SCDL - PGDBA - Finance - Sem 2 - Production & Operations Managment

Operations Management Page 1 of 31

Q.1) What is “Operations Management”? What are the objectives of Operations Management? Enlist key elements of Operations Management.

A.1) An operation may be defined “as the process of changing inputs into outputs thereby adding value to some entity”.Right quality, right quantity, right time and right price are the four basic requirements of the customers and as such they determine the extent of customer satisfaction. And if these can be provided at a minimum cost, then the value of goods produced or services rendered increases. Thus the objectives of production management are “to produce goods and services of the right quality, in the right quantities, according to the time schedule and a minimum cost”.

Objectives of production management may be amplified as under:

Producing the right kind of goods and services that satisfy customers’ needs (effectiveness objective).

Maximizing output of goods and services with minimum resource inputs (efficiency objective).

Ensuring that goods and services produced conform to pre-set quality specifications (quality objective).

Minimizing throughput-time- the time that elapses in the conversion process- by reducing delays, waiting time and idle time (lead time objective).

Maximizing utilization of manpower, machines, etc. (Capacity utilization objective).

Minimizing cost of producing goods or rendering a service (Cost objective).

Key elements of Operations Management

1. Product selection and design

The right kind of products and good designs of the products are crucial for the success of an organizing. A wrong selection of the product and/or poor design of the products can render the company’s operation ineffective and non-competitive. Products/services, therefore, must be chosen after detailed evaluation of the product/services alternatives in conformity with the organization’s objectives. Techniques like value engineering may be employed in creating alternate designs, which are free from unnecessary features and meet the intended functions at the lowest cost.

2. Process selection and planning Selection of the optimal “conversion system” is as important as choice of products/services and their design. Process selection decisions include decisions concerning choice of technology, Equipment, machines, material handling systems, mechanization and automation. Process planning involves detailing of processes if resource conversion required and their sequence.

3 Facilities (Plant) location

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Plant location decisions are strategic decisions and once plant is set up at a location, it is comparatively immobile and can be shifted later only at a considerable cost and interruption of production. Although problem of location choice does not fall within preview the production function and it occurs infrequently, yet it is of crucial importance because of its major effect on the performance of every department including production. Therefore, it is important to choose the right location, which will minimize total “delivered customer” cost (Production and distribution cost). Locational decisions involve evaluation of locational alternatives against multiplicity of relevant factors considering their relative importance to the organization and selecting those, which are operationally advantageous to the organization.

4 . Facilities (Plant) layout and materials handling

Plant layout is concerned with relative location of one department (Work centre) with another in order to facilitate material flow and processing of a product in the most efficient manner through the shortest possible time. A good layout reduces material handling cost, eliminates delays and congestion, improves co-ordination, provide good housekeeping etc. while a poor layout results in congestion, waste, frustration, inefficiency and loss of profit.

5. Capacity Planning

Capacity planning concerns determination and acquisition of productive resource to ensure that their availability matches the demand. Capacity decisions have a direct Influence on performance of production system in respect of both resource productivity and customer service (i.e. delivery performance). Excess capacity results in low resource productivity while inadequate capacity leads to poor customer service. Capacity planning decisions can be short-term decisions. Long-term capacity planning decisions concern expansion/contraction of major facilities required in the conversion process, economics of multiple shift operation, development of vendors for major components etc. Short term capacity planning decisions concern issues like overtime working, sub-contracting, shift adjustments etc. Break even analysis is a valuable tool for capacity planning.

6. Production Planning and Control (PPC)

Production planning is the system for specifying the production procedure to obtain the desired output in a given time at optimum cost in conformance with specified standard of quality, and control is essential to ensure that manufacturing takes place in the manner stated in the plan.

7. Inventory control

Inventory control deals with determination of optimal inventory levels of raw materials, components, parts, tools; finished goods, spares and supplies to ensure their availability with minimum capital lock up. Material requirement planning (MRP) and just-in-Time (JIT) are the latest techniques that can help the firm to reduce inventory.

8. Quality assurance and control

Quality is an important aspect of production system and it must ensure that services and products produced by the company conform to the declared quality standards at

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the minimum cost A total quality assurance system includes such aspects as setting standards of quality, inspection of purchased and sub-contracted parts, control of quality during manufacture and inspection of finished product including performance testing etc.

9. Work study and job design Work-study, also called time and motion study, is concerned with improvement of productivity in the existing jobs and the maximization of productivity in the design of new jobs. Two principal component of work-study are:

(i) Method study(ii) Work measurement

Method study has been defined (BS 3138) as the systematic recording and critical examination of the existing and proposed ways of doing work, as a means of developing and applying easier and more effective methods and reducing costs. Method study when applied to production methods yields one or more of the following benefits:

Improved work environment Improved facility layout Better utilization of facilities Greater safety Lesser materials handling Smooth production flow Lower work-in-process Higher earnings for the workmen

10.Maintenance and replacement

Maintenance and replacement involve selection of optimal maintenance Preventive and/or breakdown) policy to ensure higher equipment availability at minimum maintenance and repair cost. Preventive maintenance, which includes preventive inspection, planned lubrication, periodic cleaning and upkeep, planned replacement of parts, condition monitoring of the equipment and machines, etc. is most appropriate for critical machines.

11.Cost reduction and cost control

Effective production management must ensure minimum cost of production and in this context cost reduction and cost control acquires significant importance. There are large number of tools and techniques available that can help to make a heavy dent on the production cost.

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Q.2) What is batch Production? What are its key characteristics? Compare these characteristics with those of project production.A.2) Batch production is characterized by the manufacture of a limited number of a product (but many such quantities of different products) produced at periodic intervals and stocked in warehouses as finished goods (or finished parts) awaiting sales (or withdrawal for assembly). Typical examples of batch production are: process industries such as pharmaceuticals, paints, chemicals; medium and heavy engineering industry engaged in the manufacture of electric motors, switch gears, heavy motor vehicles, internal combustion engines; manufacture of ready made garments; manufacture of assembly shops such as machine tools; sub contractors which take on machining of batches of components to the drawings of a large manufacture etc.

Characteristics of batch production

(a) Short runs:

Short production runs and frequent changes of set also characterize batch production up. The equipment and the assembly set up is used for a limitednumber of parts or assemblies and is then changed to make a different product. The production is generally made to stock.

(b) Skilled labour in specific trades:

The labour force is expected to posses skill in one specific manufacturing process, Turning, milling, drilling, welding, grinding, hobbing, fitting etc.

The operator may perform simpler machine set-ups but the separate machine tool setter performs those involving complex operations.

(c)Supervision to possess knowledge of a specific process

The supervision has considerable knowledge of a specific process. Supervisor in the grinding section for example, may not expert in turning and drilling work but s expected to possess a find of knowledge of different types of grinding operations.

Similarly a supervisor in the gear shop is expected to have sound knowledge in working of different types of gear cutting machines.

(d) Limited span of control:

The amount of supervision required in batch production is lower than that of jobbing production. The ration of direct workmen to supervisors is more or less a function of batch size. The smaller the batches, the lower are the ratio of direct workers to supervisors, and vice versa. This is because smaller lots require each supervisor to spend a great deal of his time in allocating new work, giving instructions, follow up on the shop floor for proper movement of materials from and to the machines, identifying delays and interruptions, and arranging, in consultation with planning, work load in his section to keep his men busy.

(e) General purpose machines and process type of layout

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Plant and equipment is procured and arranged to obtain maximum flexibility. General purpose machines and handling equipment capable of performing variety of operations with minimum set –up times are installed in lieu of variety of products. The machines are arranged to give process layout-layout by function. Similar machines capable of doing similar types of operations are grouped together and kept at one place. Presses for example, are put together and kept at one place milling machines are placed together at another place, drilling machines are kept at the third place, gear cutting machines are located at the fourth place and so on. Each Group of machines is usually designated as a work centre or a section or a shop.

(f) Manual materials handling:

Materials handling in batch production as compared to jobbing production are small. Individual components and parts are placed in trolleys and trays and are transported as unit loads. Materials handling may be mechanized by deploying power driven trucks.

(g) Manufacturing cycle time affected due to queues:

The manufacture cycle time is comparatively smaller than jobbing production but is much more than mass and flow production. The batches of work tend to queue up at different machines due to differing cycles times, batch sizes and sequence of operations.

(h) Large work-in-progress:

Work in progress is comparatively large due to varying work content of different components, imbalance in manufacturing times, formation of queues between the machines.

(i) Flexibility of production schedules:

Disruptions due to machine breakdown or absenteeism do not seriously affect production as job can be shifted to another machine or another operator from another machine can be shifted.

(j) Need to have production planning and control:

Functions of production planning and control in a batch production unit are more complex than those in jobbing production or mass and flow production:

Materials control and tools control functions are important. Some kind of replenishment system needs to be used to ensure routine replenishment

Detailed operational layout and route sheets are prepared for each part of the product.

Loading and scheduling needs to be more detailed and more sophisticated since every machine requires to be individually scheduled.

Progressing function is very important to collect information on progress of work. A separate progress card needs to be maintained to record progress of each component.

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Expediting is generally necessary since quite often jobs, due to imbalances in work content, tend to lag behind

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Q.3) (a) Why are locational decisions important? What factors should be taken into account while deciding location of a unit to manufacture washing machines?A.3) Locational decisions generally arise when:

A new manufacturing (or servicing) unit is to be set up. Existing plant operations are difficult to expand due to poor selection of site

earlier. The growth of the business makes it advisable to establish additional facilities

in new territories. There is emergence of new social (chronic labour problems) political (political

instability or economic conditions that suggest a change in the location of the existing plant.

The product development has over weighted the advantages of the existing plant.

The changes in the industrial Policy of the Government, favoring decentralizing and dispersal of industries to achieve overall development of the country, do not permit expansion of the existing plant

FACTORS GOVERNING PLANT LOCATION

Plant location studies are conducted in three phases:

(i) General territory selection(ii) Community selection, and(iii) Site selection

1. Proximity to market:

Every company is in business to market and it can survive only if their product reaches the consumers on time and at the competitive price. The ratio of selling costs to sales generally increases with distance. Therefore, in the choice of location o the plant, the factor of “proximity to the market” is given the highest priority. Locating a plant nearer to the market is preferred if:

The product is fragile. The product is susceptible to spoilage. The promptness of service is required. The product is relatively inexpensive and transportation costs add significantly

to the cost.

Bread, soap factories, etc. require the market to be nearby. If factory cannot be started in Bombay, it may be started in Thane, Kalyan or Poona. If the product is exported, location near ports is desirable. This is particularly important for producers who sell bulky commodities, which incur high transportation costs

Nearness to market not only lowers transportation costs but also gives many other benefits namely:

A good many administrative problems, which cause perpetual headaches and add to costs, are avoided.

Liaison with dealers or whole sellers can be maintained economically and easily

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Other costs such as commission to middlemen, which at times run as high as 20 to 50 percent can be reduced significantly.

Customer’s accounts do not remain outstanding for settlement. This recovery is easy and less time saving which itself reduces selling costs.

2. Proximity to source of raw materials:

Since raw materials usually constitute 50 to 60 percent of the total product cost, it is important that the firm gets its requirements of raw materials at the right time and at the reasonable price for which the plant must be located in the neighborhood of some source which can meet the raw materials requirement of the unit “Proximity to supply of raw materials” factor assumes still greater importance if raw materials are of perishable nature or if they are expensive to transport, or if their weight is substantially reduced by processing.

Proximity to sources of raw materials is equally important for small units. This is because usually small units are not considered important customers. They get least priority and in the event of scarcity are the one to be struck off first from the list. The availability of materials to small units to a large extent thus depends on their follow up and personal visits to the supplier’s plant which is possible only if the buyer’s plant is close by.

3. Infrastructural facilities:

Infrastructural facilities consider availability of utilities like power water, disposal of waste etc. These form the life-blood of many types of industries without which there facilities may come to a stand still. Underestimating the need of any one of the utilities can be extremely costly and inconvenient.

Certain industries, for example, aluminium, steel, etc are power intensive and must be located close to the sites of power generation failing which the shortage of, or increase in cost of generating power may spell problems for their survival.

Similarly, chemical process industries like paper and pulp, cement, steel, sugar laundries, metal plating, food preparation etc. requires perennial source of water. Mineral content of water may also be an important factor. Treatment of water is an expense to be considered while comparing economics of different locations.

Drainage facilities are important for process industries otherwise disposal of process waster can create lot of difficulties.

4. Transport facilities:

Transportation cost to the value added is a key determinant of the plant location. The structure of the transportation cost depends on (i) Characteristics of the commodity (ii) average distance of shipment (iii) medium of shipment: rail, road, and air sea.

The need for transport arises because raw materials and fuel are to be moved to factory site and finished goods are to be transported from factory to markets. Other things being equal since transport cost has a major effect on product cost, the regions well served by transport facilities are most suitable for industrial locations.

5. Labour and wages:

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Plant location should be such that required labour is easily available in the neighbourhood. Importing labour from outside is usually costly and it causes lot of administrative problems. Availability of required labour locally is better since problem of arranging accommodation and other related problems do not arise. Since normally workers with specific skills are required, some sort of training facility should also be available in the neighborhood. Skilled employees are easily available if ITI’s, or Engineering colleges are there in the neighbourhood.

6. Legislation and taxation:

The policies of the state Government and Local Bodies relating to issue of licenses, building codes, labour laws, etc. are the factors in selecting/rejecting a particular community/site.

In order to disperse industries and ensure balanced economic growth, both Central and State government offer a package of incentives for setting up industries in particular locations. Exemption from excise duty, sales tax and octroi, soft loans from financial institutions, subsidy in electricity charges, etc. are some of the incentives offered.

Since taxes and duties levied by the State Government and Local bodies substantially influence product cost, the incidence of such taxes/levies must be taken into account while selecting a community/site.

7. Climatic conditions:

Climatic factors may not have a major influence these days because of modern air conditioning facilities available today. However, it may be important factor for certain industries like textile mills, which require high humidity.

8. Industrial and labour attitudes:

Community attitudes towards supporting hostile trade union activities are an important factor. Locating facilities in a certain region/community may not be desirable as frequent labour problems and interruptions are harmful to the plant in the long run. Political situation in the state and attitude of the government towards labour activities also influences selection of the site for the plant.

9. Safety requirement:

Safety factor may be important for certain industries such as:

- Nuclear power plants- Explosive factories

Location of such industries close to border areas is undesirable.

10. Community facilities (or social infrastructure):

Community facilities imply accommodation, educational, entertainment and transport facilities.

Accommodation is needed unless the employees are local residents. Accommodation should be easily available, comparatively cheap and near some public transport stop.The locational area should be fully developed, be accessible by road and should have a convenient and efficient public transport system operating between the area and

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the township to enable employees, officials, customers and suppliers to make easy trips for their work

11. Community attitudes:

Community attitudes towards work (i.e. whether the people in the location are hard working or otherwise) as well as their attitudes towards the incoming entrepreneurs (helpful and cooperative or otherwise) can make or mar an industry. Locational decisions, therefore, must take such factors also into account particularly while setting up labour intensive units.

12. Supporting industries and services:

Locational factors should also include proximity of services needed by the firm. A firm desirous of getting some or all parts made from outside or some of the operations done from outside must see that such sub-contractors are located in the neighbourhood. Getting a job done from units located at far off places will mean not only additional transportation cost but also time consuming and costly. Also if units are too far off, the control on quality of work done by them cannot be exercised.

13. Suitability of the land:

Site selection should also take into account topography and soil structure of the land. The soil structure must be capable of bearing loads of foundations. Though modern building techniques can overcome the limitations of the soil, but if considerable improvement is required then selection of a low cost and may ultimately turn out to be expensive.

14. Availability and cost of the land:

Site size (Plot size) must be large enough to accommodate the present production facilities, parking and access facilities but also leave sufficient room for future expansion. As a general rule, a site five times the actual plant size is considered minimum for all these things including future expansion.

ECONOMY SURVEY OF THE SITE SELECTION:

An ideal location is one where the cost of obtaining materials and processing them into finished product plus the cost of distributing the finished product to customers is minimum.

One of the most commonly used approaches consists of following steps:

Step 1: Prepare a list of all relevant factors.

Step 2: Estimate expenses on materials, transport, wages, power etc for each location on each of the above factors.

Step 3: Collect data on intangible factors like community facilities, community attitudes etc.

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Step 4: Analyse the tangible data for each location and calculate rate of return on investment.

Step 5: Select provisionally a locational based on financial data.

Step 6: Compare the intangible data for the different locations and select the optimal location considering intangible data.

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Q.3) (b) What are objectives of a good layout? Discuss any six principles of a good layout?A.3) (b)OBJECTIVE OF A GOOD PLANT LAYOUT

Only through an efficient layout, the organization can attain the following objectives:

(i) Economy in handling of materials, work-in-process and finished goods.

(ii) Minimization of product delays.

(iii) Lesser work-in-progress and minimum manufacturing cycle time.

(iv) Efficient utilization of available space.

(v) Easy supervision and better production control.

(vi) Greater flexibility for changes in product design and for future expansion.

(vii) Better working conditions by eliminating causes of excessive noise, objectionable odor smoke etc.

PRINCIPLES OF A GOOD LAYOUT

(i) Overall integration of factors:

A good layout is one that integrates men, materials, machines and supporting activities and others in a way that the best compromise is obtained

No layout can satisfy each and every principle of a good layout. Some criterion may conflict with some other criterion and as a result no layout can be ideal it has to integrate all factors into the best possible compromise.

(ii) Minimum movement:

A good layout is one that permits the minimum movement between the operations.

The plant and machinery in case of product layout and departments in case of process layout should be arranged as per sequence of operations of most of the products.

Since straight line is the shortest distance between any two points, men and materials as far as possible should be made to move along the straight path

A door may be made in a wall or a hole may be drilled in a ceiling if that eliminates or reduces material handling in place of stairs or a distant door.

(iii) Uni-direction flow:

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A good layout is one that makes the materials move only in the forward direction, towards stage of completion, with any backtracking.

Since straight line is the shortest distance between any two, points, materials as far as possible should be made to move on the principle of straight line flow. And when straight line flow is not possible, other flows like U-shaped flow, circular flow or zig zag flow may be adopted, but the layout may ensure that materials move in the forward direction (Fig 4.1)

To ensure forward flow, equipment if necessary may be duplicated.

(iv) Effective use of available space:

A good layout is one that makes effective use of available space both horizontal and vertical

Backtracking and duplicated movements consume more time, involve un-necessary materials handling, add to cost and lead to inefficiency.

Raw materials, work-in-progress and finished goods should be piled vertically one above another rather than being strewn on the floor.

Pallets or equivalents should be made use of to pile up several layers one above another

Area below the work tables or in the cupboards built into the wall are welcome since they reduce requirement of space

(v) Maximum visibility:

A good layout is one that makes men, machines and materials ready observable at all times.

All departments should be smoothly integrated, convenient to service and easy to supervise

Every piece of positioning or screening or partitioning should be scrutinized and carefully planned.

Special cupboards, enclosures, offices, partitions etc. should be avoided except when their utility is established beyond doubt.

(vi) Maximum accessibility:

A good layout is one that makes all servicing and maintenance point readily accessible.

Machines should be kept sufficiently apart and with reasonable clearance from The wall so that lubrication, adjustment and replacement of belts, removal of parts at the time of repairs etc can be done conveniently by the maintenance staff.

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Area in front of electrical panels and fire extinguishers should be kept free from obstructions.

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Q.4) How does production planning differ from production control? What are the key functions of production planning and control?A.4) Production planning versus production control.

Planning (Planning the work)

Planning involves collection and maintenance of data regarding time standards, materials and their specifications, machines and their quantities, tools and their process capabilities, drawings and operational layouts etc.

Planning is seeing that requirements tool, machines, men, instructions, authorization and the like-will be available at the right time and in the right quantities and are of proper quality.

Planning involves preparations of load charts and fitting various work orders into uncommitted time available on the company’s facilities (men or machines).

Planning involves preparation of all necessary forms and paper work.

Planning involves designing suitable feed back as to what may happen.

Planning involves forwarding thinking regarding the remedial action to be taken if the job falls behind schedule.

Planning therefore is a centralized Activity (in the office) and includes such functions as materials control, tools control, process planning and scheduling.

Control (Working the Plan)

Control involves dissemination of data preparation of reports regarding output, machine and labour efficiency, percent defectives etc.

Control is seeing the requirements are actually made available at the right place and in the right quantities.

Control involves actual seeing that the jobs are started and completed as per schedule prepared by the scheduling cell of the PPC.

Control involves actual issue of forms and paper work.

Control involves keeping track of what is happening and collecting information as to what has happened.

Control involves suggesting remedial action when the job is falling behind schedule.

Control is thus a diffused activity (in the shops) and includes functions such as dispatching, progressing and expediting.

FUNCTIONS OF PRODUCTION PLANNING AND CONTROL:

Production planning and control is normally assigned two sets of functions: (I)Regular functions and (ii) Optional functions.

(i) Regular functions are those, which are generally assigned to PPC in most of the organizations through the importance of the function, may vary from industry to industry.

(ii) Optional functions are those, which may be assigned to PPC depending upon policy of the management of the firm.

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Common (or Regular Functions Optional Functions

Order Preparation includes activities like making of work orders, converting work orders to shop orders, preparing auxiliary orders and releasing such orders to those concerned to authorize their activities

Materials control concerns preparations of materials estimates, indenting non-stock materials, ascertaining availability of materials purchased to stock, continual follow-up with purchase and stores for timely receipt of materials, and advising stores to allocate required quantities or available materials (alternatively on their receipt) against specific shop orders.

Process planning or Routing concerns fixation of method of manufacture: operations and their sequence, machine tool for each operation, jigs and fixtures, measuring instruments and gauges etc. to enable shops to produce goods of the right quality at the lowest cost.

Tools control concerns preparations of estimates of cutting tools (Standards as week As non-standards tools), gauges and measuring instruments, jigs and fixtures etc indenting non-stick tooling: follow up with tool room for timely manufacture of jigs and fixtures; periodical replenishment of worn-out-non-consumable tooling (e.g. work arbors, collets, copying masters, Allen keys, spanners, etc.

Scheduling concerns preparation of machine loads, fixation of calendar dates of various operations to be performed on a job, coordination with sales to confirm delivery dates of new items and periodical preparation of dispatch schedules of regular items.

Dispatching concerns preparation and distribution of shop orders and manufacturing instructions to the

Cost Estimation concerns preparations of Preproduction cost estimates to be used by sales department for quotation purposes (Alternatively this may be assigned to Costing Department Or Industrial Engineering Department)

Work measurement concern fixation of time to be allowed to a qualified workman to carry out a specific task, under specified conditions and at the defined level of performance. Work measurement employs scientific, well-known techniques like time study, work sampling standard data, production study, analytical estimating etc. (Alternatively, work measurement function may be assigned to Industrial Engineering department.Sub-Contract concerns offloading of certain work on outside vendors for economic reasons or to augment the existing manufacturing facilities (Sub-contract work alternatively) be handled by Materials/purchase Department)

Capacity planning concerns estimation of requirements of men and machines as the basis of decision making to meet the firm’s increased volume of business (Some companies prefer to assign this function to Engineering department.

Demand forecasting concerns making projection of company’s product market. Though, long term forecasts are given by Sales Department but short term forecasts required for materials planning, machine loading, sub contracting etc may be prepared by PPC department

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concerned department as their authority to perform the work according to the predetermined schedule.

Progressing concerns collection of data from manufacturing shops, recording of progress of work, and comparing progress against the plan.

Expediting concerns intensive progress chasing to identify delays and interruptions which may hold up production, devising cures from time to time to keep rate of production in line with the schedule, communicating possible failure in delivery commitments to Sales Department.

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Q.12 (a) What is critical path? What does it signify? How is it identified?A.2) (a) Critical path analysis, an important aid to planning, scheduling and coordinating the activities if large scale projects. Is a synthesis of two independent techniques: Programme Evaluation and Review Technique (PERT) and Critical Path Method (CPM). Though the two techniques were developed independently, they are only superficially different. The two method have many features in common and are now combined into a technique called Critical Path Analysis (CPA) or Network Analysis.

There are three basic different between a PERT network and CPM network:

PERT is event oriented while CPM is activity oriented (i.e. PERT prepares network from events while CPM builds if from activities)

PERT provides for an allowance for uncertainty while CPM does not (i.e. PERT makes three time estimates for each activity while CPM makes one time estimate)

Activity time in CPM technique are related to costs while it is not so in PERT since it is event oriented

Significance of critical path:Critical path analysis offers several advantages. It

(i) Forces through pre-planning. Each and every activity compromising the project is identified and recorded. Nothing is left to memory or chance which prevents crises in scheduling

(ii) Increases coordination of tasks as technological relationship between the activities suggests which activities can run simultaneously and which should succeed others.

(iii) Helps computations of different project duration’s for different level of resources and thereby select a plan that minimizes total project cost.

(iv) Indicates optimal start and finish times of each activity of the project.(v) Defines areas of responsibility of different departmental heads for timely

execution of the project.(vi) Facilitates progress reporting and limits unnecessary discussion at the

progress meetings.(vii) Identifies troubles spot often in advance and apply remedial measures.(viii) Enables the plan to be revised in accordance with changes/changing

circumstances.(ix) Helps to exercise “control by exception” and prevents cost overruns.

A Project comprises a series of activities and the identification of the individual activities requires knowledge and experience of the men responsible for the planning of the project. Even the preliminaries-mere listing of the activities-make the operating personnel:

Think of details about the project well in advance.

Observe critically the way in which the various activities interact or compete for scarce resources

Improve upon the original plans even before network is formally drawn and analyzed.

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A project, therefore, must be torn into a set of identifiable activities. There are no set rules but general guidelines are as under:

An activity should represent the smallest unit of the operation or set of operations over which management desires control.

An activity should represent an operation or set of operations, which can be performed using a particular kind of equipment or a special skill. For example in construction project, plumbing is considered as one activity while wiring can be considered as another activity since the first activity requires plumbers and the second activity needs electricians.

Q.12) (b)

Activity Optimistic Most Likely Pessimistic1-2 02 03 101-3 02 04 061-4 02 06 102-5 01 01 013-5 04 05 124-5 02 03 044-6 02 05 085-6 03 05 13

Solution:

(a) Expected time of an activity can be obtained from the three time estimates using the formula:

te = a + 4m +b 6

where a = Optimistic timem = most likely timeb = pessimistic time

For activity (1-2)a = 2m = 3b = 10

te = 2 + 4 x 3 + 106

te = 24 = 4 6

Expected times of all activities of the network, calculated on above lines, are tabulated below.

Activity Three time estimates Expected time1-2 02-03-10 41-3 02-04-06 4

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1-4 02-06-10 62-5 01-01-01 13-5 04-05-12 64-5 02-03-04 34-6 02-05-08 55-6 03-05-13 6

5

6 36

4 6

4 1

Critical path is 1-3,3-5,5-6 and the duration for the project is 16 weeks (4+6+6)

Variance is Vi = (b –a) X (b – a)

6 6

V1-3 = 49

V3-5 = 16 9

V5-6 = 25 9

V = V1-3 + V3-5 + V5-6

V = 5

Standard deviation Z = T - Tcp

= 19 -16 5

= 3 2.236

= 1.34

The approximate probability value when Z = 1.34 is 0.9099

The probability of completion of critical path by the schedule time of 19 weeks = 91%

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1

4 6

2 5

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Q.5) What is preventive maintenance? Why it is better than Breakdown Maintenance? What are the key activities of Preventive Maintenance?A.5) Preventive maintenance anticipates failures and adopts necessary actions to check failures before they occur. It includes activities like inspection, lubrication cleaning and unkeeps, minor adjustments and replacements found necessary at the time of inspection etc. Preventive maintenance can be either: running maintenance or “shut down maintenance”. Running maintenance includes maintenance activities (e.g. minor adjustments In machines revealed through inspections, lubrication, cleaning and unkeep etc.) Which are carried out when the machine is still running. Shutdown maintenance includes preventive maintenance activities such as minor component replacement whose needs are identified through inspections, which require stoppage of Machines. Preventive inspection is one of the key activities of preventive maintenance which is usually performed by making use of human senses – watch) eye), listen (ear), Touch (hand, leg, body) smell (nose) and taste (tongue) – but the trend is Changing towards use of condition monitoring instruments. Such maintenance. Practice is known as predictive maintenance or condition based maintenance.

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Q.10) (a) What are X-R Charts? How are they made and used in controlling a process?A.10) X-R chart is a pair of chart consisting of a average (called X chart) and a rangeChart (called R chart) placed one below another on a piece of graph paper. The X chart is used to control the mean value of the characteristic an R-chart is used to restrict the range of variations in the values. X-R charts are drawn when the characteristics are measurable. Each chart consists of three values: a central line, upper control limit and lower control limit. The central line represents the arithmetic average of the sample means which equals the mean of the population, u. The upper and lower control limits are located at three standard deviation on either side of the central line.Samples of fixed size are drawn at regular intervals and measurements are taken. The samples wise values of the mean and range are plotted in their respective X and R charts.The spread of sample points in the charts is studied to decide the remedial action (if any) to be taken. The X chart analyses whether or not the mean of the quality Characteristics is within control while R-chart analyses whether or not the variability is within control. STEPS TO PREPARE X-R CHART

A pre-requisite to the preparation of the chart is the decision on the following aspects:

Quality Characteristics refer to the property of the product, which is to be assessed. The quality characteristics must be capable of being measured. In case of more than quality characteristics, separate chart is made for each quality characteristic.

Sample size refers to number of pieces comprising each sample. Sample size is an important decision. It is a common practice to use sample of n = 4 or 5 to have low appraisal cost. Large samples such as n = 15 or 20 are used if the process standard deviation is large.

Sample Population refers to the number of samples to be collected to construct a control chart. The number of samples must be sufficient. Usually, 20 samples each of size 4 or 5 are enough to have good estimates of the process average (X) and dispersion (R).

Time Interval measures the time gap between consecutive samples. Time interval, as a genera rule, should be proportional to the average frequency of out-of-control conditions. It is a fairly complex decision since a number of factors such as cost economy, susceptibility of the process to disturbances; convenience of the inspector etc. requires to be considered.

The making of X-R Charts involves the following Steps:

Step 1: Collect Data

(a) Collect sufficient samples spread over a reasonable period. Each sample must be of equal size.

(b) Measure each component comprising the sample for the given quality characteristic

(c) Record individual measurements on a work data sheet.

Step 2: Calculate mean (X) and Range (R) of each sample

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A The mean which is written as X (X bar) is average of each sample and is

Obtained by totaling the individual measurements of the units comprising the sample and dividing the total by the sample size (number of units in each sample)

B The range, which is written as R, is obtained as the difference between the highest and the lowest measurement of a sample.

C The values of X and R are recorded sample wise either on the extreme right of the individual measurements on the data sheet or in a separate table.

Step 3: Calculate grand Average (X) and mean Range (R)

A The grand average, which is written as, X (X double bar) is the average of the sample averages and is obtained by dividing the total of the averages of all the samples by the total number of samples.

B The mean range, which is written as, R (R bar) is the average of the ranges and is obtained by dividing the total of the ranges of the samples by the total number of samples.

Step 4: Set up Control chart for the average

A Set up a control chart with the central line drawn at X (X double bar), upper control limit located X + A2R (R bar) and the lower control limit set up at X-A2R.

B Plot the averages to see whether the process was under control when samples were drawn.

C If all points fall within the control limits, the process is said to be under control

D If process is not under control (indicated by some points falling outside the control limits), eliminate points outside the control limits and compute new trial control limits for the remaining points.

E Repeat step 4 (d) until all points fall within the control limitsF Control limits in a particular situation should be revised from time to

time as additional data is accumulated.

Step 5: Calculate control limits of the range chart

A The control chart for range chart is set up with central line as R, upper control limit (UCLR) located at D4R above the central line and lower control limit (LCL) at D3R below the central line

B Plot the value of the range of each sample.C If all points fall within the control limits no modification is necessary

unless it is desired to reduce the process dispersionD if range chart exhibits lack of control indicated by some points falling

outside the control limits, eliminate those points out of control and compute new trial control limits

E Repeat step 5 (d) until all points fall within the control limits.F Control limits in a practical situation should be revised time to time

as additional data is accumulated.

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Step 6: Use control chart

A Collect samples of fixed size at specified intervals of time.B Measure each unit of the sample for the quality characteristics,

calculate mean and the range of each sample.

C Plot the values of X and R of each sample in their respective chartsD Study the trend of the points to interpret and suggest remedial

action

(b) ABC company produces a solvent, which must contain 3 percent of alcohol. It tries to maintain the actual percentage at 3 + 0.3 percent. It tests hourly in samples of five. The following table shows the results of last five samples. Set up a control chart for mean and examine whether the process is under control.

A) Solution:(i) Collect data(ii) Calculate mean (X bar) and range(R bar)

Sample No. Arithmetic Mean (X bar)

Range(R)

1 2.92 0.32 2.98 0.13 3.06 0.14 3 05 3 0.2

(iii) Calculate grand average and the mean range

X(X bar) = 2.92 + 2.98 + 3.06 + 3 + 3 5

= 2.992

R = 0.3 + 0.1 + 0.1 + 0 + 0.2 5

= 0.14

(iv) Set Up control chart for the average

Central Line = CLx = X(X bar) = 2.992

Upper Control Limit = UCLx = X (X bar) + A2.R(R bar)

= 2.992 + 0.5768 x 0.14

= 3.476

Lower Control Limit = UCLx = X (X bar) - A2.R(R bar)

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= 2.992 - 0.5768 x 0.14

= 2.507

(v) Set up a range chart

Central line CLR = R(R bar) = 0.14

Lower control limit = LCLR = D3.R (R bar)

= 0 x 0.14

= 0

Lower control limit = UCLR = D4.R (R bar)

= 2.114 x 0.14

= 0.29596

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Q.6) What is method study? Describe the procedural steps to develop easier and effective methods.A.6) Method study is the systematic recording and critical examination of existing and proposed ways of doing work, as a means of developing and applying easier and more effective methods and reducing costs.

Method study is an organized approach and its investigation rests on the following six basic steps outlined in the block diagram

Select the work to be analyzed. Record all facts relating to the existing method. Examine the recorded facts critically but impartially. Develop the most economical method commensurate with plant

Requirements Install the new method as standard practice. Maintain the new method.

Selection of the job

Selections of the jobs to be studied for methods improvement by the method study practioner is a managerial responsibility and it (selection) may be based on economic technical or human consideration. Economic consideration justifies selection based on the economic worth (i.e. money saving potential) of the job.Technical consideration identifies jobs, which require studies to overcome manufacturing difficulties (excessive rejection, relaxation in prefixed performance standards, inability if the shops to stick to specified machining parameters such as speeds, feeds, depth of cut etc., inconsistent quality etc.) Human consideration in job selection is usually given weightage while introducing method study practices for the first time.

Recording of facts

Systematic recording is the most crucial step in method improvement. Since recording by long hand (or by descriptive method) has its limitations, it is not recommended for use in method study. Instead, five symbols and eight charting conventions are used to record facts relating to the job under study. Five typical symbols are O, ||, , D and V and eight charting conventions concern composition of the chart, reject, rework, repletion, change of state, introducing of new material, combined events and numbering of events. The document on which details of the process are recorded by the above referred symbols and conventions is called chart. There are four basic types of chart: (i) operation process chart (ii) Flow process chart (iii) multiple activity charts and (iv) two handed process chart.

Besides charts, two types of diagrams-flow diagram and string diagram are drawn when recording details of an existing layout. Travel chart is another typical chart, which is used to record frequency of movements (weight x distance) between work centres/departments.

Repetitive short cycle operation which involves quick hand/feel motions (i.e. microscopic motions) may be studied with micro motion study. Glibreth, founder father of micro motion study, also developed photographic techniques

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called cyclograph and chronocylegraph to record path of the motions of the members of the body.

Critical examination

Critical examination aims to analyze the facts critically and thereby give rise to alternatives, which form the basis of selection and development of easier, and effective methods.

Critical examination is conducted through a systematic and methodical questioning process. Each activity recorded on the chart, whether it relates to processing or inspection, or material handling, or to any other aspect, is picked up one at a time and is examined minutely. The questioning process is considered under five major heads, namely the purpose, the place, the sequence, the person and the means. These five aspects in critical examination are referred to as five governing considerations.

Development and selection:

Development and selection stage concerns short listing of ideas generated at the critical examination stage, testing each short listed idea for its technical and economic feasibility, and making selection among the alternatives wherever choice exists. To develop ideas and to ascertain their technical and economical feasibility, the method study practioner needs to solicit the cooperation of personnel from different departments of the company. Various techniques available for the development and selection purpose are: cost benefit analysis, break even analysis, investment analysis and critical path analysis.

Installation

‘Installation’ (or implementation) of the proposed method involves preparation of project report on recommendations making oral presentation to the top management, securing approval of the decision maker, assisting line management during implementation, arranging training of workmen, and getting jobs (operations) retime after implementation, arranging training of workmen, and getting jobs (operations) retimed after implementation.

Maintenance

“ Maintenance” phase is the follow up phase after implementation, which serves as a monitoring and control mechanism. It helps to ensure that the revised methods are set into concrete and workmen do not revert back to old methods. It also provides an opportunity to the practitioner to assess the effectiveness of the approach followed by him and makes changes in the methodology (if required).

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Q.9) (a)What desirable conditions need to be present to be present to guarantee success of an incentive scheme?A.9) A good wage incentive plan should have the following characteristics.

Administrative simplicity: The incentive system should be simple and must be easily understood by the workers and their representatives. An incentives scheme, which can be understood, only by engineers and mathematicians or a scheme which involves the use of complex formulate or references and cross-references is sure to fail. The incentive scheme should be such that workmen can calculate their own earnings easily and quickly.

Minimum clerical work: The system should fit into existing system of production and cost control. It should not involve any significant addition to the clerical work.

Maximum coverage: The system should cover as many workmen as possible. A scheme if applied to a few workmen creates a demoralizing effect on the morale of those not covered by the scheme.

Direct Incentive payments should increase at least in direct proportion to the increase in output by the operator. There are two reasons:Firstly because it is more difficult to producer extra units and secondly because saving in the overheads are far greater at higher levels of production.

Period of Payment The period of payment should be as short as possible

Adequate guaranteed minimum hourly rate The scheme must ensure adequate guaranteed minimum hourly rate to all incentive workers regardless of their output. Such an hourly guaranteed rate is normally referred to as the guaranteed base rate.The guaranteed base rate must be realistic and should be at least equal to the hourly rate payable to a non-incentive worker doing similar job in the industry. Incentive earnings of the workers should never be regarded as a substitute for poor wages.

Accurate and yet attainable performance standards Performance standards should be set through systematic work measurement studies. The experts to that there is no dispute or malpractice and yet the standards are attainable so that a worker working at normal pace can attain them should base the standards of measurement on the assessment.

Further the incentive plan should be such that it provides an opportunity to all average workers to earn reasonable earnings.

Consistency of the standards Standards once fixed should not be changed unless there is a permanent change in methods, or change in equipment, or change in material and plan should provide for the provisions to modify the performance standards.

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Inbuilt check on process rejections A good incentive scheme should exercise a check on the operator against achieving higher bonus by poor workmanship. Payment should be made only for pieces declared acceptable by the inspection department and a workman constantly producing substandard pieces should be liable for disciplinary action.

Payment of partially completed jobs The problem of payment for the incomplete work arises only in case of long cycle jobs. Situations do arise when the jobs are of very long cycle duration and cannot be finished within the bonus period. Similarly, a semi-finished job may require to be handed over by one operator to another at the end of shift, or prior to having a holiday. The scheme should clearly spell out as how assessment of work done by the workmen on the same job will be carried out and how disputes arising out of such assessment would be resolved.

Payment of Idle Time Adequate safeguards must be provided to compensate the operator for the time lost due to reasons beyond his control. A good incentive scheme should ensure that an operator does not suffer financial loss for reasons attributable to the managerial weakness, e.g.: lack of material due to bad buying, breakdowns of the machines due to poor maintenance practices, non-availability of work etc. Thus an operator rendered idle because of factors attributable to the management should be given a lieu bonus.

Safeguards The scheme should be fair not only to the employees but also to the employer. Safeguarding clauses as under should be incorporated to protect.

a. Management’s right to change a standard when there are changes in methods. Materials and machines

b. Management’s right to withdraw or discontinue temporarily a scheme during bad period.

c. Management’s right to initiate disciplinary action against operators who continually produce sub-standard articles.

d. Management’s right to initiate disciplinary action against employees who, time and again, do not achieve minimum standard of production even in the presence of fair and accurate standards.

e. Management’s right to initiate disciplinary action against employees who, time and again are found using speeds and feeds higher than those recommended in the process sheet (or operational layouts)

Maximum ceiling on the earnings The system should have built-in-control against higher earnings beyond a certain limit. Firstly, the system should discourage workers to work beyond a certain limit otherwise too attractive an incentive scheme may induce the worker to work more and more and thereby adversely affect his health. Secondly, the system should ensure that in case of loose standards the company does not lose financially.

Consistency of Plan The plan should be consistent over a period of time. Frequent changes in the plan make it’s functioning difficult. Faith in plan is lost if there are frequent revisions.

Acceptance of Labour Body

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The scheme should finally have acceptance of the labour body. The body of workers’ representatives to prevent any misunderstanding and ill-feeling later on must accept the basic incentive plan and its provisions.

Continuous Use The scheme should be in continuous use. The temporary use of the scheme in good times and its discontinuation in bad times makes it’s functioning difficult.

Define End Results The plan must result in reduction in per unit labor cost.

A 13)i) Average Cycle time = 0.22 + 0.24 + 0.28 + 0.26 + 0.25

5

= 0.25

Normal Time = Observed time x Rating 100

= 0.25 x 80 100

= 0.2

Similarly, average cycle time and normal time for all the elements are calculated and tabulated as below

Element Avg. cycle time Rating Normal timeA 0.25 80 0.2B 0.15 100 0.15C 0.35 120 0.42D 0.102 90 0.0918E 0.12 100 0.12

Total Normal time = 0.2 + 0.15 + 0.42 + 0.0918 + 0.12

Total Normal time = 0.9818

ii) Relaxation Allowance = 15 x 0.9818

100

= 0.1473

Contingency Allowance = 5 x 0.9818100

Standard time = 0.0491

Normal time + Relaxation Allowance + Contingency Allowance

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= 0.9818 + 0.1473 + 0.0491

Standard time = 1.1782

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SCDL - PGDBA - Finance - Sem 2 - Production & Operations Managment

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