Aug / Fall 2011 Master of Business Administration - MBA Semester IV OM0017 – Advanced Production and Planning Control - 4 Credits (Book ID: B1242) Assignment - Set- 1 (60 Marks) Note: Each Question carries 10 marks. Answer all the questions. 1. To optimise and ensure smooth production, PPC works as an integrated system. Explain briefly how this integrated working will benefit the manufacturing unit? Ans. Systems/Aids for Production Control Production comprises several activities. Planning activities are scheduled and carried out within the time and cost frames. This is done in order to achieve maximum efficiency. Despite planning, there may be slippages in certain areas thus affecting the rate of production. Reasons for slippages can be categorised as those due to internal as well as external factors. Such delays can be avoided by the timely intervention of management and planning. A system should be maintained to receive feedback from the production units to those involved in production including the planners. The feedback helps to attend to the defects or issues immediately so as to maintain further control over production. Thus, production control is a corrective mechanism, which can be applied in many forms, namely: · Provisioning of additional workforce, materials, and machines with the intention of balancing the line. · Guaranteeing the smooth flow of materials in the shop floor.
Transcript
Aug / Fall 2011
Master of Business Administration - MBA Semester IV
OM0017 – Advanced Production and Planning Control - 4 Credits
(Book ID: B1242)
Assignment - Set- 1 (60 Marks)
Note: Each Question carries 10 marks. Answer all the questions.
1. To optimise and ensure smooth production, PPC works as an integrated
system. Explain briefly how this integrated working will benefit the
manufacturing unit?
Ans. Systems/Aids for Production Control
Production comprises several activities. Planning activities are scheduled and carried out within the time and cost frames. This is done in order to achieve maximum efficiency. Despite planning, there may be slippages in certain areas thus affecting the rate of production. Reasons for slippages can be categorised as those due to internal as well as external factors. Such delays can be avoided by the timely intervention of management and planning.
A system should be maintained to receive feedback from the production units to those involved in production including the planners. The feedback helps to attend to the defects or issues immediately so as to maintain further control over production. Thus, production control is a corrective mechanism, which can be applied in many forms, namely:
· Provisioning of additional workforce, materials, and machines with the intention of balancing the line.
· Guaranteeing the smooth flow of materials in the shop floor.
· Arranging additional labour to cope with the production rate or to balance the production quality.
· Rearranging production without affecting the delivery schedule.
· Allocating priority to jobs for best utilisation of resources.
A range of control aids are used by production control sections. The objective of these aids is to bring up a system, so that the production control activities are taken care of irrespective of the presence or interference of individuals. There may be a variety of aids, but the following are widely used.
· Dispatching.
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· Follow up.
· Inspection.
· Corrective measures.
Dispatching
Dispatching ensures the appropriate movement of partially manufactured items from equipment to equipment within a specified time. Eventually, the set target at production planning stage is achieved with the aid of dispatching.
Follow up
All production programmes involve the follow up process in order to check the progress of work. Follow up is important in eliminating bottlenecks in the flow of work and ensuring that production is taking place as planned. It helps to identify delays or deviations in the production plan. It aids in finding defects in routing, scheduling, misunderstanding of instruction, under loading or overloading of work, and so on. All issues or deviations are looked into and remedial actions are carried out to ensure the completion of the task by the planned date.
Inspection
This is to ensure the quality of the product. It can be employed as an effective agency of production control. The inspection of a product at the time of manufacturing will be more effective compared to the inspection which is performed once the product is complete.
Corrective measures
Corrective action may comprise any of the activities of changing the workloads, repairs, maintenance of machinery or equipment, control over inventories, rescheduling of work, and so on. Some decisions regarding the workforce like training, demotion, transfer may also have to be considered. To handle peak loads, alternate methods may be recommended.
PPC Coordination with Other Functions and Role of Production
The principal goal of production is to convert the raw materials into finished goods. A business is able to achieve customer satisfaction when it completes this process of producing products that are ready to be used and fit for purpose. To ensure quality, the production department is in charge. Inspections and suitable quality initiatives are carried out. This is one of the important tasks of this department, because if mistakes are made, then the product is rendered useless and this in turn will affect customer satisfaction.
Master data, which may contain reference data, is the information that is important for the functioning of a business. This important business information may contain
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data about employees, customers, materials, suppliers, products, and so on. Usually this happens to be non-transactional in nature.
In Material Requirement Planning (MRP), maintaining master data is crucial. Maintaining master data is necessary for external procurement of material or work. The maintenance of master data forms the basis of MRP. The PPC coordination with MRP is as follows:
Planning Tasks
It includes functions for implementing the MRP for external production. You can use this to ensure that the stocks are available in right quantities at the right time. You can plan individual materials, for which the requirements or stock situation has changed. The following are the production planning activities performed under planning tasks:
· Setting and displaying planning file entries manually.
· Implementing single-item planning.
· Single-level and single-item planning.
· Planning using the planning table.
Integration
Integration is a single role, and it deals with the activity of total planning. It involves planning of all materials in a plant.
Evaluations Tasks
The evaluation task contains functions to analyse the MRP result for placing external orders. You can use these functions to obtain information about material at your disposal and to recognise possible material shortage situations and exception situations quickly. The following are the production planning activities performed at the time of evaluation tasks.
· Displaying MRP list and stock list (with individual evaluation layout or standard layout).
· Displaying missing parts (backlogs).
Planned Order Tasks
To process external procurement, planned order task functions are used. You can use these functions to adapt the planned orders to the exact current requirements and to then facilitate the procurement of individual assemblies or components by converting the planned orders. Following are the activities of production planning in planned order tasks.
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· Process planned orders.
· Convert planned orders into purchase orders.
Coordination Tasks
Coordination tasks contain important functions in MRP for external procurement that are associated with particular tasks. Using these functions, you can control MRP from a top level. Following are the production planning activities under coordination tasks.
· Defining MRP controller.
· Executing the planning process for a plant or an MRP area.
· Printing and recognising the MRP list.
· Generating purchase orders automatically.
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2. What are the objectives of MPS and how they are related to MRP, CRP and
rough cut planning? Bring out the difference between mass and batch
production system.
Ans. Rough-Cut Planning System (RCP)
RCP tests MPS in terms of capacity. MPS does not over load any department, work centre or machine. The MPS generates RPC planning. RPC verifies that production, stores facilities, equipment, labour availability and the key vendors versus their capability to supply the materials are balanced for the scheduled production.
The intention of rough-cut planning is to transform high-level plans into resources required to carry out those plans. There are many reasons for adopting rough-cut planning as part of the sales and operations planning (S&OP)[3] process. Few reasons are:
· To provide foresight for both material and capacity needs, so the long-term plan can be supported.
· To assist in managing changes to the S&OP. The changes may be in response to changing manufacturing and market conditions.
· To link the way a business wants to operate in its markets and in manufacturing, with its capital planning processes, particularly in those conditions where long term capacity appears inadequate to meet the plan.
Following are the main objectives of RCP.
· Considering the capacity and material implications of S&OP.
· Managing change to the S&OP.
· Drive the function of long-term capital planning.
There are two major types of rough-cut planning:
· Rough-cut capacity planning (RCCP).
· Rough-cut material planning (RCMP).
Rough-cut capacity planning: RCCP is an estimated type of capacity planning. It uses stack profiles defined for the product families. This plan is focused on key or critical work centres, lines, departments, cells, suppliers, and support areas. For rough-cut capacity planning, “key” or “critical” resources are important, while not necessarily constant bottlenecks.
Rough-cut material planning: RCMP is an estimated type of material planning. It uses a simplified bill of material, often called as bill of resources. It can be used to
predict the material required, and this information can be forwarded to key suppliers so as to circumvent the need for detailed material planning.
Capacity Requirement Planning (CRP)
CRP is the technique that determines how large the future inventory capacity needs to be in order to meet demand. CRP also helps businesses to determine how much space is required to store these materials. It makes sure that you have the adequate capacity available to meet the capacity requirement for the MRP plans (discussed next). It thus assists the planners to make the right decisions on scheduling before the problem develops.
The main features of the CRP process are to establish, measure, and adjust the limits or levels of the production capacity. This is based on the process of determining the amount of labour and machine required to accomplish the tasks of production. CRP also provides information to determine the timing of capacity expansion.
PPC for job shop production
In Job shop production, products are manufactured to meet specific customer requirements on the basis of specific orders. The quantity involved is usually small.
Job shop production handles a variety of components and is used for special projects, models, prototypes, special machinery or equipment, to perform specific tasks, components, assemblies, replacement for parts in existing machinery and so on. For example: Turbo generators parts, engine parts, processing equipments, special electronic devices.
Machines used for job shop of work are general purpose machines. These machines require sequencing of the work load of many items. Hence, while scheduling, planners have to bear in mind the wait time, idle time for changes in job and tool setups, total processing time, mean early and lateness of jobs, number of jobs in the system and so on.
There are many solutions for job loading and scheduling. Some of the techniques are explained in brief here. However for more details on scheduling, refer to unit-7.
Planning jobs on one machine situation: Several jobs are to be carried out on the machine to accomplish the desired output. Prioritisation and assignment of jobs is necessary. Other jobs remain waiting when one type of job/activity is taking place on the machine. Therefore, it is important to calculate and optimise the mean flow time, average work in progress, average lateness, average waiting time, delay, and total processing time when jobs are processed in sequence.
Processing with early due date as criteria: As applying the shortest processing time (SPT) rule minimises the mean lateness of jobs, the early due date (EDD) rule states that top priority should be given to waiting jobs whose due date is the earliest. This helps in reducing the maximum job lateness as well as the maximum job delay.
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Planning jobs on two machines situation: Suppose you need to process ‘n’ number of jobs on two machines, say M1 and M2, then processing time required for all the jobs on both the machines should be known first. The minimum time to complete jobs requires sequencing and here Johnson’s algorithms[1] are useful.
PPC for batch production
Batch production is the technique of manufacturing a particular group of components at a work centre before moving the group to the next step in the production process. This production technique is common seen in paint and ink industries, bakeries, in the manufacture of pharmaceutical ingredients, processing of leather and so on.
In batch production, there is a continuous demand and hence flow of materials is complex. Batch production is suitable for a variety of products. Here the volumes are not so large to demand highly automated and productive machines. Batch production is distinct from job production.
Batch production employs a process layout and machines are grouped to facilitate smooth flow to produce products in batches. As different jobs follow their route, enough flexibility is built into the system.
Economic lot size or batch size: The main factor to opt for batch production is to keep the cost of maintaining inventory and the cost of production low.
There are two reasons to maintain a specific batch size. One is to maintain an optimum batch size to facilitate production first and then sale of goods. Second is the simultaneous production and sale of goods.
In both types most favourable minimum production runs per year or economic batch quantity is planned to keep the total costs to a minimum.
Two major categories of costs are:
· Setup Cost.
· Inventory carrying cost.
The features of these costs are discussed in Unit-5.
Aggregate Sales and Operation planning in batch production: Here the inventory of the finished goods will not build up quickly as the production quantity is converted to sales on a continuous basis. Batch by batch production results in smooth flow of output to meet the continuous demand. In addition, it also results in total ordering and minimal carrying costs. The optimum units per batch can be calculated from the following formula:
N = Optimum units/batch = production runs = √ [2US]/[RC (1-d/p)] (Where U = annual sales in units, S=setup cost per batch, R = factory cost per unit, C = carrying cost as percentage of finished goods, d = sales rate (demand) in units per day, p = production rate in units per day.)
Multi-product case on the same machine: When several items are loaded on a single machine with common cycle time, the total cost is the summation of individual costs. Achieving and planning common cycle time for production of all the items on a single machine, will give optimum output.
Line of Balance (LOB) for control of batch production: Line of Balance (LOB) is a production planning system that schedules tasks in such a way that they confirm to the delivery date. LOB is useful when batches are split and the progress of jobs is reviewed periodically. LOB shows the requisite number of items which should have been completed at each station. Shortages and non-conformance to schedule are identified and line is balanced.
There are three batching methods.
· Individual batch size fixed for each component.
· Aggregation of all parts is treated as one batch.
· Fixed batch quantity for a product rather than of parts.
Merits of Batch production are:
· Fewer machines are needed, since the machines’ utilisation is better.
· Specialised supervision is possible.
· Low investment in machineries is not so capital intensive.
· Flexibility in personnel and equipment selection.
· Job satisfaction for operators.
Demerits of batch production are:
· As the flow is longer, material handling is costlier.
· It is not as detailed as production planning and control..
· Large capital and space is required to carry out the work.
· Needs highly trained workforce to produce different lines of the same product.
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3. Explain briefly how the operation planning and control system interacts to
give the desired output.
Ans. Operation Planning and Control Systems
The operation and production system of an industry, starting from the forecast stage to the final production processes until producing the desired output, follow operation planning. As you can understand, the production control activities detailed in this unit are the inputs to the production process and hence the control on these activities is emphasised.
The operation planning and control (OPC) task is organised as follows:
· Facilitate the development of scientific knowledge pertaining to the design and control of operational business processes like purchasing, manufacturing, distribution, sales, service and design.
· The knowledge gained should help the management particularly in the area of Operations Planning and Control to come up as leaders in the industry.
· The main focus of OPC is the design, analysis and control of individual production units and networks of such production units.
· A production unit is defined as an organisational entity.
· Each production unit is charged with the duty for achieving its own set of objectives with regard to cost, quality and time by utilising the materials and resources that are allocated.
· A production unit can be a department within a manufacturing plant, or a department within a transportation company.
When there is multiple production units involved in the manufacturing process, there is a need to coordinate the different units to make sure no conflict of interest or opinion arises. The coordination can be achieved by:
· An individual at a higher level in the organisation who owns all the production units involved.
· An individual who has been charged with the authority to coordinate all the production units involved.
· An agreement of bilateral or multilateral issues by the owners of the production units involved.
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4. How do you classify forecasts? Explain Time Series Methods.
Ans. Time Horizon of Forecasting Objectives
In the previous section, we discussed about forecasting in operations. Now, we will discuss about the time horizon of forecasting objectives. Forecasting decisions in operations depend on the time horizons and this time horizon is decided based on the product requirements of the customers. Forecasting objectives can be classified as:
· Long term objectives.
· Medium term objectives.
· Short term objectives.
Long term objectives: Long-term objectives are those, which do not change in the immediate future. Here, forecast looks ahead into several years. This reflects the company’s expectation of magnitude of business for many years of operations. In this direction, the organisation initiates its plan of actions in the following areas to meet the long term objectives.
· Man-power planning.
· Long-run production planning.
· Financial requirements for long term planning.
· Budgetary control over expenditure.
Medium term objectives: Here the plan is to look ahead of a few months or up to, say, two years. It could be the time needed to replace an old product with a new one, or to organise less demanding resources. For example, the expansion of a hospital’s capacity.
Short term objectives: The forecast covers the next few weeks, catering for the continuing demand for a product with short term planning of resources. For example, number of patients requiring X-ray services. Following are the tasks involved in the above mentioned types of forecasts.
· Formulation of production schedule.
· Regulating the supply of raw materials.
· Better utilisation of plant capacity.
· Regulating supply of labour.
· Forecasting for short term financial requirements.
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Keeping all the above factors in mind, you will be able to come out with a good and reliable forecast.
Classification of Forecasting Methods
A large number of forecasting methods are available. Forecasting methods can be broadly divided into two categories namely:
a) Opinion and judgemental methods.
b) Time series methods.
a) Opinion and judgemental (Predictive) methods
The qualitative or judgment method is a method that translates the opinions of managers, experts in the field, consumer surveys, and sales force estimates into quantitative estimates. These methods range from a scientifically conducted opinion survey to the nominal group technique. These are commonly used techniques in business and industries, where they rely heavily on the past experiences and skills of people. There are four methods adopted under this category, namely:
· Opinion Survey Method.
· Market Trial methods.
· Delphi Technique.
· Nominal Group Technique.
Opinion survey method: This is a simple and practical method used for FC for new products, where the opinions are collected from prospective buyers regarding why they buy and what they expect out of those products.
Market research/trial method: When a product is new to the customer or market, it is difficult to anticipate its acceptability. In such a case, a trial run of the new product in the market as a controlled experiment in a carefully selected place is practised. Market research is a systematic approach used to determine the consumer interest in a product and decisions taken based on the testing hypotheses. (This type is recommended in consumer goods like cosmetics, software, and other fast selling consumer goods).
Delphi technique: Delphi technique is an interactive learning process through the group of experts in the field responding to a set of questionnaire and hence is a subjective method of relying on the opinion of a few experts. As many experts are involved in the consensus developing process, it minimises the bias and error of judgement compared to other opinion methods.
Nominal group technique: Here, the panel of experts work together to arrive at a consensus through discussions. Success of the nominal group process lies in
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identifying questions, allowing creativity, encouraging discussions and ultimately arriving at a consensus.
b) Time series methods or quantitative methods
In this method, it is assumed that the past data is a good indicator of the future, and hence a lot of assumptions are made here while making a quantitative forecast. With the experience of the operation managers, they can master the prediction from the historic data of the product. For this, the operations managers use the time series model to forecast the demand for their goods or services. Time series method addresses the horizontal trend and seasonal patterns of demand.
The following are the time series methods that are normally used
· Simple average.
· Simple moving average.
· Weighted moving average.
· Exponential smoothing.
· Exponential smoothing with trend adjustment.
In time series analysis, the sales demand is considered to be a function of time and refers to all the previous demands arranged in a chronological order as a dependent variable and time as an independent variable. Increase or decrease over a period under consideration is taken as a factor that influences the demand and all such factors are grouped together.
The types of demand, namely linear demand, constant demand, seasonal demand, and irregular demand that happen for each of the product over time series are schematically shown in figure 4.1:
Where, T = Trend (tendency of demand to increase or decrease).
C = Cyclic variation (demand fluctuates >/< a trend line)
S = Seasonal variations (when similar demand pattern occur during month/s of successive years.
R = Irregular variations (when demand fluctuations are wayward and occur for no reason. For example: aviation industry, stock market index, tourist inflow).
Simple Average: A simple average is the average demand occurring in all previous periods, which are weighed equally. This method uses the average demand time series and thereby removes the negative effect of random fluctuations.
Specifically, the forecast for the period say [t+1], can be calculated as
SA = Sum of demands for all periods] / Number of periods
Simple Moving Average: This is an average of demands occurring in a fixed number of recent periods and the forecast as the future demand.
MSA= [(Sum of demands for periods)/ [(chosen number of periods)]
Weighted Moving Average: In both simple and simple moving average, equal weights are given to all the previous periods. However, in practice, the planner wants to give more importance to the recent demands than the old ones that are served. The weighted moving average is obtained by assigning different weights to different periods, but the sum is equal to one.
WMA= [Sum of demands for the chosen number of periods each multiplied by its respective Weights].
Simple Exponential Smoothing: SES is a weighted moving average, which weighs the past data in the exponential manner. Here, the most recent data carries more weight than the older ones. The weights given to the older ones decreases progressively.
Exponential Smoothing With Trend Adjustment: While the exponential smoothing takes into account the seasonal effects along with regular trend forecasts, exponential smoothing with trend or adjusted exponential smoothing model projects into the future to the time period i.e. t=1, by adding a trend correction increment ‘Tt’ to the current smoothed average ‘Ft’
Trend Forecast = New forecast + Possible Trend correction
FTA = Ft +Tt
Now you must be able to analyse when to use the appropriate method of forecasting and the degree of accuracy of each method discussed above.
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5. Explain inventory Management and Control. List the benefits of inventory
control.
Ans. Inventory Management and Control
Due to high costs involved in inventories, proper management and control is considerably vital and the action is always synonymous with material management. Due to the high costs involved in stocking of inventory, a proper management and control is vital and inventory management is in fact, synonymous with material management.
Inventory management (IM) involves the development and administration of policies, systems, and procedures for minimising the total costs. IM also helps in decision making on all related issues such as customer service requirements, production schedule and purchasing. IM stresses on decision making and the need for integrated information flow. Following are the factors which influence inventory management and control.
· Type of product.
· Type of manufacture.
· The volume of production.
Maintaining an optimum level of investment is the most important objective of inventory control. Based on the requirements, organisations use from simple to highly specialised mathematical models of inventory control.
A simple approach to inventory control typically involves reviewing of stock by the purchaser in order to check what inventory items are in short supply. Once the check is done, the purchaser places the order when he/she thinks a minimum level has been reached or when the inventory of a particular item is exhausted. Excessive purchasing costs, carrying costs, and the probability of stock out are the disadvantages.
The disadvantages of the simple method can be overcome by drawing a re-order line in the storage area. This clearly indicates when an order needs to be placed. The line needs to be high enough to cover normal usage till the stock arrives. You could also have a two bin system, such that an order is placed when the contents of the working bin are finished. Perpetual inventory system can also be used as an inventory control approach.
Following are the techniques of inventory control:
· Economic purchase order quantity (How much to order).
· Reorder level (when to order).
· Minimum inventory or safety stock.
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Economic purchase order quantities: The optimum quantity of materials to be purchased is determined on the decision model developed for the control of inventory. The optimum working stock level to be maintained is obtained by this model. The cost of placing purchase orders can be minimised by placing a single order to meet the company’s needs for the entire year. Thus, the cost on purchase order is reduced, but results in large working stock and increased carrying stock.
Reorder level: The time interval between placing an order and receiving a delivery is known as lead time. The reorder line level is decided based on the lead time and quantity of demand during the lead time.
Minimum inventory or safety stock: Demand for items can never be forecasted accurately. The demand for an item could increase from the normal demand. In this case, the company could be out of stock. Thus, there arises the need for safety stock or buffer to cushion against such stock outs. The reorder line is set, such that it accommodates the safety stock.
Benefits of Inventory Control
Before studying the benefits of inventory control, let us first understand what inventory control is? Well, inventory control can be defined as the management of inventories, including: decisions about which items to stock at each location; how much stock to keep on hand at various levels of operation; when to buy; how much to buy; controlling pilferage and damage; and managing shortages and back orders.[1] Inventory control is a critical aspect of successful management as it ensures a smooth flow of materials in the production unit. The various benefits of inventory control are as listed below:
· Adequate supply of materials is ensured by inventory control and costly interruption in operations due to shortage or stock-out is avoided.
· It keeps down the investment in inventory, inventory carrying costs and obsolescence to the minimum.
· It facilitates discounts and savings on purchasing on the basis of recorded experience.
· It eliminates duplication in ordering or replenishing stocks by centralising the source.
· It permits better utilisation of existing stocks by facilitating inter departmental transfers within the company.
· It provides a check on the loss of materials through carelessness or pilferage.
· It facilitates cost accounting by allocating material cost to products and operating accounts.
· It enables the management to compare cost and consumption between operation and no-operation periods.
· It serves to locate and dispose of inactive and obsolete items from stores.
· Perpetual inventory values become reliable basis for preparing financial statements.
Thus, inventory control plays a very important role in production management.
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6. Define deterministic model of inventory control. Explain how economic
order quantity can be calculated by model 1.
Ans. Deterministic Models in Inventory Control
Inventory managers face contradicting issues, as they need to maintain inventories at a low level to avoid excess holding costs and at the same time need to maintain it high enough to reduce frequency of orders. Thus, inventory control aims at finding the right order size, which is economical with respect to operations.
The quantity of raw materials procured in a single order is known as order quantity or lot size. This is the quantity ordered every time the stock exhausts. Inventory related costs are kept to a minimum by this quantity and is known as economic order quantity. The total inventory holding costs and ordering costs are kept to a minimum by economic order quantity.
This EOQ will be optimal when the following assumptions are satisfied:
· The rate of demand rate is constant.
· The lot size is not constrained.
· Inventory holding cost and fixed ordering cost are highly important.
· Order decisions for items are independent.
· The lead time is fixed.
If the system parameters are known accurately, then a deterministic situation exists. This system is based on certainty of events. The inventory reserves estimation is based on recognised engineering, geological, and economic information for the deterministic model. The optimal inventory of a single item with obscure demand is determined by the deterministic model. The inventory is built at a constant rate to meet a determined demand.
Model 1: EOQ with Uniform Rate of Demand and Instantaneous Replenishment
This model is analytical. Initially a cost model is developed and inventory model is developed from it. In this model the assumptions made are:
The demand is certain and constant over time.
· Stock replenishment is instantaneous (lead time is zero) i.e. the quantity of items will be realised instantly, as soon as the consumption reaches a point.
· Price of materials is fixed (no quantity discount is assumed).
· Inventory carrying cost per unit is constant.
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· The lead time is fixed and constant.
The following figure 6.2 is the graphical representation of the varying inventory level with time.
Figure 6.2: Inventory profile for Model 1
The figure 6.2 is explained as follows — let the stock at time 0 be Q. This stock is consumed at a rate of d units/day. If the lead time is 0, then stock is replenished immediately at time T1. Point A is the reorder point. It clearly indicates the point at which an order should be placed, so as to avoid stock out. The average inventory level is Q/2 when the maximum inventory is Q.
Ryan stores his inventory in special containers. The space occupied by each container is about 20sq ft. The total storage space available is only 6500 sq ft. The price of the container is Rs 10 per container and the annual demand is 8500 containers. The ordering cost is estimated at Rs 50 per order, and the annual carrying costs amount to 25% of the inventory value. Calculate the economic order quantity.
Master of Business Administration - MBA Semester IV
OM0017 – Advanced Production and Planning Control - 4 Credits
(Book ID: B1242)
Assignment - Set- 2 (60 Marks)
Note: Each Question carries 10 marks. Answer all the questions.
1. Differentiate between forward and backward scheduling. Explain
automation and the drawbacks associated with it.
Ans. Scheduling Methodology
In the previous section, we discussed about the type of manufacturing processes and scheduling methods. Now, we will discuss about the scheduling methodologies. Following are the two scheduling methodologies.
· Forward Scheduling.
· Backward Scheduling.
Forward scheduling
Forward scheduling can be associated with the scheduler selecting a planned order release date and schedules all activities from this point forward in time. This is the approach in which customer orders are processed immediately, even if the order dates are far away. For example, if a part is required to be delivered in two weeks and if it needs a total of nine days to process it, the first nine days are used to make it. Forward scheduling can be associated with taking up jobs with a number of tasks and assigning resources as early as possible. The task should utilise the resource as soon as it is allotted. Forward scheduling also has its own advantages and disadvantages. Jobs can be completed ahead of their due date by forward scheduling.
Backward scheduling
In backward scheduling, the scheduler begins with the delivery date, and plans backward to calculate the date for order release. The start date is determined by counting the number of days required for processing in backwards. Backward scheduling can be associated with taking up jobs with a number of tasks and assigning resources in reverse order. This system requires a delivery date from the customer, since scheduling is done backwards from the date of delivery.
Backward scheduling is the method, which uses the same lead time offset logic as MRP. Here the customer orders for a job as late as possible but expects it to be delivered in time or on due date. The components are delivered when they are required rather than as soon as possible.
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Autonomation
‘Automation’ means – to make a process in a factory or office to be operated completely by machines, in order to reduce the amount of work done by humans and the time taken to do the work. The term ‘autonomy’ means the right or power of somebody or something to make its own decisions. Autonomation can be considered as the combination of the two words autonomy and automation.
Autonomation is the technological innovation that enables machines and workers to operate in harmony. The process of autonomation is also known as jidoka. This reduces the physical and mental pressure on the workers. If autonomation is implemented, when a cycle or production process is completed or when a defective part is produced, the system automatically stops the production and alerts the employees.
Autonomation can be defined as automation with a human touch or intelligent automation. A level of human intelligence transferred to automated machinery is known as autonomation. Autonomation is concerned with supervision rather than production. The production process is stopped whenever an abnormal situation arises. The machine stops production and asks for help whenever a defect is detected. The production of defective products is prevented when autonomation is implemented. Autonomation focuses on getting to the root of the problem and ensuring that it never recurs again. Overproduction is eliminated by autonomation. Autonomation is a quality control process that performs the following functions:
· Detect the abnormality.
· Stop.
· Fix or correct the immediate condition.
· Investigate the root cause and install a countermeasure.
Purpose and implementation
Mechanisms that detect production abnormalities also separate the worker from the machine. There are 23 stages between purely manual and fully automated work. When a machine is able to detect and correct its own operating problems, then it can be called as fully automatic. Fully automatic machines are not cost effective. Autonomation can guarantee about 90 percent of the benefits of full automation, and is also cost effective.
The errors that occur in a process are immediately identified, addressed and corrected by the implementation of autonomation. The continuous monitoring of the machine by a worker can be avoided. The worker needs to pay attention to the machine only when the machine alerts the worker about a glitch.
Autonomation maybe implemented in the initial steps of the process to prevent unnecessary wastage of work due to production of defective products. When production is stopped due to glitches detected, a supervisor examines the defect and
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corrects it. The machine is modified to avoid the occurrence of the same defects again.
The advantages of autonomation are
· Production of defective parts is prevented.
· Defective parts are prevented from being passed on to the next process in the production line.
· Problems and glitches in the machines and processes identified.
· Continuous monitoring of machines can be avoided.
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2. What do you mean by Performance measurement and why is it used in an
organisation? Sketch a GANTT chart.
Ans. Performance measures
Performance measurement is a process where an organisation establishes the parameters within which programs, investments, and acquisitions reach the desired results.
The purpose behind performance measures are:
· Evaluation on how well the public agency is performing,
· Controlling where the managers ensure that their subordinates are doing the right task.
· Budgeting the crude tools in improving performances. Sometimes increase in the budget might increase the performance.
· Setting the performance targets that encourage creativity in developing better ways of achieving the goal.
· Promoting employees, where the managers decide based on the performance measurement and to convince the political superiors, legislators, stakeholders, journalists, and citizens that their agency is doing a good job.
· Improving the performance of a project in case project performance is dipping or very low.
The performance measures that are used while scheduling are:
· Job Flow Time (through put time): the amount of job time spent for the job. Job flow time = [Time of completion – time job available for first processing operation].
· Make Span: The amount of time required to complete a group of jobs. Make span time: [Time of completion of last job – starting time of first job]
· Total Inventory: Sum of scheduled receipts plus ‘on hand inventory’ of all items.
· Utilisation: The percent of work time productivity spent by a machine or worker. Utilisation = [productive work time/ total work time available.
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Gantt charts
A Gantt chart illustrates a project schedule in the form of a bar chart. It is a graph, which shows total estimated workload ahead of each work centre on a time scale and the summary elements of a project. The chart is constructed with the horizontal axis representing the total time span of the project, which is broken down into increments. For example: days, weeks, or months. The vertical axis represents the tasks that make up the project.
The following are the uses of a Gantt chart:
· Total workload for each work centre is shown graphically.
· It is simple, clear, and easy to understand.
· It indicates the need for more resources or for reassigning resources when the load at one work centre becomes too large.
· In case work centres are overloaded, employees from a low-load work center could be temporarily shifted to high load centers.
Now, we will understand the limitations of a Gantt chart:
· The chart must be repeatedly updated to keep it current.
· The Chart does not directly reveal the costs of alternate loadings, as the processing times may vary among work centers.
· A Gantt load chart does not account for delays and disruptions at the work centers.
· It does not give information of the due date requirements of each job.
In the below example, each task is shown to begin when the task above it is completed. Sometimes bars overlap when the next task begins before the completion of the current task. This results in parallel execution of several tasks. However, the bars may overlap in cases where a task can begin before the completion of another, and there may be several tasks performed in parallel. For such cases, the Gantt chart is quite useful for communicating the time of various tasks. For larger projects, tasks can be broken down into various subtasks having their own Gantt charts to maintain readability.
Gantt schedule with progress charts
Gantt schedule indicates the start and completion dates for each job and the current status of each job. The chart also shows the comparison between the schedule and reality with respect to each job and work centre. The following symbols are used while drawing GSPC (Gantt Schedule with Progress Charts)
3. Write a note on Lean Manufacturing, Agile Manufacturing and Group
Technology.
Ans. Lean Manufacturing
Lean manufacturing is an organised approach in identifying and eliminating waste through continuous development of manufacturing the product at the demand of the customer. In other words, lean manufacturing is a scheme that looks to produce a high level of output with a minimum of inventory.
From the time when Henry Ford invented the assembly line, industrial trendsetters have continuously focused on enhancement through a variety of different manufacturing techniques and this is where the lean manufacturing was successful.
In the earlier days, lean manufacturing centres focused on placing small stocks of inventory in planned locations around the assembly line, instead of a centralised warehouse. These small stocks are known as kanban[2]. The usage of the kanban considerably minimises waste and improves productivity on the factory floor.
In addition to removal of waste, lean manufacturing looks to provide the finest and optimum quality with the help of a method where every part is tested and examined soon after its manufacturing is done. In the process of testing, if there is any defect, the manufacturing line stops the production in order to detect the problem or defect at the earliest stage. There are a lot of similarities between lean manufacturing and the Total Quality Management techniques. Both of these techniques provide authorisation to the workers at the assembly line with the confidence that those close to the manufacturing have superior knowledge on how the manufacturing or the production system should work.
Under the lean manufacturing technique, suppliers deliver small amounts of materials on a daily basis. In addition, the machines may not respond to their full capacity. As you already know, the main objective of lean manufacturing is to eliminate waste, which means anything which does not add value to the end product is eliminated. With reference to this, large inventories are seen as a type of waste, which carry a huge cost. Another major focus under lean manufacturing is the process of allowing the workers to make the manufacturing decisions at the lowest level possible.
One more aspect, which is important to know, is that the supply chain management’s partnership with suppliers matters a lot in lean manufacturing. This facilitates a swift flow of parts and products to the retail shop floor.
Let us discuss about the implementation of lean manufacturing technique. Well, in order to implement the lean manufacturing process, it is important that each employee or worker is provided with significant training or has a required competency. After this training, implementing the following steps will help in implementation of successful lean manufacturing.
· Deciding which characteristics of lean manufacturing apply to your organisation and prioritising according to your requirements and capabilities.
· Classifying your workers into groups according to similar training requirements.
· Recognising your production programs and making a matrix, or a chart.
· Making a decision, whether you will hire an external consultant or take the suggestions of internal employees.
· Planning a time frame or listing according to work area or personnel.
· Setting up an immediate schedule and beginning the task according to the schedule.
Agile Manufacturing
In the previous section, we explained about lean manufacturing. Now, you will be introduced to the agile manufacturing techniques, but first let us understand the term Agility. Agility is defined as the capacity of changing quickly or adapting to change quickly. The production technology used by the manufacturing units decides the capability of designers, marketers and production personnel to share the common database of parts and products. This is a major and one of the vital contributing factors, which a manufacturer must posses in order to be an agile manufacturer.
Therefore, the agile manufacturing technique can be explained as the ability of surviving and flourishing in a competitive atmosphere of constant and unpredictable change by reacting swiftly and effectively to changing markets, driven by customer-designed products, demands, and services.
The organisations or the companies, which have implemented agile manufacturing techniques, always have a very strong bonding or network with the vendors, suppliers, and other related companies. In addition, the companies also have a strong network with many other supportive teams that work together with the same organisation with reference to the manufacturing of a quality product. The organisation can retool facilities swiftly, discuss upon new agreements with suppliers and other partners with reference to the changing market, and take other initiative steps to fulfil customer demands. This means that the organisation can increase manufacturing of products with a high consumer demand as well as redesign products to respond to issues that have emerged in the open market.
As you all know, markets can change very swiftly, especially in the global economy. An organisation, which cannot adapt swiftly to change, will find itself left behind, and once an organisation starts to lose its market share, it can succumb to a complete loss rapidly. The primary goal of agile manufacturing is to keep the company always ahead of the competition, so that consumers think of that company first, which continues innovating and introducing new products. The main reason behind this is the strong financial stability and a strong customer support base.
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In the case, where an organisation or a company plans to shift to agile manufacturing technique, the companies can always take advantage of specialists, who provide solutions to companies and who help in improving or converting the existing manufacturing techniques into agile manufacturing. These specialists can offer a tailored solution with reference to the type of sector that a company is involved in. The specialists make a company to be competitive as quickly as possible with their tested agile manufacturing techniques.
It will also be useful for you to know that there are some key issues in agile manufacturing. The key issues in agile manufacturing are:
· The "I am a Horse" Syndrome.
· The Existing Culture of Manufacturing.
The “I am a Horse” syndrome: You must be aware of an old saying where it states that hanging a sign on a cow which states "I am a horse" does not really make a cow, a horse. Similarly, there is an absolute danger that agile manufacturing can be a victim to the unlucky tendency in manufacturing circles to follow the trend and to re-label everything with a new fashionable name. The danger is divided into two fold. First, it will offer agile manufacturing a bad reputation and second, the management will only get a superficial understanding, which leaves them helpless to those competitors that take agile manufacturing seriously.
The existing culture of manufacturing: The most vital thing which will hold an organisation or a company back from making a quantum leap forward to explore agile manufacturing, is the traditions and the accepted beliefs and values of the organisations. Without any doubt, the key success factor is the skill to dominate both the hard and soft issues in change management. Nevertheless, if an organisation wants to achieve agility in the manufacturing enterprises, then it should first try to completely understand the nature of its existing values, traditions, and cultures. An organisation needs to realise this understanding as there is a need to come to terms with the fact that much of what everyone in an organisation have taken for granted probably no longer applies in the world of agile manufacturing. Accomplishing this understanding is the first step in facing the pain with the existing culture to the historically redundant ideas.
Group Technology
In this section, you will be introduced to the group technology, followed by its features, types, views from different people, and finally its application in the manufacturing leads.
Let us first try to understand what group technology is. Well, group technology was first introduced by Frederick Taylor in the year 1919, in order to improve the productivity. Group technology is a manufacturing idea that looks to improve productivity by grouping parts and products with related features into families and structuring production cells with a group of different machines and processes.
The features of group technology can be summed up to the following points, where:
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· It has applications in several areas associated with manufacturing such as process planning, assembling, production control, fabricating, product design, and so on.
· It does not seek out to decrease the variety in the types of products supplied to the customers.
· It seeks to decrease the variety in the types of products manufactured.
Now, let us discuss about the three types of group layouts in the group technology of manufacturing. Figure 9.1 depicts those three types.
Figure 9.1: Types of Group Layouts
Under group technology’s flow line, all of the parts allocated to the group pursue the same machine sequence and need relatively comparative time on each machine. The cell layout permits the parts to be moved from any machine to the other machine. The centre layout will be in a logical arrangement. Here, there is a possibility of machines being arranged in a process design by using functional departments. However, it is important to know that each machine will be dedicated to manufacture only certain types of parts.
There are different views from different people on the group technology. The manufacturing engineer of a manufacturing organisation views the group technology as:
· An effort to obtain the benefits or the advantages of flow line system.
· Designing of a new part, which can be compatible with the current process and tooling of an existing family part.
· A chance to have a standard process plan and tooling, as it speeds up the part changes, just-in-time production, and short time cycles.
· An attempt to standardise the process and products plan.
· A chance to initiate the design by recovering the design of an existing part and modifying it as desired for the new part.
· A possibility of a quick new development plan for a new product by referring the previous documents and depending on earlier decisions on similar products.
· An opportunity to match the existing manufacturing measures with the future resulting plan.
Therefore, we have discussed about the various views of different people on group technology. Now, we will discuss about the group technology’s application in manufacturing. The group technology’s application in manufacturing guides focused factories and cellular manufacturing, where the focused factory
· Strives for a narrow range of processes, customers, and products, which results in a smaller, simpler factory focused on a few manufacturing tasks.
· Is a plant within a plant, which manufactures numerous groups of similar products.
· The cellular manufacturing system.
· Focuses on a group of parts.
· Relates to the organisation of the manufacturing facility on the basis of dedicated cells of different machines, which process similar parts, called part families.
· Follows a configuration that is most suitable for medium volume and medium variety atmosphere.
It will be easy for you to understand the application of group technology with an example. Without the application of group technology, Amco produced 150 similar parts on 51 machines with 87 routings. After the application of group technology, the same parts were produced by 8 dedicated machines.
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4. Bring out the differences between productivity and flexibility. And is
productivity compromised by introducing flexibility in the manufacturing process? Comment
Ans. Productivity vs. Flexibility
In order to know the concept of flexibility versus productivity, we need to address questions like, what is the nature of relationship between the two? And does it mean that greater flexibility implies lesser or higher productivity?
A general proposition is flexibility hampers productivity by reduced output and requirement of more input. As flexibility facilitates more options, it would be hampering productivity. This is due to the freedom of choice and change mechanisms. Flexibility raises the need for more inputs for more options and reduced output. This opinion can be observed from two viewpoints: one from the input and the other from the output point of view.
Let us match the output of a mass manufacturing system and a flexible manufacturing system. Less flexibility may cause productivity of undesired output, whereas more flexibility will result in more real productivity of the desired output.
In order to bring out the difference between productivity and flexibility, let us consider two manufacturing systems such as
· A mass manufacturing dedicated assembly line.
· A flexible system able to handle many products.
Now, which manufacturing system is expected to have a higher rate of products manufactured per day? You may tell that a dedicated system would have higher output rate as there are no changeover time in-between. However, in reality, a manufacturer requires to produce many models as per customer requirements. If a dedicated assembly line is used, then you would incur loss of setup time as every new model requires a new setup to be created. Whereas, in case of an FMS many models can be handled simultaneously, and in that way, you will have more satisfactory output and thus more productivity in real sense. Thus, with less flexibility, the productivity seems to be high, but with more of undesired output– whereas more flexibility enables more real productivity of desired output.
A common assumption is that a dedicated system requires less input and is more efficient. However, a flexible system manages uncertainty of demand effectively, leading to less input per unit of output.
Let us examine the condition of input required in a less flexible and more flexible system for the same issue being discussed above.
Normally, it is assumed that a dedicated mass manufacturing system would be more efficient and would require less input of manpower and machines per unit product. A dedicated system requires balanced production stages and well skilled workers. On
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the contrary a flexible manufacturing system, producing different products at a time will require higher inputs of technology and multi-skilled workers.
It is observed that a less flexible system has higher productivity level on account of lower inputs. However, this is not true always as a dedicated system may be idle, when there is no demand for that product resulting in higher input costs per unit of output produced.
Whereas, in such a case, a flexible system will be able to better cope with uncertainty of demand as it deals with a variety of products. Thus, having higher capacity utilisation in real terms leads to higher productivity by way of less input per unit of output.
Thus, from the above discussion, we can conclude that though the productivity of a less flexible system may appear to be higher than that of a more flexible system in a stable environment, in real terms, the situation would be reverse in an uncertain and dynamic environment.
Flexibility built into FMS and its productivity with respect to machining technology is shown in the following figure. Here, lesser the volume of production, lot more is the flexibility.
The following figure 10.1 gives a view of productivity and flexibility of a standalone machine, a CNC machine and an FMS system.
Figure 10.1: Flexibility vs. Productivity
5. Explain in brief the Goldratt’s “Theory of constraint” and the five focussed
steps of TOC recommended for solving the constraints/ problems.
Any element or factor that prevents a system from reaching a higher level of performance with respect to its goal is termed as a constraint. Constraints may be physical, such as equipment, or lack of material, which can be managed with certain pre-planning.
Constraint Management is the practice of managing the resources and the organisation in accordance with TOC principles. The theory of Constraints can be defined as “A management philosophy” developed by Dr. Eliyahu M. Goldratt and has to be viewed under three separate disciplines.
· Logistics: It includes Drum Buffer Rope (DBR) scheduling, buffer management, and VAT analysis.
· Performance measurement: It includes throughput, inventory, and operating expense and the five focusing steps.
· Logical thinking: Delving on process tools for identifying the root problem, and to find optimum solutions and develop implementation plans.
The TOC fundamentals are based on the cost accounting system, as it focuses too much on reduction of direct labour. The result is a highly non-synchronised flow of products through the plant that affects the company’s ability to compete.
Steps of TOC to Solve Problems/Constraints
Goldratt has recommended the following “Five Focussed steps of TOC” for alleviating constraints related to production, distribution, project management, and so on.
1. Identify the system constraints.
2. Determine how to exploit system constraints, that is making constraints effective.
3. Synchronise every part of the system to support ‘constraints’, even if it lowers efficiency of non constraint resources.
4. Improve the system constraints. If still the output is inadequate, procure more of this resource so it is no longer a constraint.
5. If, in the previous steps, the constraints have been simplified, go back to step one, but ensure that inactivity does not become the system constraint. This is a continuous process of improvement of identifying the constraints, simplifying them, and then identifying the new ones that occur.
Based on the above said work of Goldratt is the notion of SM. It refers to the entire production process working in harmony to achieve the set goal of the company. The emphasis of TOC is on total system performance, not on localised measures such as labour or machine.
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Further, Goldratt introduces the following three tools of measurement:
· Throughput (T): The rate at which the money is generated by the system through sales [Sales – Raw Material].
· Inventory (I): Investment in purchasing the materials where the system intends to sell.
· Operating Expense (OE): The total amount the system spends in turning inventory into throughput.
From the above description, it can be inferred that the objective of TOC is to increase T while decreasing I and OE. For this reason, we should try to decrease I and OE, even to zero if possible. The limit of T may be infinity, the goal and hence focus on it.
Some other tools of measurements used by TOC include:
· Net Profit = T – OE
· ROI (Return on Investment) = (T – I)/OE
· Productivity = T/OE
· Inventory Turns = T/I
TOC advocates the need for a global approach to solve scheduling problems. Industrial Engineers usually try to plan work on all their machines, all the time to achieve higher productivity, thinking that the ideal plant is the one that should run at full capacity. However, TOC advocates the other way.
6. Explain make or buy decisions and when it is appropriate to consider each
respectively.
Ans. Make or Buy Decision
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The strategic choice between making an item internally and purchasing an item externally is known as make or buy decision. Outsourcing is the other term used for buying. Unreliable suppliers are the main reason for the make-or-buy decisions to arise in a firm.
Not all requisitions for raw materials and parts that are received in the purchasing departments are automatically ordered from suppliers. Components or parts can be manufactured in-house, by the production department at a lower cost with better quality and faster delivery. Certain components or parts can be procured from suppliers who specialise in production of those parts. This will ensure supply of low cost, high quality products with improved delivery time. Buyers in purchasing departments, with assistance from production departments, routinely perform make or buy analyses for the raw materials and parts from outside suppliers.
A make or buy decision is a business decision that decides whether to buy a component or to manufacture it internally. Manufactures choose to internally manufacture a component, if the purchase price is high or if the manufacturer has the ability to manufacture the component or if suppliers are unreliable. For the manufacture of the component internally, the manufacturer should have the necessary skills and equipments, access to raw materials and so on. The drawbacks associated with making rather than buying is the lack of alternative source, requirement of design flexibility and access to technological innovations.
The strategic and operational levels are considered while performing the make-or-buy analysis. Among the two levels, strategic level has a long range. In the strategic level, the variables considered are the future and current environment. The make or buy decision is affected by issues like government regulation, competing firms, and market trends.
Lean manufacturing has promoted firms to use outsourcing. Outsourcing activities range from logistics to administrative services. Generally, subassemblies are purchased instead of piece parts by most manufacturers. An item is out sourced if it does not fit into one of the following three categories:
· If the component or part is important for the success of the product, and if the customer perceives it to be a critical part of product feature.
· When specialised design, manufacturing skills or equipment are required for the component or item and when there is limited reliable suppliers.
· If the component is a part of the firm’s expertise area or it is essential to fulfil future plans.
All the items that fall into one of the three categories are highly important for the company and should be manufactured internally.
Make-or-buy decisions also occur at the operational level. Given below are the reasons to consider in house production.
· Better quality control.
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· Plans to integrate plant operations.
· Company wants to have direct control over production and/or quality.
· Cost considerations (since it is less expensive to make the part in-house).
· No competent suppliers.
· Design secrecy is needed to protect proprietary technology.
· Political, social or environmental reasons (union pressure).
· Unreliable suppliers.
· Using existing plant capacity (idle capacity) would bring down the overheads.
· Control of lead time, transportation, and warehousing costs.
· Greater assurance of continual supply.
· Emotion (e.g., pride).
· Desire to maintain a stable workforce (in periods of declining sales).
· Small-volume requirements.
· Desire to maintain a multiple-source policy.
· Brand preference.
· Suppliers’ research and specialised know-how exceeds that of the buyer.
· Limited production facilities or insufficient capacity.
· Factors that may influence a firm’s decision to buy a part externally include:
· Indirect managerial control considerations.
· Cost considerations (less expensive to buy the item).
· Procurement and inventory considerations.
· Item not essential to the firm’s strategy.
The cost and availability of production capacity are the two important factors to be considered in make or buy decisions. All the relevant costs need to be considered. Elements of the "make" analysis include:
· Any follow-on costs arising out of quality and related problems
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· Incremental managerial costs.
· Incremental capital costs.
· Incremental purchasing costs.
· Incremental factory overhead costs.
· Purchased material costs.
· Direct labour costs.
· Incremental inventory-carrying costs.
Cost considerations for the "buy" analysis include:
· Purchase price of the part.
· Transportation costs.
· Receiving and inspection costs.
· Incremental purchasing costs.
· Any follow-on costs related to quality or service.
