning.

High level objective of operations planning is to decide the best way of allocation of labor andequipment as to find balance between time and use of limited resources within the organization.

In modern age of competition and global market importance is given to Just In Time and the lean production conce pts. This has led to importance of operations scheduling. There are threeimportant task performed by operations scheduling:

Allocation of resources Workforce scheduling Production equipment scheduling

Operations planning ensures that proper workflow is established by ensuring allocation of jobon appropriate machines before the advent of production activities. Scheduling is productiontimetable highlighting sequence of job, timing and quantity for allocation of resources as to helpan organization in cash flow planning. Therefore, there are three main objectives of productionscheduling:

Due importance to delivery date and avoiding delays in completion Reducing time of job on machines Proper utilization of work centers

Operation scheduling is arrived at base on the following principles.


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Ensure continuous job schedule End to end completion of job Remove the bottleneck Ensure feedback as to make adjustment Skill set of workforce Enhancement of product and process Scheduling helps in capacity planning as to reduce bottlenecks. Scheduling helps in streamlining order production based on due date. Scheduling helps in sequencing of various job works.

Scheduling is done with two approaches, and they are as follows:

Forward scheduling is type of scheduling where the planner considers order received date as thestarting point for forward planning of all the activities.

Backward scheduling is type of scheduling where the planner considers the order delivery date asthe starting point and does backward planning of all activities.

Workplace Planning

Workplace planning ensures optimum productivity by ensuring proper utilization oflimited resources and priorities job order at different work centers . Workforce controlensures that maximum output is achieved from machines, raw material and workforce. All

production-related information is recorded as to establish input-output control as to achieveoverall efficiency and optimum utilization of raw materials.

The main objectives of workforce planning and control are as follows:

Priorities various job orders Record data related to process quantities Providing status of workplace orders to control panel Record output data to monitor capacity control Provide measurement of efficiency and productivity

Therefore operations scheduling and workplace planning play an pivotal role in success of anorganization.


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Waiting Line (Queue) Management

Introduction

The waiting line or queue management is a critical part of service industry. It deals with issue oftreatment of customers in sense reduce wait time and improvement of service. Queuemanagement deals with cases where the customer arrival is random; therefore, service renderedto them is also random.

A service organization can reduce cost and thus improve profitability by efficient queuemanagement. A cost is associated with customer waiting in line and there is cost associated withadding new counters to reduce service time. Queue management looks to address this trade offand offer solutions to management.

Waiting Line Problems

Waiting in line is common phenomena in daily life, for example, banks have customers in line toget service of teller, cars queue up for re-filling, workers line up to access machine to completetheir job. Therefore, management needs to work on formulae, which will reduce wait timeand create delighted customers without incurring an additional cost . Generally, queuemanagement problems are trade offs situation between cost of time spent in waiting v/s cost ofadditional capacity or machinery.

Finite and Infinite Population

In a waiting line scenario, there are cases of finite population of customers and infinite population of customers.

A finite population scenario considers a fixed or limited size of customers visiting the servicecounter. It also assumes that customer once served will leave the line thus reducing overall

population of customers. However finite population model also considers a scenario where thecustomer after getting served will re-visit the service counter for re-service, leading to increase infinite population.

An infinite population theory looks at a scenario where subtractions and addition of customer donot impact overall workability of the model.

Queuing System

To solve problems related to queue management it is important to understand characteristics ofthe queue. Some common queue situations are waiting in line for service in super-market or

banks, waiting for results from computer and waiting in line for bus or commuter rail. General


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premise of queue theory is that there are limited resources for a given population of customersand addition of a new service line will increase the cost aspect to the business. A typical queuesystem has the following:

Arrival Process: As the name suggests an arrival process look at different components of

customer arrival. Customer arrival could in single, batch or bulk, arrival as distribution of time,arrival in finite population or infinite population.

Service Mechanism: this looks at available resources for customer service, queue structure toavail the service and preemption of service. Underlining assumption here is that service time ofcustomers is independent of arrival to the queue.

Queue Characteristics: this looks at selection of customers from the queue for service.Generally, customer selection is through first come first served method, random or last in firstout. As a result, customers leave if the queue is long, customer leave if they have waited too longor switch to faster serving queue.

Service Configuration

Another aspect of waiting line management is the service configuration. There are four types ofservice configuration, and they are as follows:

Single Channel, Single Phase (e.g. ship yards and car wash) Single Channel, Multi Phase (e.g. bank tellers) Multi Channel, Single Phase (e.g. separate queue of man and women for single ticket window) Multi Channel, Multi Phase (e.g. Laundromat, where option of several washers and several

dryers)

Inventory ManagementIn any business or organization, all functions are interlinked and connected to each other and areoften overlapping. Some key aspects like supply chain management, logistics and inventory formthe backbone of the business delivery function. Therefore these functions are extremelyimportant to marketing managers as well as finance controllers.

Inventory management is a very important function that determines the health of thesupply chain as well as the impacts the financial health of the balance sheet . Everyorganization constantly strives to maintain optimum inventory to be able to meet its requirementsand avoid over or under inventory that can impact the financial figures.

Inventory is always dynamic. Inventory management requires constant and careful evaluation ofexternal and internal factors and control through planning and review. Most of the organizationshave a separate department or job function called inventory planners who continuously monitor,


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control and review inventory and interface with production, procurement and financedepartments.

Defining Inventory

Inventory is an idle stock of physical goods that contain economic value, and are held in variousforms by an organization in its custody awaiting packing, processing, transformation, use or salein a future point of time.

Any organization which is into production, trading, sale and service of a product will necessarilyhold stock of various physical resources to aid in future consumption and sale. While inventoryis a necessary evil of any such business, it may be noted that the organizations hold inventoriesfor various reasons, which include speculative purposes, functional purposes, physicalnecessities etc.

From the above definition the following points stand out with reference to inventory:

All organizations engaged in production or sale of products hold inventory in one form or other. Inventory can be in complete state or incomplete state. Inventory is held to facilitate future consumption, sale or further processing/value addition. All inventoried resources have economic value and can be considered as assets of the

organization.

Different Types of Inventory

Inventory of materials occurs at various stages and departments of an organization. Amanufacturing organization holds inventory of raw materials and consumables required for

production. It also holds inventory of semi-finished goods at various stages in the plant withvarious departments. Finished goods inventory is held at plant, FG Stores, distribution centersetc. Further both raw materials and finished goods those that are in transit at various locationsalso form a part of inventory depending upon who owns the inventory at the particular juncture.Finished goods inventory is held by the organization at various stocking points or with dealersand stockiest until it reaches the market and end customers.

Besides Raw materials and finished goods, organizations also hold inventories of spare parts toservice the products. Defective products, defective parts and scrap also forms a part of inventoryas long as these items are inventoried in the books of the company and have economic value.

Types of Inventory by Function


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INPUT PROCESS OUTPUT

Raw Materials Work In Process Finished Goods

Consumables required for processing. Eg : Fuel,Stationary, Bolts & Nutsetc. required inmanufacturing

Semi Finished Productionin various stages, lyingwith various departmentslike Production, WIPStores, QC, FinalAssembly, Paint Shop,Packing, Outbound Storeetc.

Finished Goods atDistribution Centersthrough out Supply Chain

MaintenanceItems/Consumables

Production Waste andScrap

Finished Goods in transit

Packing Materials Rejections and Defectives Finished Goods withStockiest and Dealers

Local purchased Itemsrequired for production

Spare Parts Stocks &Bought Out items

Defectives, Rejects andSales Returns

Repaired Stock and Parts

Sales Promotion & SampleStocks

Need for Inventory Management - Why doCompanies hold Inventories ?Inventory is a necessary evil that every organization would have to maintain for various

purposes. Optimum inventory management is the goal of every inventory planner. Overinventory or under inventory both cause financial impact and health of the business as well as


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effect business opportunities.

Inventory holding is resorted to by organizations as hedge against various external and internalfactors, as precaution, as opportunity, as a need and for speculative purposes.

Reasons why organizations maintain Raw Material Inventory

Most of the organizations have raw material inventory warehouses attached to the productionfacilities where raw materials, consumables and packing materials are stored and issue for

production on JIT basis. The reasons for holding inventories can vary from case to case basis.

1. Meet variation in Production Demand

Production plan changes in response to the sales, estimates, orders and stocking patterns.Accordingly the demand for raw material supply for production varies with the product

plan in terms of specific SKU as well as batch quantities.

Holding inventories at a nearby warehouse helps issue the required quantity and item to production just in time.

2. Cater to Cyclical and Seasonal Demand

Market demand and supplies are seasonal depending upon various factors like seasons;festivals etc and past sales data help companies to anticipate a huge surge of demand inthe market well in advance. Accordingly they stock up raw materials and hold inventoriesto be able to increase production and rush supplies to the market to meet the increaseddemand.

3. Economies of Scale in Procurement

Buying raw materials in larger lot and holding inventory is found to be cheaper for thecompany than buying frequent small lots. In such cases one buys in bulk and holdsinventories at the plant warehouse.

4. Take advantage of Price Increase and Quantity Discounts

If there is a price increase expected few months down the line due to changes in demandand supply in the national or international market, impact of taxes and budgets etc, the

companys tend to buy raw materials in advance and hold stocks as a hedge againstincreased costs.

Companies resort to buying in bulk and holding raw material inventories to takeadvantage of the quantity discounts offered by the supplier. In such cases the savings onaccount of the discount enjoyed would be substantially higher that of inventory carryingcost.

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