INDEX

S. No Topic Page No.

Week 1
1 Operations Management: Basics 1
2 Operations Management: Objectives 16
3 Operations Management: Functions and Scope 33
4 Types of Production Systems 48
5 Operations Strategy 65

Week 2
6 Product Life-Cycle 83
7 Value Engineering Concepts 99
8 Design for X (DFX) 116
9 Ergonomics in Product Design 133
10 Rapid Prototyping: Concepts, Advantages 153

Week 3
11 Sales Forecasting 170
12 Forecasting System 187
13 Qualitative Methods of Forecasting 205
14 Quantitative Methods-1 221
15 Quantitative Methods-II 243

Week 4
16 Facility Planning 258
17 Factors Affecting Plant Location 275
18 Plant Location: Case Study on Uttarakhand 291

19 Location Evaluation Methods I 305

20 Location Evaluation Methods II 320

Week 5
21 Communication Breakdown Part I 336
22 Communication Breakdown Part II 353
23 Factors Influencing Plant Layout 373
24 Material flow patterns 389
25 Tools and Techniques used for Plant Layout Planning 407

Week 6
26 Production Planning and Control 424
27 Process planning 438

28 Aggregate Production Planning 458

29 Capacity Planning: Introduction 478

30 Capacity Planning Examples 495

Week 7
31 Report Writing 500

32 Project Scheduling 513

33 Critical Path Method 544
34 Critical Path Method: Problems – 1 563
35 Critical Path Method: Problems – II 576

Week 8
36 Program Evaluation and Review Technique (PERT) 591
37 PERT Problems-I 606
38 PERT Problems-II 620

39 Time Cost Trade Off (Crashing) 633

40 Project Network: Crashing Problems 643

Week 9
41 Production Control 662
42 Sequencing 679
43 Sequencing Problems – I 697
44 Sequencing Problems – II 717
45 Master Production Scheduling (MPS) 736
 Week 10
46 Concept of Quality 752
47 Total Quality Management (TQM) 768
48 Total Productive Maintenance 785
49 Statistical Quality Control (SQC) 800
50 Six Sigma 817

Week 11
51 Materials Management 835
52 Inventory Control 848
53 Economic Order Quantity (EOQ) Models 865
54 Economic Order Quantity (EOQ): Problems 878
894
55 Production Quantity Model

Week 12
56 Just in Time (JIT) 913
57 Kanban System 931
58 Materials Requirement Planning (MRP)-I 947
59 Materials Requirement Planning (MRP)-II 963
60 Enterprises Resources Planning (ERP) 981
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 01
Operations Management: Basics

Namaskar Friends, welcome to session one in our course on operations management. So,
today we are going to start our discussion on an important topic that is operations
management. Now before starting this topic let us focus on the two words that is
operations and the management.

Now in operations if we say this is not a new word, we are conducting operations may be
for the last 200, 250, 300 years, the raw materials are being converted into the final
products by transformation processes. Transformation can be a physical transformation,
it can be a chemical transformation, it can be a thermal transformation. So, using any
transformation process; we convert a raw material into the final product.

So, that is the basic fundamental definition of an operation, in which we convert a raw
material into the final product using any transformation process. This is related to the
tangible outputs in terms of products. In today’s scenario, we have operations in terms of
hospital industry, we have operations in term of aviation industry, we have operations in
term of banking industry also, which we term as the service operations.

So, we can have mechanical operations, we can have service operations, we can have
other type of operations also. So, basically first and foremost function that we need to
understand is an operation in which the inputs are converted into outputs. In our first
definition, where we talked about the physical transformation of the raw material; the
raw material can be any product, it can be any physical thing. For example, it can be
coal. So, coal you do a thermal transformation you can burn the coal you can convert
water into steam. So, the input can be coal and water and then the output can be steam.
So, you are using a thermal transformation.

So, another transformation can be, you take wood that is I think a better example. You
take wood you cut the wood, chisel the wood and then you can make a axe. So, you have
a handle of an axe made up of wood and then you have a metallic piece which is used for

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the cutting action. So, you have two inputs there, you do some transformation and you
finally get a product.

So, those are the tangible products in which you convert the raw material into the final
product. In services also, you have people as input, you have systems as input and then
these people work on the systems to deliver you an output. For example, in hospital you
go there with the ailment the people, the doctor, the nurses, the paramedical staff, with
the help of instruments and equipment will work on you and will send you to your home
hale and hearty or with happy faces.

So, basically the in case of any operations, we use inputs and we finally get the outputs.
Now, first and foremost we must be able to understand the word operations that we are
going to study today in our first session then comes the management. Now management
means that we have to take care of these operations in the most effective and efficient
manner. We must be able to utilise our resources.

We must be able to convert our inputs into the outputs, in the most efficient and effective
manner. Now, how to ensure that efficiency and effectiveness, we will use we can use
certain management principles which can help us to optimise the use of our resources
and that will help us to get profit for the organisation or to bring the organisation into the
competition with the existing organisations.

So, management will help direct guide coordinate. You can use number of adjectives to
help the organization in order to convert the raw materials into the final product in the
best possible manner. So, in operations management our focus will primarily be to use
the concepts of management in order to manage our operations.

In order to do our operations in the best possible manner, in order to conduct our
operations in the best as well as most effective and efficient manner. So, we can have
different types of management of different functions in which the management can be
applied. Sometimes, we talk of industrial management; so, there we talk of management
in terms of the industrial aspects.

So, we talk of behavioural aspects also, morale of the employees and different aspects
are taken into account in wage and incentives that we pay to our employees; so,
everything comes under industrial management. We can have a topic of time

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management, in which our focus will be on time only; applying the principles of
management for better management of our time, then we can have other forms of
management also.

Sometimes, we read a book called change management; suppose you want to change
from one particular situation to another particular situation or you want to change from
one particular segment to another particular segment, then you need to do the change
management; you need to change from one place to another place change management
comes handy. So, there we apply the principles of management for managing the change.

So, principles of management may have a particular skeleton of those we have to adopt
and try to apply these guiding principles, rules, regulations, procedures into a particular
function. So in operations management that important function are the operations; so
operations, as I have already explained will help us to convert our inputs into the tangible
outputs. And these management principles will be the guiding forces, which will help us
to better manage our operations, to effectively efficiently transform our inputs into the
output.

Now if we try to understand that what can be the major objectives of operations
management; just to have a rough idea, that why do we need to do operations
management? If I am running a company and we are producing a product what I will
keep in my mind while doing this transformation in my factory, we are converting the
raw material into the final product.

What will be the focus? The focus will primarily be on the quality of the product that I
am producing. The focus will be on the quantity that I have promised to my customers.
The focus will be on that timely delivery of this consignment that I have agreed upon
with my customer. Then, I have to ensure that my prices are competitive my cost is
competitive with that of the competitors’ cost.

So, there are four important points that I have highlighted just now. First one is the
quality, quantity, time and the cost. So, these four things are the guiding principles in
case of operations management. So, when we are managing our operations when we are
doing our business, we have to always keep in mind that our business should be such that
we are able to meet these four objectives. We must be able to produce good quality, we
must be able to satisfy the customer quantity wise that if he wants a particular amount of

3
our product, we must be able to deliver that in a timely manner as well as in a cost
effective manner.

So, though these four words are very important and therefore, we need to apply the
principles of management for managing our operations or for conducting our operations,
so, that we remain in business we are competitive and the company further improves on
the path of growth and progress.

So, basically our focus has to be on conducting the operations in such a way that we are
competitive and we are successful and for that reason we are doing this course we are
running this course. So, that after going through the course maybe this course as all of
you may be knowing that this is the 30-hour course in which we will have 60 sessions of
half an hour each and the course will be conducted in 12 weeks. So, all of you are aware
of the basic you can say framework of the course.

So, the course is designed in such a way that after going through the course what are the
learning outcomes or the learning objectives of this course. After conducting or after
going through this course, you must be able to address various issues related to
operations management. I must address here that you may not become an expert of each
and every aspect of operations management, but you will have an overall idea that what
are the important aspects what are the important topics or what are the important
functional areas in which you must develop your understanding further. So, that you
become a good operations manager.

Now, important topics can be starting from the conceptualization of the product you need
to find out new and new products which are required in the market and for that you need
to do need analysis, you need to work on product design and development, you need to
conceptualize a product, you need to think of various aspects during the designing of the
products. So first thing is, what the company must produce that answer will be found out
after going through this course.

Then, how it has to be produced? In what quantity it has to be produced? How to do the
production planning? How to check whether we are going with our plan or not or we are
digressing from the paths that we have identified during the planning stage. So, all these
answers we will be able to answer scientifically and logically after going through the
course. So, then further you can make your understanding much more clearer, much

4
more advanced, after going through specific topics and then going into each topic in
much more detail. But our focus will be that in these 30 hours, we have a overall picture
of the subject and from academic point of view the learners who have registered for the
course and they are doing the similar course in their college or university or in the
institute, they will get adequate information.

So, that they are able to perform well in the exam that is related to operations
management. So, the target of our team, for running this course is that all engineers, all
managers have an idea about various tools and techniques that can be adopted for
managing the operation. So, the overall objective I think I have tried to highlight in this
brief discussion in the beginning of the course only.

Now, I will switch over to the presentation because every session will be of half an hour
duration only. So, we will be focusing on the various aspects both in one to one
discussion as well as with the help of a presentation, which can help you as notes that
you can follow when you prepare for the assignments as well as for the examination. So,
we will try to understand the basic definitions of operations management and try to
understand that what all we are going to cover in this complete course of 30 hours
duration.

(Refer Slide Time: 12:45)

5
On your screen, you can see the Operations Management and the source is also
highlighted. You can see in operations management there are lots and lots of things that
intermingled with each other most of the topics are interrelated to each other.

So, as I have already explained input output. So, the input is converted into the output.
So, you have input output relation. Then there are resources, so resources can be inputs
that you convert into the output. So, resources can be, we can have raw material
resources, sometimes our transformational resources will be there. We have specific set
of machines equipment that.

We can use for converting our raw material into the final product. Then, there are
requirements based on the demand we know ‘how much we must produce’. Then, there
is a control. We have to see that we have planned that we will be producing 500 cars per
week. So, we have to check, whether in the last week, we have produced 500 cars or not.
Suppose, we have produced 480 cars only; that means, that we are lacking by 20 cars.
So, we have to expedite, we have to pull up our socks we have to speed up in the next
week and we must ensure that in the next week we produce 520. So, that we are able to
take the backlog of 20 into account.

So, that is what is related to control. We have planned something 500 cars per week, but
in a particular week if we are lacking next week, we have to make it up, then supervision
overseeing that is also important planning cost. All these are the catch words, key words
that are very important in context of operations management, but here it is showing the
inter-relationship that each parameter has to be taken into account in and you can say
objective of managing our operations in our target of managing our operations.

So, each and every aspect we have to take into account and each one of these are
interrelated to each other. But it is easier, when we have a structured discussion on the
various topics. Although each and every topic is interrelated to one another, but then
once we focus on each topic individually, we will be able to appreciate their relation
amongst themselves.

For example, suppose we are able to study sales forecasting, we will be able to use that
number in sales forecasting, what do we do? We use various techniques. There can be
qualitative techniques, there can be quantitative techniques, so, forecasting and then we
forecast a number, that in the next year this is the sales forecast. Now, how that forecast

6
number can be used it will be used for aggregate production planning. It will be used for
planning of our resources, it can be used for materials management. So, it can be used for
materials requirement planning. So, it is related to the other aspects of operations
management also.

So, sales forecasting, we will have a structured discussion that what are the various
methods of sales forecasting the output of sales forecasting will be used at the next level
of planning in which we will see that how we have to use our resources. So, all these
aspects are interrelated. So, if we have a solution to one important topic or one important
problem, it will help us to solve many other problems in the downstream or in the down
line.

So, that is very, you can say important at the very first session only, to understand that
each of the topics are not stand alone topics, they are interrelated their inter mixed and
we need to understand the subject not learning the various topics individually, but
learning them in context of the overall objective of Operations Management that is to
ensure the good quality products are produced in right quantity at right time and at
competitive cost. So, this overall objective always has to be kept in mind and each topic
has to be studied in its context of other topics or in its reference to the other topics or in
its relation to the other topics.

Now, what are operations? I think now, we will slightly speed up in today’s presentation
because whatever I wanted to explain, whatever is given in the presentation, I have
already explained with certain examples.

7
(Refer Slide Time: 17:38)

So, what are the operations the aspect of a business organisation that is responsible for
producing goods and services, I have already highlighted with example of axe, with an
example of a hospital. That, these operations are those aspect of business organisation
that is responsible for producing goods or services. A function or a system that
transforms inputs into outputs of greater value, so you have a wooden block or you have
a wooden piece which has very less value, but when you transform it, you play in it your
machine it you remove the wood you give it a particular shape and then it can be used as
a handle for a axe, you are adding value to that log of wood.

So, now that wooden log has been converted into a handle of an axe by transforming it
by removing certain material from the log of wood. So, this is a function or operations, is
a function or a system that transforms inputs that is a log of wood into the output, that is
a handle of an axe which is off greater value.

8
(Refer Slide Time: 18:51)

Now, operation management deals with the design and management of products,
processes, services and supply chains. So, we can see that different types of aspects are
related in operations management. We have to look at products we have to look at
processes, we have to look at services that we are rendering, or our operations are
rendering to the customer and we have to look at the overall supply chains starting from
the raw materials to the final delivery of the product to the customer at his doorstep.

So, that complete supply chain is also aspect that can be covered in operations
management. So, here the focus will be on design and management of all these four
important aspects starting from products to the final supply chain. So, as I have already
told our focus will be on product design and development. Our focus will be on
aggregate production planning, our focus will be on capacity planning. So, we will be
focusing on these aspects by learning the various tools and techniques which can help us
to manage these four aspects of operations management.

Now, what is operations management; just a very fundamental definition the business
function responsible for.

9
(Refer Slide Time: 20:10)

Now, this is a business function which is responsible for planning, coordinating and
controlling the resources. Now you can see, there are three important words written in
blue planning, coordinating and controlling. What do we need to plan? What do we need
to coordinate? What do we need to control the resources? Now we need to see, we need
to plan that when we have to place an order for the raw materials. In how much quantity
we need the raw material. Then what are the inspection procedure that we need to do on
the raw material.

So, we need to plan for the materials, we need to plan for the workforce, how many
people are required? When they are required? What are the skill sets that are required for
these workers? Then, we need to plan for the money, that how much money will be
required to make this many number of products, from where that money will come. How
we need to generate our resources in terms of money? So, that we are able to satisfy the
demand of the customer.

So, we need to plan, we need to coordinate, we need to control the various resources,
why, because, these resources are needed to produce the products and services for the
company. So, we need to check that we are able to meet our objective of satisfying the
demand of the customers. So, once again I will read this, a very important definition of
operations management that the business functions responsible for planning,
coordinating and controlling the resources needed to produce products and services for a

10
company. The science and art of ensuring goods and services are created and delivered
successfully to the customers. So, we need to ensure that goods and services are created,
created means they are produced, they are fabricated, they are processed and delivered to
the customer and important adjective that I have missed is, delivered successfully to the
customer.

Now, for how to, we can say define the word successfully, how to understand the word
successfully, now successfully we can say that if the quality of the products and services
that we have produced, if the quantity that we have promised, if the cost is competitive,
if we are able to ensure the timeliness of delivering our products and services. So, if we
are able to focus on these four words.

That is the quality, quantity, time and cost only, then we can say that we have
successfully rendered the products or services to our customer and that is the basic target
of Operations Management that we are able to satisfy our customers. So that, they
become loyal to the brand of our company and they feel satisfied and confident in buying
the product from our company. So, the overall target of operations management is to be
competitive and in order to satisfy or I must say be competitive by ensuring the
satisfaction of the customers.

(Refer Slide Time: 23:48)

Now, this is a transformation process, the slide looks slightly busy, but we can very
easily understand the transformation process. There are inputs. The inputs can be land,

11
people, capital, information, materials, then we have transformation process that is the
transformation or conversion process. So, we can take any example, I have taken an
example of an axe today in which we use wood as a raw material and then we convert it
into and final product that is axe.

Then the outputs can be goods or services. So, basically the transformation process
involves any change or value added change in the raw materials, in order to get the final
product. So, that is the output, but in output, output can be of two types. Output can be, it
can be acceptable output or it can be a non acceptable or faulty outputs if you do not get
the output as per your requirement, so that we will check using our control function. So,
we have a specific set of inputs there is a transformation process and then we get our
output or the output in terms of products or services or goods.

Now, we already have planned, we know the specifications of our output. So, we will
match these specifications we will match these characteristics that we look forward to in
our product. If the characteristics are met, we will say yes this is unacceptable product.
But suppose the characteristics or specifications are not met the quantity is not met, we
will say no, this is not satisfying the laid out criteria. Then there is a provision of sending
a feedback there is a feedback mechanism.

Now we will measure we will try to control the output if we are out of control, as per our
measurement we will send a feedback and that controlling mechanism will help us to
fine tune to relook at our inputs as well as the transformation process. So, that we are
able to come back on track, we are able to rectify the problems or the issues that have a
reason and that have led to not meeting the target or that have led to a faulty output and
that faulty output has to be corrected with the help of a controlling mechanism or the
feedback mechanism.

So, this is the broad gambit of operations management, we have to manage the inputs we
have to manage the transformation process, we have to manage the output that we are
producing. So, that we are able to justify we are able to provide a good quality product to
our customer. Now, why do we need to study operations management. I think, this is
going to be the last or the second last slide for today’s discussion.

12
(Refer Slide Time: 26:48)

So, operations management is an integrative body of knowledge, whose skills are needed
in industries as diverse as health care, education, telecommunication, hospitality, food,
service, banking, consulting and as well as the last one, which is most relevant to us that
is manufacturing.

So, this is important not only from manufacturing point of view, you can say that various
service sector industry/industries also require the basic aspects of operations
management. Now operations management is one of the three major functions, the other
two being the marketing and the finance. So, there are for any business organisations,
there will be three basic functions.

So, one will be the marketing, then the operations management and finally the finances
and its integrally related to the other business functions also. So, from marketing we get
what needs to be produced, how it maybe it is going to satisfy that demand raised by the
customer. So, sales department, marketing team will have their own set of criteria for,
from the feedback from the customers and operations means that we have to convert that
feedback of customers into the product that is going to satisfy the demand in the market.

So, operations management will help us to know how goods and services are produced in
the most efficient and effective manner. It will help us to understand what operations
manager need to do in order to ensure a good quality product in right quantity at right

13
time and in competitive cost. So, operations management will answer number of
questions that may be there with the management.

So, if you scientifically logically manage your operations, you will be able to success, be
successful in the industry. Now this is probably the last slide today why this slide has
been compiled. So, that in the very first session you get an idea that what all we are
going to study in this course.

(Refer Slide Time: 29:01)

Now, in this course we will see product design and development in which we will cover
topics like ergonomics, rapid prototyping design for manufacturing and then we will be
seeing the product life cycle. Different topics related to product design and development
then we will switch our attention to sales forecasting, in which we will be covering
quantitative and qualitative methods of forecasting then the facility planning and plant
location we will be covering that, in which region of the country of the world we must
set up our manufacturing facilities.

Now, once that has been identified we will focus our attention on how the various
facilities, various machines, equipment, shops must be laid out within the factory then
we will see the production planning aspects that how we need to optimally utilise our
resources that is man, machine, equipment then we will see the scheduling that how to
manage the time we will be seeing Critical Path Method, Program Evaluation and
Review Technique that is CPM, PERT techniques, then we will see scheduling and

14
sequencing that how we need to sequence of operations on the various machines within
the factory.

Finally, we will see the output, once we have produced the things as per our plan, how to
check the quality. For example, total quality management, total productive maintenance
as a statistical quality control, six sigma we will be seeing and we will also be seeing the
Materials Management topics such as the Inventory Control and Economic Quantity
Model and Economic Quantity, then the production model we will see such as Just In
Time, Kanban Materials Requirement Planning, Enterprise Resource Planning. So, all
these aspects we will be covering in our course and since the course is 30-hour duration,
we will be covering may be one or two sessions on each topic. So, that we have an
overall view of the Operations Management concepts.

So, with this, we conclude the today’s session and I sincerely believe that we have laid a
strong foundation for what we are going to cover in this course because from next
session our target will be to study the details related to the basics of Operations
Management such as what are the scopes functions of Operations Management. What do
we mean by operations strategy?

So, in first week, our focus will be to reinforce our knowledge related to Operations
Management and then we will shift our attention to the product design and development
in week 2 and sales forecasting in week 3 and subsequently, we will be covering all these
topics mentioned on this slide and at the end of the course, it is expected that all learners
must be able to understand or grasp the basic tools and techniques that can be used for
efficient and effective management of operations.

Thank you.

15
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 02
Operations Management: Objectives

Namaskar Friends, Welcome to session 2 in our course on Operations Management, in

our session 1 we have covered the overall picture of the course, we have covered the
overall course contents that we are going to cover in this course and we have seen that
the course is divided into 12 weeks it is a 30-hour course in which we have 12 weeks of
discussion, each discussion of 2 and half hours each and further subdivided into half hour
units. So, in every week you will get 5 units of half an hour each. So, a weekly content
will be of 2 and a half hours and for 12 weeks will be releasing a 2 and half hours
content every week. So, that the total course duration will be 30 hours of overall
discussion.

Now, we have seen that the title of the course is Operations Management. So, there are
two words here, operations and management. So, we need to understand both of them in
our; you can say endeavour to learn this course. First thing is operations. What are
operations? I think all of you may be well aware and you can easily define operations.
For example, in banking industry all of us may be using the banking for our day to day
we can say financial transactions.

So, what do we do there, we go we fill certain forms and then we can withdraw the
money. Sometimes for making a draft we fill a specific form, give that form to a
particular person sitting on the counter and then we can collect overdraft maybe
immediately or maybe after sometime. So, that is also an operation. We are giving a
requisition and we are being served and our requirement is being met by the personnel
who is sitting on a specific counter. So, that also we can call as operation. So, those
operations are service sector operations.

Similarly, many times we go and we get a boarding pass from the airport. So that also is
an operation. We are issuing a request and we are getting served and we are getting the
output in the form of a boarding pass. So, there are a number of examples of operations,
but when we talk about operations on the shop floor or operation in the manufacturing

16
industry, we have a slightly different you can say understanding, our inputs are also
tangible, our outputs are also tangible. Now what can be the inputs in case of
manufacturing? So, the inputs may be men, material, equipment, machines, money.

So, we have a tangible input, which undergoes a transformation. Please remember the
word transformation. So, there are certain inputs, which are transformed into a tangible
output. For example, the shirt I am wearing, this shirt the input may be a cloth, the
transformation is the stitching and the outcome is the shirt that I have bought from the
market. So, whenever we talk of manufacturing our operations mean that we supply the
raw material, it undergoes certain transformation and finally, we get our output.

Now, operations if we are able to understand management means that we have to

optimally utilise the resources in order to achieve our overall objective. What is the
overall objective? The overall objective can be to convert these raw materials or raw
inputs into the final outputs, effectively as well as efficiently. We want that our processes
or operations must be effective they must be efficient. So, managing that operation is the
basic concept of operations management.

So, first word is operations that is the process of converting the raw material into the
final product and management is the act of exercising the act of controlling or directing
in order to achieve the objective of converting the raw materials into the final product.
So, we will try to understand the basic concept of Operations Management, but before
going to that, let me draw very simple diagram of what I have already explained.

17
(Refer Slide Time: 05:29)

So, you can see basically, this can be our transformation and then we have certain inputs,
just to name a few inputs, we can have material, we can have men as an input, we can
have machine as an input and then there is transformation.

Now, transformation can be mechanical transformation, it can be chemical processing, it

can be any form of transformation as I have told my shirt has been stitched. So, stitching
is a process of transformation suppose we are doing a turning operation we are cutting
the metal. So, cutting can be the process of transformation. So, here we have
transformation here and finally, we have our output. Output can be desirable or this can
be defects. So, we can ever desirable output or we can have defective output.

Now, the operations basically is the conversion of these raw materials using any form of
transformation and getting the output. Output can be a desirable output or it can be a
defective output. Now, this is the basic concept of operations. Now, coming on to the
management now, management has to take certain decisions, now what are the decision?
First thing is, what has to be the output, that what the company must produce or
whatever the company or the organisation whatever is it producing, is it being asked or is
there demand of that material or product in the market or not. So, what has to be
produced is one question that is related to the product or the output the company is
producing or manufacturing.

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Second is how much? So, first question I write here is ‘what’. What the company must
produce. Then, how much? So, these questions have to be answered. Then, there is
another question ‘when’? So, we have to find answers to all these questions. Then, from
the left hand side, we can say ‘who’? Who is going to produce? What is going to be
produced? How much is going to be produced? When it is going to be produced?

So, there can be many other such questions that may come to a mind of a production
manager and in Operations Management, we try to figure out that, how we can manage
these answers, or how we can manage the answers to these questions? There can be other
issues may be this diagram gives a very good picture of what we are going to cover in
this course? We need to manage the materials.

When we should order? How much we should order? What type of materials we should
order? So, opens up a completely new domain of inventory and Materials Management.
There are latest trends in materials management, like Materials Requirement Planning
(MRP) and we have to understand these concepts in today’s scenario. You know,
company can survive without understanding or without utilising the latest trends being
followed in industry or latest trends being followed in manufacturing industry.

So, we need to find out answers in term of ‘what to be produced’ that is the product.
‘How much to be produced’ that is sales forecasting, ‘when it has to be produced’,
scheduling regarding materials we have to take a decision that how much material is
required? What is the Economic Order Quantity? ‘How to classify the materials’? When
we should order the material? So, managing all this overall we can say operations comes
under the broad umbrella of Operations Management and that is what we are going to
cover in this course. The title of today’s session is Operations Management and the
objectives of Operations Management.

So, I think I have tried to give you an overview of what we can expect in this course? So,
what we are trying to basically understand is what has to be produced? We have a
complete session on product design and development. We will see the product life cycle
there. We will try to understand that how the product needs to be revisited or how the
product needs to be re-designed in order to be effective in the market or in order for the
company to sustain in the market, many times it may happen that when we understand
the product life cycle, we know that after a particular duration of time the product sales

19
have to go down, the product demand will decrease, so we forecast that and we try to
come up with the re-designed product a re-invented product, a modified product. So, that
the product is able to capture new markets.

So, we will try to understand the product life cycle we will try to understand the concepts
of Value Engineering. We will try to understand the design for manufacturing design for
assembly. We will try to understand the Ergonomic design of a product. We will try to
understand finally the rapid prototype. How to make a prototype quickly? So, we will try
to answer this question ‘what’. What the company must produce in order to be
successful.

Then, we will try to answer the question, how much, ‘how’ means that how much are the
sales required or what is the volume of sales that you are forcing. So, we will have a
complete session on sales forecasting we will try to answer the question, ‘how much’.
We will see the qualitative methods of forecasting. We will try to understand the
quantitative methods of forecasting we will see the simple average, moving average
method, weighted moving average method also. We will cover the exponential
smoothing method.

So, we will try to answer ‘what to be produced’ ‘how much to be produced’ ‘when it
should be produced’ ‘how to plan, how to schedule’. We will have a session a complete
may be one-week discussion on the project networks. We will try to understand the
‘critical path method’; will try to understand the P E R T method. So, we will see, when
regarding scheduling, we will see what we will see, how much.

We will also try to understand the management of materials or Materials Management.

We will try to understand how much materials have to be ordered. What is the Economic
Order Quantity and what are the basic you can see objectives of Materials Management?
We will try to understand this transformation. We will not go into the actual process is
that how the process operators, but we will try to understand that how, what is the
capacity with that is company possess, how the capacity can be improved all that
capacity planning, aggregate production planning, we will try to understand from the
transformation point of view.

So, over all we will try to cover the management aspects of transformation of raw
materials into the final product. So, that will be the overall you can say objective of our

20
course on Operations Management. So, whatever I have tried to explain with the help of
this simple diagram we have, you can say put it into a presentation form also for all of
you to understand and use it as a ready reference. So, quickly I will try to go through the
presentation and try to explain what has not been covered with the help of this diagram.

(Refer Slide Time: 14:49)

So, you can see this is the basic definition of Operations Management, the business
function responsible for planning, coordinating and controlling the resources.

Now, what are the resources on your black white board you can see that the resources
can be men, material, machines or other infrastructural resources needed to produce
products and services for a company. So, what is the output? The output is the products
that we are producing. So, the Operations Management is dealing with you can see 3
important words planning, coordinating and controlling. So, we have to see how we have
to judiciously, effectively, efficiently use our resources. So, that our desired output is
produced in the most cost effective manner and that overall you can say managing or
planning of those operations, will fall under the overall umbrella of Operations
Management.

21
(Refer Slide Time: 15:58)

Then operations management, we can also understand as the systematic direction control
and evaluation of the entire range of processes that transform inputs into finished goods
or services.

So, here you can see in place of direction, in place of planning in the previous definition,
here it is direction; rest I think more or less is the same. So, we have to systematically
plan, we have to systematically direct our resources. So, that we are able to transform the
input, that is men, material, men machine into the output, that is desirable or the services
that are desirable.

For example, in an aircraft industry we can take example where there are flight attendant.
So, they are offering the services, they are offering the food, they are offering the drinks.
So, we have to see that how we have to optimise our resources. So, that the customers
are satisfied. So, in hospitality industry customer satisfaction is very important. So, in
manufacturing industry also customer satisfaction is very important in manufacturing the
customer will definitely buy a product if the product is of good quality.

So, how to transform the resources into a good quality product that is basically we can
say following as a subset of Operations Management. So, we can say that systematic
direction, control and evaluation of the entire range of processes that transform the inputs
into the finished goods.

22
So, important point here is control and evaluation also, direction means that we have to
plan the things properly and we have to issue the order, so that the transformation can
take place smoothly. But we have to exercise control also, we have to see that whatever
we have planned, whether the process is happening as per our plan or there are
significant changes or there is significant deviation from the planned project or from the
planned progress.

So, we have planned something and control will help us to exercise, you can say check
on what is actually happening. If whatever is actually being recorded is as per the plan
then we need not do any, you can say corrective actions. But if we have planned
something for example, there is a forecast of 400 cars to be sold in one week may be next
week we have to produce these 400 cars in the current week. So, that by next week our
400 cars are ready, but after fourth day on Thursday we see that we have only produce
200 cars.

So, we are at 50 percent. You can say, target and we have to further make 200 cars, but
the days left are only 3 that is Friday, Saturday and Sunday. So, if we divide 400 by 7.
So, we get that approximately we should make may be 57 or 58 cars per day, but after 4
days we are lacking may be by some numbers. So, we have to see that how to speed up
how to manage. So, that we are able to meet the target.

So, our control is that we have checked after fourth day that what is the actual progress
that is 200 cars, what was the planned progress, by how much cars we must have
produced by the end of fourth day. What is the difference and how we can make up the
difference what corrective action is required that is basically one example of control then
we can evaluate at a later stage that why we were not able to meet the target, what were
the problem area, how we can overcome this problem area then we can send a feedback
to our inputs and then we can correct our inputs?

So, that we are able to meet the target in future. So, it is not only the process of planning,
it is also the process of checking and controlling as well as at the later stage evaluating
our performance. We can benchmark our performance as compared to the performance
of the other competitive companies or the organisations.

So, we need to, we will be able to appreciate the course if we are able to understand and
highlight that why we are discussing this course. Now this course is important because it

23
gives an overall picture of managing the operations. So, definition once again must be
clear in everybody’s mind that is a systematic direction control and evaluation of the
entire range of processes that transform inputs into finished goods or services. So, it is
not only related to manufacturing industry, but can also be used by the service sector or
the hospitality industry also.

As, we have seen in the first session that what are the course contents there we have seen
that it is not only the hard core shop floor activities only, overall picture we have to take
into account. We have to take into account the environmental factors such as cultural
political and market influences, which are not internal, but external factors. Now internal
factors can be with the factors within the organisation that are influencing our decision
making. External factors are like political market and economic factors, financial factors,
cultural factors which are going to influence our decisions.

Similarly, inputs can be as we have seen here I have drawn a diagram there are other
inputs also human resources capital that is financial. You can say aspect materials, land,
energy, information customer. So, we have a wide range of inputs then the outputs can
be goods or services and waste. So, I have already depicted. Output can be desirable it
can be defective output also then customer contact. Customers can actively participate in
transformation process, is self service in case of hospitality performance, feedback repair
record, customer comments.

So, a feedback can be sent as I have told that if we are producing a defective item or we
have sold a item in the marketing or sold a product in the market and there are few
defects related to the product being reported by the customer, we can definitely send a
feedback and try to change the inputs or change the transformation process so, that the
defective or the defects can be rectified. So, this is the just overall picture of Operations
Management.

24
(Refer Slide Time: 23:21)

Now, it refers to the management of the production system that transforms inputs into
finished goods and services some of you may be wondering why same and same
sentences are coming into picture? The importance has to be highlighted number of
times. So, that it gets ingrained into your thinking power or thinking process.

You may be easily able to answer the sentence, gives the same meaning that was given in
the previous slide also, but this is to reiterate the definition, so, that all the learners can
remember because the first question can be you have completed the course on Operations
Management. How do you define Operations Management, so, you are able to give a
single sentence definition of Operations Management.

Now, production system is a word which has come in the definition what is a production
system I have already drawn the production system there the way a firm acquires, the
inputs and then converts and disposes the output. So, this is the, you can say production
system there are inputs, there is a transformation and there are outputs then operations
manager the people who are responsible for the transformation process from inputs to
outputs again the same as you on your screen.

25
(Refer Slide Time: 24:34)

You can see that production system, how it looks like there is a demand information then
there are raw materials and parts and resources and finally we get the product. So, we
have to take a call, here you can see that ‘what has to be produced’ and how much has to
be produced these two will send an input here and that input will be then transformed
into the output. That the number is very important because once you have that number
your transformation all the other decisions will depend on that we will cover that when
we will come to our session on sales forecasting .

We will try to understand that once we have a forecast ready with us, once we know the
forecast we know as, I have taken an example that 400 cars have to be produced in the
next week that is the forecast that forecast is available then how that forecast is going to
affect our decisions.

Decisions related to material, decision related to men, decisions related to infrastructure,

decision related to the time or the schedule we will try to understand that in our course or
in our week on sales forecasting or during our discussion on sales forecasting. So, the
input the demand input information data that is given here. You can say, will come from
the sales forecasting and once we have that data, it will be an input into the system and it
will guide the system in such a way that the demand is met when the product is required
in the market.

26
(Refer Slide Time: 26:16)

Now, the source is given here. This is typical organisational chart the president or the
CEO. then, Marketing, Operations and Finance.

So, usually in any operations, company that is involved in operations, these 3 people are
very important some marketing people the Operations persons and the Finance persons.
Our you can say target here, will be we may not focus too much on marketing, we may
not focus too much on finance, but definitely we will focus on operations and you can
see is the vice president of a operations will manage the people, equipment, technology
materials and information why in order to produce goods and or services.

So, this is the you can say vertical or the function that we are targeting. We are targeting
this course towards the operations managers or the vice president of operations that what
is their job profile. You start you enter the organisation and then you climb up the ladder
and finally, you can at times become a CEO of a company, but before that may be, you
may be in any of the 3 verticals you can be from finance you can be from operations, you
can be from marketing this is a typical age old organization structure used in industries.

Now, Operation Management basic concepts, we need quality goods, goods and services
that are reliable and perform correctly efficiency the amount of input to produce a given
output responsiveness to customer actions taken to respond to the customer’s need.

27
(Refer Slide Time: 27:54)

This we will cover in our session on product design and development that is
responsiveness to customers. Now what can be we have tried to look at different books
and different websites and we have tried to look at notes from different renowned
scholars and authors.

(Refer Slide Time: 28:20)

So, basically as per our understanding objectives of Operations Management can be to

produce the right quality, in right quantity at the pre-determined time and with the pre-
established cost. So, we need to produce we need to do the transformation we need to

28
convert the raw materials into the final product with these objectives that we produce the
right quality in right quantity at pre-determined time and pre-established cost.

So, four things we have to be very sure of that, is quality, quantity time and cost. So,
anytime be if a question is asked that what are the important parameters that you take
care of? What is the criteria of defining that how you are producing? We can say that if
quality is good, quantity is met, time we are doing it in a fair amount of time and the cost
is logical, we can say we are producing well or we are managing our operations in the
best possible manner.

(Refer Slide Time: 29:23)

Then, there are intermediate objectives also they are helpful to achieve the main
objectives. Main objectives are given in the previous slide that is quality, quantity, time
and cost.

So, intermediate objectives are helpful to achieve the main objectives by optimum
utilisation of various inputs like men, material and machine. So, stated in terms of this
already machinery and equipment, materials manpower and supporting devices.

29
(Refer Slide Time: 29:47)

So, operations management decision strategic decision.

(Refer Slide Time: 29:53)

So, set the direction for the entire company, they are broad in scope and long term in
nature tactical decisions focus on specific day-today issues like resources needed
schedules and quantities to produce.

So, basically you can see that in operations management two levels of decisions we have
to take strategic or higher order decisions and tactical or middle or lower level decision
usually 3 types of planning activities done in any organisation. We do strategic planning,

30
we do corporate planning and we do operational planning. So, from the we can say time
span point of view, strategic planning is always done for long time, corporate planning
for intermediate time and finally operational planning for may be 3 to 4 months duration
only. So, in operations management point of view, we have to do both the strategic
decisions or strategic planning which can be long term and tactical which can be short
term planning.

So, this is the historical development I will leave this session here with this historical
development. So, we can see that industrial revolution was there in late 70s.

(Refer Slide Time: 31:13)

And then may be JIT and TQM ever developed in 1980’s and finally, electronic
commerce was the, we can say latest trend in 2000 and supply chain management
research and activity started in somewhere in 90s, 1990s.

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(Refer Slide Time: 31:21)

So, lot of changes have taken place lot of developments have taken place, In how
companies manage their operations. So, supply chain management is also one of the
latest trends of how the companies manage their operations. We will have a session or
two on supply chain management also during our course. We will touch this topic also.
In one of one or the other weeks so, with this we come to the end of today’s sessions.
Today’s session was an introductory session only on Operations Management and we
will try to definitely cover or answer all questions like what to produce how much to
produce when to produce and how to manage the materials how to do the planning all
that we are going to understand in our course.

Thank you.

32
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 03
Operations Management: Functions and Scope

Namaskar Friends, welcome to session 3 in our course on Operations Management. We

are currently in week one of our discussion in the course and we have 12 weeks of
discussion in which every week we will have half an hour 5 sessions or 5 sessions of half
an hour each.

So, total the course will be for 30-hour duration divided into 12 weeks, each week
divided into 5 sessions of half an hour each. As I have explained in the introductory part
also and the last session also emphasized on this point, within first week our focus is to
understand the basic aspects of operations management. And we are trying to figure out
that what is the importance of this course for engineers? And in the last class if you
remember we have seen that what are the objectives?

So, to summarise what are the objectives? The objectives are that we must be able to
convert our resources that is; raw materials into the final product effectively and
efficiently; that means, we must be able to produce the right quality of the product in
right quantity at required time and with acceptable cost.

So, there are four parameters that we can say are the major objective that we need to
meet. That is, we must be able to produce the product of the best quality that is available.
Then the quantity required, we must know that what is the quantity required? What is the
demand in the market? And accordingly we must be able to produce that quantity. Then
the time when the demand is there we must have that product in the market; it may so,
happen that we may have to face the loss of sales because there is demand, but the
product is not available.

So, we have to ensure that the product is available at the right time when the customer
has a requirement of that product or he needs that product or he wants that product; the
product should be available. And then the cost justification is also very very important
that if the product is of the reasonable cost; the customer will definitely buy it that is the

33
value of that product to the customer must be worth the money he is spending or she is
spending; then only he will try or he will love to buy that product.

So, basically the main objective of the course on operations management is to ensure
quality, to ensure quantity, to ensure timely delivery of the product as well as the cost
effectiveness of the product; so, these are the overall objective. So, what operations
management usually do is it converts the raw materials or the resources that can be men,
material, machine, money, equipment, infrastructure; into a final product; now the
product can be a tangible product or it can be a service.

How it converts? That is a transformation as we have seen in the previous session and we
have to manage this whole system in order to meet our objective; objectives I have
already highlighted right quality, right quantity, right time and at right cost. So, we have
to run this system in such a way that all these four important points are met. It may so,
happen that we are using our resources most efficiently and effectively, but the cost of
our product is very high.

So, we are not maybe entirely meeting the objectives of operations management means;
we are not managing the things properly why? Because the cost is exorbitantly high and
as per competition our product is not doing that well; so, we have to figure out that how
to objectively meet all these four requirements of quality, quantity, time and costs so,
that the customer is more than willing to buy our product.

So, those were the major objectives of operations management that, how to manage our
operations in order to meet these requirements or objectives? That was what we have
covered in the previous session, the summary of what we have covered. Now our focus
in today’s session is that what are the functions and scope of operations management.

Now, function is that what is expected what are the deliverables, but we expect or what
are the things that operations management must exercise its control over. So, that we are
able to meet our objectives what must the operations management team do in order to
meet the objectives.

So, in the overall hierarchy or in the overall organisation of the complete operations
where do the operations fit in or how do the operations manage or how do the operations
are managed in the whole process of the organisational structure that we will try to

34
understand today, that what are the major functions and we will see that what is the
scope, where all operations management team has a role to play and how they are able to
manage or what are the specific areas where the team or the operations team must focus
in order to deliver the objectives or in order to meet the objectives.

So, we will see today that what are the functions and where are the focus area or what is
the scope of operations of the operations management team or the scope of functioning
of the operations management team, we will try to see that there are 5p’s where of
operations team must focus in order to meet the objective.

So, let us start our discussion for today the title for today’s course is operations
management, focus area is functions and scope.

(Refer Slide Time: 06:55)

Now this diagram we have seen in the previous session also if you remember there was
organisational chart in which on the top of the organisation there was the CEO. And then
there were Vice Presidents 3 Vice President, Vice President Finance, Vice President of
Operations and Vice President of Marketing.

So, there I have explained that our focus area in this course is the operations. So, we
have seen that what the vice president of operations is expected to do. So, we have seen
that he is responsible he is accountable for ensuring that, whatever raw materials are
being purchased or whatever raw materials are coming into the factory your coming into

35
the organisations are converted, into the products or services in the most effective and
the cost efficient manner optimal utilisation of resources we can also say that whatever
resources are at his disposal.

Now, resources can be in terms of man power resources is can be in terms of the
premises or the factory resources can be in terms of the infrastructure resources can be in
terms of machines, resources can be number of other, resources maybe outsourcing
resources. So, whatever are the resources available with the operations team they have to
ensure that those resources are optimally utilised that best possible usage of those and
resources is ensured. So, the operations team has to focus on converting the raw material
into the products or the services.

So, in our course also in the overall organisational hierarchy for the overall
organisational structure of any company our focus would be on managing the operation.
So, although if you cannot independently maybe managed we have to see or collaborate
or coordinate or corporate with marketing and finance department also, but the major
focus would be on managing the operations. So, the course is designed in context of
operations and their management.

(Refer Slide Time: 09:28)

Now, activities of operations department they convert the available capital into physical
resources convert the physical resources into saleable goods and services. So, that is
what is expected in the last session we have seen one diagram where a production system

36
was shown that you have a transformation stage in which your raw materials are
converted into the products or the services.

(Refer Slide Time: 09:58)

Activities of operation department, so we need to understand that what the operation

department do in order to understand that where is the scope of operations management,
that what all they must control, what all they must focus on in order to meet the
objectives that we have covered in the previous session.

So, the additional activities required to fulfil the previous activities now previous
activities were very generic in nature very general in nature that you have to convert the
raw materials into the final product so very general things, but the additional how to do
that. So, we have to ensure that production of goods at the right time and sufficient
quantity to meet the demand.

So, that is what operations department has to ensure that right time goods are available
goods are produced and at right quality also production of goods at minimum cost also I
have highlighted in the discussion production of goods of acceptable quality. So, all
these 4 points are again coming in to picture that operations department operations
management has to ensure that we are producing the product of right quality, in right
quantity, of right cost and at right time. So, these 4 things I think all of us must
remember as learners of this course that 4 keywords are very very important and these
keywords are quality, quantity, time and cost Q Q T C.

37
So, we may remember it as Q Q T C or whatever you can your frame your own method
of remembering these four words, because any question related to why you are studying
operations management or why do you study operation management, you all will be able
to answer if you remember these 4 keywords that we have to ensure the products of right
quality in right quantity within the price limit or at right cost and it right time.

So, if you remember this four words you will be very easily able to answer the basic
fundamental questions related to the subject of operations management and all this has to
be ensured by the operations management department and therefore, this lies under the
functions of operations management.

Now, what are the functions of operations management or operations personnel

forecasting the demand for the products definitely we are going to cover this in our
course all of you know and we have discussed it also in the session one or the first
session of this course that what all we are going to cover in this course. So, one thing that
we are definitely going to cover is the forecasting the demand for the products we will
see that what are the qualitative methods are forecasting, what are the quantitative
methods of forecasting, within qualitative estimate survey method, Delphi method will in
quantitative we main focus on simple average, moving average, weighted moving
average, exponential smoothing, time series model for forecasting we will see what all
we can cover.

But one of the important functions of operations management is to forecast the demand
and this demand is definitely going to help us in the decision making process when we
have to decide, what we have to decide, as an engineer we leave apart the production
manager, as an engineer what I need to decide I need to decide that based on the demand,
how I should procure the raw material, how I must plane my production that is time at
what time what should be done, who are the people, who are responsible for making the
product, how many people I should hier if the demand is less, who are the people who I
can do away with.

So, basically once I know the demand it will help us or help me in making number of
decisions related to managing my operation. So, one of the major functions of operations
management is to forecast the demand then arranging for the procurement of required
factors of productions. So, as I have already told once you know that this is going to be

38
my demand back calculation can be done that when I should procure the material what
materials I should procure. So, all that can be done and is additional function of
operations management.

(Refer Slide Time: 14:44)

Then arranging for the services such as maintenance store keeping, material handling,
inspection and quality control; all these are functions of operations management. We
have to ensure that we have to check the quality also because one of the objective of
operations management is to ensure the right quality of the product that we are
producing. So, we have to check that is a function of the operations management that you
have to check the quality, you have to plan for the production, we have to see that
schedules are met.

So, when you have to compare the planned progress with the actual progress; definitely
you are exercising control. So, control basically is what in hostels or in houses where we
stay definitely there are some control procedures in hostel maybe the students may not be
allowed to go out after 11 o’clock. So, that is the control on their; you can say freedom
or we it is a control on their, we can say free will to roam around wherever they feel like.

So, whenever the system feels that the things are not going as per plan a control is
exercised you check the things that for example, I have taken the similar example in the
previous session also for example, that we have to produce 100 components in 100 days.

39
So, maybe 1 component per day, but after 50 days suppose we have produced only 25
components 100 components; 100 days 1 component per day after 50 days we find out
that we have only produce 25 components, what does that mean? Our planning has not
been successful, our plan was to produce 1 component per day, but we have produced
only 25 in 50 days, it means we are lacking.

So, when we check this that we are lacking we have to exercise this is the process of
exercising the control and then what we need to do? We know that in the remaining 50
days we have to produce 75 components; then we will speed up, we will rush up, we will
expedite so that we are able to match up the overall target of 100 components in 100
days. So, that is basically the process of exercise in the control.

So, in the operations management we have to do the planning, we have to do the control,
we have to do the evaluation and. So, that our overall objectives are met that at the end
of the day or on the delivery date; we have a product of the right quality, right quantity
time already I have told on the delivery date and the cost is also reasonable or
competitive.

So, we have to see that we arrange the services such as maintenance store keeping
material handling inspection and quality control in order to meet the objective. So, these
are the functions of operations management or the personal involved in operations
management.

(Refer Slide Time: 17:44)

40
Now, utilising effectively the factors of production and service facilities available to
produce the product, now here you can see in any manufacturing facility you will have
different types of infrastructural facilities available; you may have different types of
machines available.

Let us take two examples an example of a maybe we can say automotive manufacturing
of cars you have an assembly line that is an example of a facility. So, you have assembly
line and from one end you start assembling the car and on the other end or at the end of
the assembly line you get your completely assembled car, number of stages are there
number of processes are happening in the assembly line.

Now, as a major function of operations management we have to manage the overall

facility that is the overall assembly line effectively and efficiently we must be able to
meet our target if the target is maybe one car per minute overall. So, we must be able to
meet that target we have to run our assembly line or we have to ensure it is our functions
that we have to ensure the assembly line of rates with that speed that, we are able to
produce one car per minute or per 10 minutes that depends on the efficiency of the
assembly line, but the point is whatever is the target we have to run the system
effectively and efficiently to meet that target. So, we have to take into account each
individual process, each individual operation in the overall assembly line to ensure the
target to ensure that we meet the target.

Similarly, let us take an example of power production in case of coal based power
project. So, when coal is being used for producing the power we have a target this much
megawatt of power must be produced with this type of facility now the facility may
include boilers it may include turbines.

So, the overall system we have to maintain effectively and efficiently. So, that the input
that is coal it is coming and it is getting converted into power. Now conversion process
of coal into power is this boilers and condensers and whatever is the overall system now
this system has to be managed by the operations personal. So, that we are able to meet
our target of production of power.

Similarly, in hydropower also maybe we are using water as the input we are stopping the
water making a dam and then using that water to produce the electricity. So, we have a
target that this power plant hydro based power plant must be able to produce this much

41
of power, we have to run our turbine we have to manage our penstock we have to
manage the overall system in such a way that the overall objective of production of
power is managed.

So, that is; you can say point that is related to this function that is utilising effectively the
factors of production and service facilities now facilities can be power plant facilities can
be assembly line, which are available with us to produce the product. So, we have to
effectively and efficiently manage our facilities to produce the product. So, these are the
functions of operations personal.

Now, coming onto the second part of our discussion today, that is the scope of operations
management.

(Refer Slide Time: 21:36)

Now, scope means that where we have to functions we have already seen so there a thin
line between functions and scope. Now scope of operations management depends on the
decisions. So, we have to see that what all decisions we have to take or what are the
areas where we have to take the decision. So, that we are able to meet our objective.
Now the strategic level decisions are let us see what all decisions we have to take new
product identification and design. If you remember session one, we have seen that in
week 2 of our course we will focus on product design and development. So, that is all
that is well within the scope of this course of operations management.

42
So, the strategic level decisions are new product identification and design process design
and planning or we can say production planning and control that also, we are going to
cover in this course then facilities location and a layout planning that also is there being
discussed or will be discussed in one week during our discussion design of material
handling system I think that is also included in the course then capacity planning is also
included in the course. So, these are the strategic level decisions that we need to take as
operation managers in order to ensure that we meet our objectives successfully.

So, again I am reading it for you that what all is within the scope of operations
management that is product design and development, process design and planning or
production planning and control facilities location and layout planning design of material
handling system capacity planning, we have to do I think lot of brain work in order to
ensure that we come up with the operations system or we come up with a production
system, which is highly effective and efficient and we are able to meet our target of a
right quality product of right quantity at right time at minimum cost.

So, if you remember in the last session it is not only the strategic decisions that we have
to take what are the other type of decisions just think over that if you can recollect in the
previous session we have seen two types of decisions. So, one was strategic if you
remember these are long term decisions then there was short range or short time spend
decisions also which were the tactical decisions.

(Refer Slide Time: 24:15)

43
So, let us see the tactical or operational level decisions are the production planning once
we know, but we are going to produce we have the demand data available with us our
product, what we want to produce is known to us the demand data is also available with
us strategically, we know what technology we are going to use, we have fair amount of
idea about our capacity, what we need to do then is that we have to plan maybe on
monthly basis or quarterly basis that how we are going to manage our production, how
we are going to manage our operations. So, that we are able to satisfy the demand data
that is available with us.

Similarly, we have to exercise the production control also that how much we are meeting
or how close we are 2 hours planed progress. So, we in production planning we will
make a plan. So, that it will be a futuristic plan that in the next 3 months this is the we
can say targets or the shorter distance targets or the shorter time interval targets that we
are going to meet. Maybe after every 15 days we have drawn a chart that after every 15
days this much must be our progress, but maybe control will help us to draw another
diagram where we will see that what is the actual progress.

So, we have to exercise a fair amount of control to be successful many times we see in
our daily lives also we are not able to match up to the planned progress. For example, in
recording this course or running this course we may so have planned that we must be
able to complete this much percentage of recording by the end of July it May. So,
happened that we are not able to meet the target than what is expected that we have to
pull up our socks we have to rush through we have to put extra efforts to meet the overall
target of completion of the recording process.

So, in tactical operations we can see that we have to do production planning. So, in the
previous slide we have seen strategic decisions which are long term decision tactical will
be short term. So, may be 3 months or may be 6 months we will plan and then we will
exercise a control that whether we are meeting the planned progress or not or whether we
are lacking behind or sometimes in rare cases it may also happens that we are ahead of
the plan.

So, plan was to meet a particular target, but we have already met the target and we are
already ahead of our planned progress that may also, happen other activities then in
strategic level we have seen there are 5 activities, but in technical we have to manage

44
their other issues also like the inventory or the materials management, maintenance,
replacement, cost reduction, cost control and work system design. So, we have to see that
all the objectives outlined in the previous session are met successfully and for that 2 or 3
or 4 we can say systems may not be able to help us to achieve the target.

So, we have to in place of systems I think I must use the word components that 3 or 4
management of 3 or 4 components successfully may not ensure that we are able to meet
all our targets or all our objectives of operations management there are majorly 4 or 5
objectives of operations management.

So, in order to meet those objectives, we have to manage the complete gambit or the
complete system of operations starting from the demand, then the forecasting, then the
planning, then we have seen that the inventory, we have to manage, we have to manage
the production plan, we have to manage the production control, we have to manage the
maintenance, we have to manage the line or the assembly line.

We have to manage the facilities or the transformation process, that is converting the raw
material into the final product, we have to manage the work system design where, we
have to ensure that the workers are feeling comfortable while working for the
organisation they are able to deliver the task or the jobs or the activities assigned to them
in the most effective and efficient manner. So, it is the overall management of the
complete operation system where wherein we have so many diverse areas of focus and
then if we are able to manage all these areas.

Let me again maybe revise what we have to cover, because this is important because in
order to meet the objectives we have to manage all these areas and if we manage them
properly, we can become a good operations manager, we have to manage the product
design, we have to manage the process planning, we have to manage the facilities.

45
(Refer Slide Time: 29:35)

Layout and location we have to manage the material handling system, we have to
manage the capacity or the capacity planning, we have to do production planning.

(Refer Slide Time: 29:41)

We have to ensure production control then the other activities like inventory control,
maintenance, safety, cost reduction, cost control, work system. So, you can yourself now
imagine that this has got a wide scope or a large scope of work that comes under the
overall umbrella of operations management.

46
So, to summarise we can club now some of you may be wondering there. So, many diff
diverse things or so many things have come into picture how we will remember all these
things as I have seen from product to process to control to materials to work system. So,
many things have come into picture. So, we can very quickly see that operations
management framework can be divided into 5p’s.

Now, these 5p’s are product plant as we have seen we have to do the facilities location
and layout planning then the program which is related to the time finally, the processes
that is related to the management of facilities and finally, people as we have seen in the
last slide work system design.

(Refer Slide Time: 30:59)

We have to fit the job as per the person’s capability. So, that the person is able to
perform his task in the most effective and efficient manner without getting too much of
fatigue and boredom. So, we have to ensure the working environment for the people.

So, with this I think I will stop the discussion or I will close the discussion for today and
in next session we will try to have a brief round off maybe discussion on these 5 points
and then we carry forward our discussion related to the basics other basics and
fundamental aspects related to operations management as all of you are well aware that
our week 1 of discussion is regarding the fundamentals of operations management.

Thank you.

47
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 04
Types of Production Systems

Namaskar Friends, welcome to session 4 in our course on operations management. As

we have seen in session one, we have covered the topics that we are going to cover in
this course. We have also seen the distribution of the course. We have seen that this
course is a 30-hour course in which there will be 12 weeks of discussion, each week we
will have half an hour sessions 5 sessions of half an hour each.

In session 2, we have covered the basic objectives. Be prior to that we have seen the
definitions of the word operations management, and then we have seen what are the
objectives of studying this course, or what are the objectives of this process of operations
management. In session 3 if you remember we have covered what are the functions of
the operations management personnel, or what are the overall defined areas of working
of operations management team. We have seen that for any organization, there are 3
broad verticals. One is related to finance, another is related to operations, another is
related to the marketing.

So, our focus primarily is on operations. Then we have seen that what are the important
areas or scope of operations of this subject. We have seen that starting from demand of
the product to the design of the product, then to the production planning, production
control, material handling system, materials management, inventory control, work
system design, capacity planning, aggregate production planning. There is a wide scope
of this subject that is operations management.

So, we have seen that the scope is very wide, but sometimes we have to classify the
scope so that we are able to understand the overall framework of the subject. Somebody
may ask a very simple question, a layman’s question; that what all do you study in
operations management. You need to have a very structured answer to this question, that
we have covered these important topics in this course. So, we need to have a structured
answer. The structured answer can be that starting from the conceptualization of the
product to the launch of the product in the market, how it is getting transformed into the

48
final product, managing the product development cycle is overall we can say the broad
umbrella under which all other subsystems can fall in.

So, we are starting from the conceptualization of the product then designing the product,
then forecasting that how much volume of product would be demanded in the market, or
what is the demand of that product, then planning our facilities, planning the production
processes, and then planning the manpower who are going to convert the raw material
into the product, then managing our capacity, then doing the production control finally,
evaluating the quality, warehousing and finally, the product is launched into the market.
So, managing all production operations usually we can say will fall under the overall
umbrella, the umbrella we can call as the operations management.

So, we have seen that it can maybe overall management of the production system that it
is a subsystem of the broader manufacturing system. So, we are here managing the
operations part of any manufacturing industry. We are not directly dealing with the
finance, we are not directly dealing with the marketing, we are directly dealing with the
operations part of the organization. So, we have seen that within operations part also,
there are so many sub components, or sub elements, or sub parts, that we that we can
discuss or that fall under the scope of operations management, or that fall under the
overall umbrella of operations management.

So, sub topics we have seen, and I think each one of them we are going to address in this
course, we are going to study product design and development we are going to study
sales forecasting, we are going to study plant layout, and facility location planning, we
are going to study aggregate production planning, we are going to study capacity
planning, we are going to study materials management. So, each and everything that falls
under the scope of operations management will be covered, and in summary we can say
conversion of raw material into the final product, managing the overall transformation
process, right from the raw material to the final product will be the scope of our study in
this course.

But in order to remember what is the overall broad framework, where we can focus our
efforts or focus our activities, we can club them into 5p’s. And those 5p’s I am very
quickly going to highlight today. And then we will focus our attention on these 5p’s in
context of the production system; that how we can classify the production system. There

49
can be we can say different types of manufacturing activity happening in an
organization; and how we can classify them that we will try to understand today.

So, let us quickly first see the operations management framework is divided into 5p’s.

(Refer Slide Time: 06:26)

Now what are these 5p’s? What are the focus areas we can say, we have to focus on the
product, we have to focus on the plant, we have to focus on the program in context of the
time, we have to focus on the processes, we have to focus on the people? So, these 5p’s
we have to manage in the overall framework of operations management in order to meet
our objectives; what are the objectives to produce a product which is of right quality in
right quantity at right time within a reasonable cost. So, or within an acceptable cost. So,
that is what is our objective, these are the 5 things on which we can focus.

So, as we have seen 4 words we can remember regarding the overall objectives of
operations management; that is, Q Q T C that is quality, quantity time, and cost, similarly
what we need to control in order to get all these 5 things, we need to focus on these 5p’s
that is; product plant program processes and people.

So, let us quickly see each one of these.

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(Refer Slide Time: 07:49)

Product it is linked between production and it is a link between production and

marketing. So, marketing team will assess the needs and requirement of the market. The
needs and requirements of the customers, and then they will try to link it with
manufacturing. So, once we have to see that what we want to produce so that we will
cover in our week on product design and development. We will try to see some of the
tools and techniques which going to help us to make a successful product. Firstly,
designing the product and then finally, converting that product into a tangible product
after rapid prototyping or after prototyping.

So, a product must have performance, quality and reliability aesthetics and ergonomics,
quantity and selling price, delivery schedule. So, these are the important we can say
criteria related to a good product, that good product will be having good performance,
quality, reliability, cost justification. It should be able to satisfy the human needs and
requirements at the defined time. So, delivery schedule is important quantity is important
selling price is important. So, first and foremost is the product. So, we have to focus on
product design, and then we have to see all aspects related to the product in our overall
management of the operations. Then the plant.

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(Refer Slide Time: 09:22)

The plant accounts for major investment if you have studied the analysis or the financial
analysis, you will see there will be some fixed assets. There will be direct cost there will
indirect cost, and accordingly we calculate the break even for the organization.

So, the plant accounts for the major investment, the plant are concerned with design and
layout of buildings and offices, reliability and maintenance of equipment, safety of
operations. So, we can see that whenever we are thinking of the plant, we have to take
into account all these things that the operations must be safe. Operations must be
maintenance free, or maybe may require the least or minimum maintenance, then the
layout should be such that we have optimal utilisation of the floor space. So, all these
points have to be taken into account. So, plant layout and facility location design is also
very, very important. So, plant layout must allow smooth movement of men and
materials. That is also one of the objectives of plant layout. Then type of layout depend
is dependent on production type, volume of demand etcetera.

So, we will see today the types of production system, there are intermittent type of
production system, there are continuous type of production system so that type of layout
will depend upon the type of production system. The volume of demand for example, we
require very high you can say production rate, or the demand is continuous we have to
supply the product at a very fast pace. That will dictate or have a bearing on the type of
layout, that we are planning for the operations.

52
So, first thing we have seen that we have to focus on product, then we have to focus on
the plant that is going to convert that raw material into the product form, or is going to
facilitate the transformation process of the raw material so that we get a good quality
product. So, 2 things are product, and then plant where the transformation will take
place. So, here we have seen that what are important criteria, when on which we can say
whether the plant or the facility design is good or bad. If it is making optimal utilisation
of resources, it is ensuring smooth movement of men and material, it is minimizing the
wastage of time and effort, we can say that yes, it is a good plant design.

So, we can see where we have to focus our energy. We have to focus our energy on
product design and development. We have to focus our energy on facilities location and
layout design. Then we have to focus our energy on process or the transformation
process that is converting the raw material into the final product.

(Refer Slide Time: 12:12)

So, the methods used to create a product or transform the raw materials into the product
form.

Now, selection of a particular process depends upon the following factors. We have to
take into account the available capacity. So, our capacity planning comes into picture.
Manpower skills available, so people comes into picture. Type of production system,
layout of plant it is related to the previous point that we have discussed; that is, plant
layout and facility location. Safety maintenance required manufacturing cost involved.

53
So, we have to focus on all these factors to come out with a solution that which is the
most efficient and effective process for our you can say requirement or for our target.
Our target is of quality and quantity of the final product. So, as per our requirement,
which process will give us the desired output.

So, we have to take a decision based on all these factors, that is capacity, manpower
skills, type of production system, layout of a plan, then safety of the operations
maintenance of the operations manufacturing cost. We can see this list can be endless.
There can be other criteria and parameters also which will affect the selection of the
process for the transformation, or the transformation process for finally creating our
product. Creating a product means, making a product or fabricating a product,
manufacturing of product, producing a product. So, basically, we have to see that which
transformation process will be most effective and efficient.

So, we have seen 3 things, we have to focus on the product, we have to focus on the
plant, we have to focus on the process. Then we have to focus on the program. We have
to see that how in what time space, or in what time frame we have to create our product.
So, program refers to the time table of production. Very easy in your classes or wherever
you are working you have a time table.

(Refer Slide Time: 14:30)

You have a time when you are going to enter into the office; there may be a time when
you have to leave your office. So, program refers to the time table. So, it can it prepare

54
the schedule for purchasing. So, we have to get the raw material, transforming we have
to see which processes are involved in the creation of the product or manufacturing of
the product. We have to see which machines have to be meant have to go under regular
maintenance at what intervals of time, we have to see the manage of cash flow. We have
to see the storage or management of cash flow we have to manage; and then storage and
transport.

So, time domain is also very, very important. And therefore, we have to manage the
overall manufacturing programme in such a way that our delivery schedules are met.
Finally, the most important part that is the people.

(Refer Slide Time: 15:30)

So, people are a part of organization progress of organization depends on attitude and
skills of the working people. So, we have to ensure that we are providing an environment
to our workers where they can feel comfortable and motivated to work for the objectives
of organization, or work for achieving the targets set by the organization. So, we have to
ensure the overall well being of our human resource. We not only the physical well
being, but also the mental well being of our work force or the human resource. Because
once our work force is motivated, they will work out wonders for the organization.

So, we have to focus on people also. So, the concepts of work system design, concepts of
the design of a system in such a way that the worker feels comfortable and motivated to
work for the organization. That is also coming under the overall framework of operations

55
management. So, job satisfaction of people depends upon good match between the
people and the jobs. And therefore, the concept of ergonomic design of work places is
very, very important, and we will cover the concept of ergonomics in our course on
product design and development. That when we are designing a product, we must
consider the aspect of ergonomics that the product is so designed that it is easy for an
operator or a customer or a user to use that product.

Similar concepts can be applied in work system design also, that the person when he is
performing his task or job or activity in an organization. He must be able to do it in the
most effective manner with minimum fatigue, and minimum discomfort. So, he must be
able to comfortably do his job in the organization. So, we have to ensure that the jobs
match with the people, people also enjoy doing their work. So, it is possible by providing
them right motivation, right kind of training, then conditions of work, and safety must be
ensured and proper wages and salaries. So, if the employees motivated, he feels like
coming to the company because the environment is congenial for doing the job. He is
properly trained to do his task, and he is getting adequate salary matching with his skills
and the amount of work he is doing. I do not believe, that or I do not feel that any worker
will have any problem working for an organization.

So, if we focus on these 5p’s starting from the product, then the plant, then we can see
the process, the program, and lastly the people if we focus on all 5p’s in the overall
framework of an organization. If we manage these 5p's properly, we will be able to
achieve the objective of operations management. So, the overall scope of operations
management must focus on these 5p's in order to be successful; so in order to ensure the
success of an organization. So now, we will try to see that; what are the different types of
production system. Currently, we have focused I think all learners must be now
acquainted well with why we are studying this subject, where we have to focus our
attention. What are the areas of concern, what are the factors that we need to look
forward to, when we are managing the different aspects of operation?

Now, we will see what are the types of systems and what are the maybe important
characteristics related to these systems, and how the things very in context of these 5 p's
for example, if we have to basically we will see there are 2 types of production system.
Intermittent type of production system, and a continuous type of production system. So,
we will see in context of people how the 2 systems vary. In case of intermittent, the

56
product design may keep on changing from time to time. Today we are producing a
specific design of a product, but there may be a change in order and the complete
redesign of the product may be required. Or there may be a new order in which we have
to manufacture a completely new design.

What type of skills are required for the people? I think you can answer it very quickly
when the product design is changing, and a regular basis or at a regular intervals of time,
we require a person, or we require people who can adapt to this type of changes. They
have a versatile skill set. Whereas, on the other side if there is a continuous type of
production, there is a regular demand and we are producing same product maybe for 3 or
5 years, what type of skills are required; specialised skill of a person because he has to
do the same task on a regular basis. So, we do not require a versatile skills set for a
person who is working on a specific operation in a continuous type of production system.

So, similarly that time that is the program, the plant layout, the process is used the
product that we are producing all these 5p's the product, plant process program, and
people all these 5 or related to the types of production system. Or they are interrelated
because we will see that when we see the type of production system and the
characteristics of each one of these production systems. We will see that their directly
related to these 5p's. And in that production system how these 5p's have to manage. That
is where the engineering skills will come into picture.

So, let us latest quickly go to the topic of production systems.

57
(Refer Slide Time: 21:47)

Now production system just for definition it is a manufacturing subsystem. So, we can
say manufacturing is on a broader perspective. Production is a subset we can say, or a
subsystem of the overall manufacturing activity. So, manufacturing subsystem that
includes all functions required to design, produce, distribute and service a manufactured
product.

So, you can see starting from product design to the act of creating that product, or
producing that product or fabricating that product, or manufacturing that product. So,
starting from the design of the product to the production of the product to the distribution
of the product, and finally, if there is some problem, the service of the product comes
under the overall production system. Elements are we have seen this diagram 2 3 times,
that there are inputs into the system, then their outputs from the system, and there is a
transformation happening to the input so that we get a usable or a tangible product in the
output. So, input transportation transformation sorry, and the output are 3 elements of
any production system.

Now, what are the types of production system that can be grouped in 2 categories
broadly. So, there are intermittent type of production system and there are continuous
type of production systems.

58
(Refer Slide Time: 23:06)

So, we can see type of production system broadly classified into 2. Intermittent and type
of production systems and continuous type of production system, then sub classifications
are there for intermittent type. What are sub-classification? Project, jobbing and batch;
and continuous side we have sub-classifications mass and process type of production
flows. So, in many good books and in many we can say websites, you will find out 3
classifications based on the type of activities involved or the characteristics involved.
You will see job shop type of production system, batch type of production system, and a
mass or continuous type of production system. But here we are trying to further classify
them into 2 broad categories, that one is intermittent, where the demand of the product is
changing over a period of time. And continuous is when there is a continuous production
of the product.

So, one simple example that I usually give; for continuous type of production system is
the production of power, either by hydropower or by coal; coal based power project. So,
you see continuous production is there once the production of power stops. There is a
shutdown of power maybe in certain number of cities or towns. So, that is a continuous
type of production system, we have input maybe water is coming flowing in the river
you make a dam you stop of water and then use that water for producing the hydropower.
That is continuous type of production system. And intermittent can be a workshop that
we have a maybe in a market; where a person has maybe put up two machines, and these

59
machines are being used for on a job shop basis. You go there the time I need a threading
on this parts.

So, what the person will do he will mount? That component on the machine make a
thread on that component hand it over to you. So, design changes are very frequent. Your
requirement goes to the person. And then he is managing, only that particular product for
you, job shop type; maybe, you are going for a specific job to that person. So, we can say
we have seen that two extreme cases, continuous manufacturing, and a product-based
manufacturing or a specific job-based production system. So, basically intermittent is
where the demand is not continuous, and continuous production system is where
continuously you are produce. So, we will very quickly try to understand the basic
aspects.

(Refer Slide Time: 25:49)

Now intermittent production systems, intermittent means something that starts may be
initiates and stops at regular or irregular intervals of time.

So, we can say that intermittent is time to time production system. In the intermittent
production system goods are produced based on customers, ordered as I have told you go
to a shop, and maybe tell that I need this particular product. I need threading here, I need
turning here. So, a person who has the lathe machine will work on your specific order
and try to satisfy your requirement. Large variety of products are produced, production
of goods of acceptable quality. Now you see that the design can change, I may have a

60
different requirement the other person have a different requirement. So, the product
design changes are very, very frequents of varieties of products are produced in
intermittent type of production systems. This system is very flexible, because the
demand is changing continuously. So, as per the demand the system will operate and
produce the product. Now what are the features, now you can try this can be an
assignment try to match the 5p's with these characteristics.

(Refer Slide Time: 26:55)

So, what are the features of intermittent production system very quickly we can see.
Flow of production is not continuous. Variety of products are produced. So, you can see
variety of products. So, focus is on products the first p of the overall framework of
operations management. Volume of production is small. So, it is related to the process.
So, volume of production is small, general purpose machines are used, because the
designs are changing continuously. So, we cannot have a specific dedicated machine.

So, we need to have a very, very versatile and general-purpose machines. Sequence of
operation changes as per design, and production depends upon the customer’s order. So,
we can see that it is a flexible type of system, that is the intermittent type of production
system. Now continuous production system, we can see that in; continuous means,
something that operates constantly.

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(Refer Slide Time: 27:53)

So, it is a continuous as I have taken an example of hydro power generation, it is the

continuous process without any irregularities or frequent halts. Goods are produced
continuously as per the demand forecast. Goods are produced on a large scale for
stocking and selling.

So, we can see that it is a continue system goods are produced on a continuous basis. So,
goods are not produced on customer order. So, we can say may be we can take example
of readymade garments also. Readymade garments are continuously produced by the
company based on the marketing and based on the tastes and the fashion a prevailing in a
particular time domain. So, it is not that; if I will order then only the company will
produce that shirts. So, it is not based on the customer order continuous continues
production is there.

The inputs and outputs are standardized along with the production process and sequence.
Again, coming to the same example 42, size 40, size 44 shirt. So, the output is
standardized they have to produce their product based on the standardized; we can say
sizes, in case of an automatic production of garment manufacturing. So, the inputs and
outputs are standardized along with the production process and sequence. So, the process
is also standardized, there we will be dedicated department for cutting the you can say
cloth and then there can be stitching and then there can be finishing. So, we can say the

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inputs and outputs are standardized, along with the production process as well as the
sequence is also standardized.

Now, what are the features of a continuous production system? So, features of a
continuous production system are flow production is continuous and not intermittent.
Products are standardized here. In previous case product design is changing
continuously. Here the products are standardized, may be one example of a continuous
production system can be manufacturing of automobiles. So, once the design is fixed. So,
you will continuously keep on producing that design or that particular week. What we
say the variant of a particular model of car. Products re produced as per quality
standards.

Products are produced in anticipation of demand. So, we have a anticipation we have a

forecast of the demand so that accordingly we will schedule our production.
Standardized routing sheets and schedules are prepared. So, the process is more or less
automatic. The schedules are also produced automatically and we are able to meet our
schedules because the there are not many frequent design changes not many frequent
process sequence changes. So, more or less we are able to meet our targets of time. So,
you can see that there is the difference between the 2 types of production systems; that is,
the intermittent type of production system. So, job shop and batch type of production
systems will fall under the intermittent type of production system. And continuous or
mass type of production systems will fall under the continuous production system.

So, broadly we can see the types of production systems can be classified into 2 broad
categories; that is, intermittent type and the continuous type. And we will see that
depending upon the type of production system being adopted or being followed in a
particular organization, our operations management tools and techniques will vary. Or
we have to adjust the operations management methodology specific to the specific type
of production system being followed. Yes, but the overall we can say objective of
operations management will remain same to ensure the quantity quality in specified time
at reasonable course, overall objectives will remain same in spite of or in we can say
irrelevant to the type of production system being followed.

So, we have a out we have a objectives of the operations management, that is clear to us.
Now depending upon the types of production systems being followed, we will follow the

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principles of operations management and we will try to manage both types of production
systems whether it is intermittent type or it is continuous type. So, the learning or we can
say the understanding or the development of knowledge or the know how related to the
basic principles and rules and guidelines related to operations management, will help us
to manage both types of system the intermittent type of production systems also as well
as the continuous type of production systems also.

So, with this we close today’s session, we have tried to understand the overall framework
of operations management, where we need to focus our attention the 5p's in the overall
framework, and then we have tried to broadly classify the types of production systems
into intermittent type, and the continuous type. And we have tried to figure out what are
the specific characteristics of the intermittent type of production system as well as the
continuous type of production system.

In our next session, we will focus on the last session on these fundamental we
fundamental discussion related to the operations management. In our subsequent
discussion we will focus on specific may be areas, or specific sessions, or specific we
can say tools or techniques which will help us to manage our operations properly. And in
week 2 our focus will be on product design and development.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 05
Operations Strategy

Namaskar Friends, welcome to the last session of week one, as you are well aware that in
every week we have to cover 5 sessions of half an hour each and 2 and a half hours of
discussion in a week.

We have already discussed in this week the introduction to this course, that how we are
going to go about this course on operations management. Then we have seen in the first
session that what do you mean by operations management? What are the basic
definitions of operations management and then we have covered what are the objectives
with which we carry out the management of operations?

Then we have seen that what are the functions and scope of operations management?
And in the last session if you remember, we have covered type of production systems in
which, we have seen that there are intermittent type of production system and there are
continuous type of production systems.

So, we are currently focusing on the introductory part of our course and in that we must
address an important topic that is operations strategy. That is what type of decisions we
must make or we are required to make when we are managing our operations. So,
starting from the product to the launch in the market so, basically we can see that we
have to conceptualize that what the company must make.

How the company must make it? Who are the people? Who are responsible for making
it? And then finally, who are the people who are going to check the quality of the
product? And finally, how it will be dispatched or sold in the market? So, starting from
the identification of the need to the final launch in the market, whatever operations are
carried out are all covered under the broad umbrella of operations management.

Now, strategy basically is our plan, our thinking, that how we are going to follow or how
we are going to plan our things. So, that we make a successful product, the company is

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successful in the market the product gains much profit for the organization or the product
is one of the best products of its class in the market.

So, every company has these objectives or these may be a goals or aims. So, with those
goals and aims how we should work in the background so that these goals are met. We
have to focus on the product; we have to focus on the processes, we have to focus on the
procedures, we have to focus on the management of finances, we have to focus on the
management of manpower. And when we are able to plan all these things effectively and
efficiently we are productive and our productivity reflects in the success of the
organization.

So, we are today going to focus on the basic principles of operations strategy, we are
going to see that what are the area or functional areas, where the management need to
focus in order to develop a successful strategy for converting the raw materials into the
final product. At every stage we have to keep a focus so that our overall objectives. If
you remember in the second session we have covered what are the overall objectives of
operations management, that we must be able to produce a good quality product in the
right quantity, at right time, and at reasonable cost or at competitive cost.

So, when we plan a strategy or when we develop a strategy we focus on these overall
objectives. The overall objectives being as I have already discussed 4 keywords we have
to always remember quality, quantity, time, and the cost. So, these 4 are the important
objectives that we have to keep in mind and our strategies we should be such that all
these 4 objectives are met for the organization and we are able to produce a product,
which is successful in the market or we are able to deliver the services which are widely
acceptable by the customers.

So, we this background we are going to see the term operations strategy in today’s
session. And try to see what are the different types of strategies that are developed and
what are the important factors that we need to consider? When we are developing a
strategy for managing our operations? So, quickly will go through the discussion today
and on your screen you can see the role of operations strategy.

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(Refer Slide Time: 05:08)

It provides a plan that makes best use of resources. Now we have seen in our
introductory session in the first week of our discussion only we have seen that inputs are
converted or transformed into the outputs. Now inputs are men material machine
equipment and other infrastructural inputs. So, these inputs are transformed using
chemical and mechanical processes into a product.

Now, what is the role? The role is that we have to plan the effective efficient productive
use of our resources and we have to specify the policies and plans for using the
organizational resources. So, operations strategy basically is nothing it is a plan that
makes best use of the resources, which specify the policies and plans for using
organizational resources.

Now, our strategy maybe that we are going to use our manpower most effectively and
efficiently, our plan can be that we are going to use our machines in the most effective
and efficient manner with minimum downtime, with minimum breakdown. So, those can
be our strategies and then we have to develop our operations strategy in such a way that
our overall business strategy is achieved or our operations strategy supports the overall
business strategy.

And the main objective of the overall business strategy is to make profit to be successful
and to be financially stable. So, we will see that what do we mean by business strategy
and what are the various verticals under business strategy

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(Refer Slide Time: 07:06)

So, here you can see on your screen the business or the functional strategy based on
different functions in an organization. If you remember in one of our previous sessions,
we have seen that there are broadly 3 verticals. Now one vertical can be related to the
finance, another vertical can be related to the marketing and the third vertical is related to
the operations.

So, our course is related to operations management, but we will see that the operations
vertical also has to tie up coordinate collaborate, corporate, with the other 2 verticals that
is the finance vertical and the marketing vertical.

Why because from marketing we will get the needs and requirements of the customer.
The desires of the customer what does the customer wants? Whether the customer wants
variety or the customer wants quality or the customer wants a specific combination of
colours. So, what are the needs and requirements of the customer those will come to us
from the marketing team? And then our operations team will help in the development of
the new products.

So, in different verticals seems to be independent, but they are not independent they are
always working together for the success of the organization, but our target in this course
is the vertical on operations management. Then we have courses like financial
management also, we have courses like marketing management also, which will focus on

68
the other verticals. So, basically the business strategy also as we have seen defines the
long range plan for the company.

Now, strategic plans are mostly long range plans only and the business strategy we will
see will plan for the next 5 years, for the next 10 years, they will make a plan. Now that
strategy will be dependent and the on the marketing strategy, operations strategy, and
finance strategy, rather I must say that once the business strategy is finalized the success
of business strategy will depend upon, how the business strategy is converted into the
marketing strategy, operations strategy, and finance strategy.

Because once we know that this is the objective of the company or this is the plan for the
company for the next 5 years. All these 3 verticals have to take that as the goal and work
towards the success of that goal or work towards the achievement of that goal. So, here
you can see the marketing strategy, it will define the marketing plans to support the
business strategy.

Now, business strategy basically is we can take any example if we take an examples of a
service provider there are number of service providers for the mobile phones. So, if a
particular service provider, wants to venture into a completely new technological domain
in the next 5 years the marketing strategy has to support that. They have to make plan in
such a way that the customers are able to adapt to that technology. Customers are made
aware of that technology; customers are made aware about the advantages of that
technology as well as the business plan that the company is going to launch.

So, the marketing is very very important. So, marketing will help in the achievement of
the business strategy or the business plan, which has been formulated by the company.

Similarly, operations have to work overtime in order to achieve the target set by the
business strategy. Now operations strategy again because it is a strategy we have to
develop up plans for the operations function to support the business strategy. Similarly,
in finance strategy we have to develop financial plans to support the business strategy.

So, in nutshell this particular slide gives us an idea that there is an overall business
strategy, which makes strategic plans for the next 5 to 10 years. And this business
strategy has to be supported by the various functions of an organization. That is the
financial arm of the organization the marketing arm of the organization and most

69
importantly the operations arm of that organization. All 3 have to work in tandem to
achieve the overall plan or the overall objective of the organization established in the
business strategy.

(Refer Slide Time: 12:02)

Now, to develop a business strategy we need to focus on certain factors. As we have seen
that we have taken an example of a service provider, they can take a decision that after 5
years we are going to completely switch into a new technology. That is their plan for
after for the next 5 years. Now for that plan to be successful the finance marketing and
operations team have to work together to achieve that target or achieve that objective, but
how that plan is made? How that business strategy is developed?

So, there they will consider the strategic decisions and different factors. What are the
factors? First thing is what business is the company in. So, in place of in it should be is
what business is the company in? And then there is a question mark. We have to make
we have to consider that, what is the business that the company is doing in the current
situation. Analyse and understand the market, business plans are made based on market
need requirements of the customer the desires of the customer and identify the
companies’ trends, core competencies of the company.

Some companies will have a brand value that is their core competency; that if x company
is launching this product it is going to be of the best quality; that is the brand the
company has established over the years of consistent performance. So, a company has

70
given consistent performance in terms of quality the products have never failed, have
never ditched the customers. So, that is the brand, value associated with the company.
So, that can be called as one of the core competencies of the company that the company
is quality conscious. Then depending upon the prevailing conditions understanding the
market the company feels that there is a need or a requirement for developing a new
product.

Now, they will map the 2 things together, the need plus their quality brand they will map
the 2 things together and they will see that what we are currently doing? And what we
need to change in the next 5 years? So, they are ready to change. So, ready to change
market requirement is there and the core competency is there. When the 3 things will
meet together a complete business strategy can be formulated. The company will decide
that we are not going to compromise on our core competency, we are going to use it as
our strength, we know what we have to do in the next 5 years based on the
environmental scanning and we have identified the needs and requirements of the
customer.

So, our new product or our new service is definitely going to be successful, because of
what we have already done? What background research we have already done? What
planning we have done successfully? So, that is basically the business strategy
development that we have to focus on 3 important things.

First is the need and requirement we have to see what we are doing what we need to do.
Secondly, we have to analyse the market who are our competitors? What they are doing?
What are their products? How they are selling it? How aggressively they are marketing?
So, the complete a business environment we need to understand and finally, focus on our
strength and that will help us to develop a successful business strategy, which will be
helpful for the organization to be competitive in the market.

So, we see that operations strategy broadly can be classified.

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(Refer Slide Time: 15:48)

Now, you see that we have 3 types of broad verticals. The financial strategy, the
marketing strategy, our focus in our course is on operations strategy. From business
strategy now we are coming to the operation that is the vertical on which we are focusing
our attention on.

So, first is the corporate strategy in corporate strategy we will see the mission, it is
relating the organizations effort to it is long term future.

(Refer Slide Time: 16:14)

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So, in business strategy, we have developed a long term vision that, what is going to be
the focus of the company in the next 5 to 10 years. So, we will try to relate our strategy
in core a corporate strategy in line with what has been established in the business
strategy. We will focus on what business are we in who are our customers? What are our
concepts and beliefs? How do we measure our performance such as growth, profits,
market, share innovation? So, we will focus on a complete list of factors and we will
formulate our corporate strategy.

Now, some of you may be wondering that what can be the difference between a business
strategy, because there also some of the factors are common and what is a we can say
corporate strategy or to summarise differentiate between business strategy and corporate
strategy. So, what I personally believe is that business strategy is more we can say
strategic in nature long term; high risk, maybe lot of resources are committed at the
strategic level of planning or while developing a business strategy, the highest level
decision making in any organization.

Once we know that this is what the company is going to be in the next 10 years’ time.
We have to make the plans, which are more specific in nature, more data oriented, more
information oriented and then that strategy coming 1 level down from the business
strategy that is the top level strategic thinking or the think tank of the organization. The
corporate will be the towards the execution, the planning is at the top level and then
corporate is the execution of those plans or thinking of the data, thinking of the
information, planning that how that particular plan can be put into action and further
detailed planning can be covered in the corporate strategy.

So, here we are see that who are our customers? What are our concepts and beliefs?
What is our focus? Where are we going to how are we going to measure our
performance? Where are we going to be may be at the end of 5 years all that data
intensive strategy is developed at the corporate level. Then corporate strategy we will be
focusing on the environment also.

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(Refer Slide Time: 18:59)

It will be more data oriented what is the market share of the competitor’s company? How
often do the competitors change their product? How often do the competitors come up
with new and new technologies? How often the competitor are obsoleting their product?
So, it will be more data oriented. So, lot of information will be used for developing the
corporate strategy

Now, scanning the environment for opportunities and threat so, the at corporate strategy
level we will see that what is the competition? What is the market? What are the
economic trends? Whether it is economic boom or it is the economic down ton or
economic depression, social and political changes, what is the government? Who is
heading the government? How the government is taking decisions? What is the focus of
the government? How the government is going to change the policies or guidelines.

So, there are number of factors that have to be taken into account while formulating our
strategy. So, we will see that in operations strategy, as we have seen in the previous
slide.

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(Refer Slide Time: 20:08)

We have to focus on the corporates strategy; we have to focus on the production product
plans, we have to focus on the competitive priorities, we have to focus on positioning or
operations strategy.

Now, product plans we see as we know that in operations, we have to focus on the raw
materials converting them or transforming them into the final products. We have to see
what we are producing? What business we are in, whether we need to change or we need
to stay put with that business only. So, basically we have to focus on what we have to
produce? How much we have to produce? How we have to produce that? Who is going
to be responsible for producing that how we will check the quality of our product how
we are going to distribute our product among the customers.

So, starting from the conceptualization of the product that we are doing through the
environment scanning or environmental scanning, to the final launch of the product in
the market everything or all operations as I have told earlier also in today’s session only
will fall under the operations management. And we are not currently focusing on that
what type of strategic decision making is required at during the operations strategies

So, first we have seen that in operations management first is at corporate level that is the
vice president of operations or the maybe general manager of operations will make a
overall corporate strategy.

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(Refer Slide Time: 21:45)

Then the product plans will be developed that is strategic product line related choices to
leverage companies’ distinct competency. So, little bit complex sentence, but we can
very easily make it simpler strategic product line related choices.

So, we have to see that what is our product line, we have to make strategic decisions
there and what we get what we are going to take advantage of we have to leverage on
company’s distinct competencies, which we have already discussed a company always
has to leverage on it is core competencies.

What are the strengths of the company? Some companies very good at marketing, how
they can leverage that, whatever product they will make, if they are very good at
marketing the way they can rush down the product the through the thought of the
customer are; they will rush down that product into the market and because of that
aggressive marketing or the core competency in marketing the company may be able
even push through an average product in the market.

And the average product can also yield returns for the company, because of the core
competency of the company that is marketing. If the core competency of the company’s
quality as I have already told, they will leverage that quality and we will be able to sell
the product and make lot of profits in the market.

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So, basically from product plans point of view strategic product line related choices have
to be made that what should be our focus than we have to see that what type of market.
We are serving is it a low end market high end market or it is a combination of both
lower end and high end markets, then we have to see the scope of the product line
whether it is wide it is narrow or the availability.

So, basically we can see that we have to overall analyse the market we have to take into
account what type of market? We are looking at what is the product line that we are
focusing on what type of product we want to make? Who is going to be the customer?
what whether it will be children or it will be old age people or it will middle aged people
or it will be anybody can use a product we have to see which specific areas we are
focusing.

Whether it will be in hot and your product will be used only in hot and humid conditions
or it will be used in very tough winter conditions or very may be cold conditions. So, the
overall market scenario has to be understood and then only we will I be able to make a
product plan and for this we have included 1-week discussion on product design and
development which we are going to cover maybe next week.

(Refer Slide Time: 24:39)

Now, product life cycle is also very very important. So, there also we have to make and
we have to use this product life cycle as a strategic decision making tool regarding our
product plan. That what product we are going to make or what product we are going to

77
obsolete from the market. So, the pressure to introduce new products is we can say focus
area of product design and development. Why because of the competition because of the
expired patents because of the technological innovation. So, we will cover this thing in
details we I will explain this product life cycle in our discussion on product design and
development.

(Refer Slide Time: 25:21)

Then product plans can be early Exit sorry enter Early and Exit late from the introduction
to decline or enter early and exit early from introduction to maturity and enter late and
exit late from maturity to decline.

So, basically there are 4 stages are 4 phases of product life cycle starting from
introduction, then growth, then maturity and decline and these are the 4 stages on the
timeline. So, next x is if you see the diagram it is life cycles stages. So, these are the 4
important life cycle stages and we have to make our product plan in such a way that we
make maximum profit from the product, how that is possible that we can see when we
whether that we will see when we will discuss product life cycle?

And it will be helpful to us in making our strategy, that whether the maturity phase
should be elongated or once the product sales have stagnated we need to completely exit
the product from the market. The time between maturity and the exit of the product or
the time between introduction to the decline of the product, all these things we need to be
discussed, debated and decided in the favour of the organization.

78
If proper decisions or strategies are not formulated related to or based on the product life
cycle, the company may lose lot of profit or company may lose the marketing advantage
or the market advantage, which it may have created because of the launch of a new
product in the market.

So, suppose a company launching a new product in the market they gain some
competitive advantage based on some new technology that they have used in the product,
but once the product has attained the maturity level if the company is not able to take
strategic decisions that what needs to be done with this product it has already reached the
maturity level, the sales have become constant may be over a period of time the decline
stage will start.

At that stage the company needs to decide what has to be done with the product and there
is a famous saying that if you do not obsolete your product will be obsoleted from the
market. So, that is the strategic decision or the product line decisions that has to be taken
by the company in order to be successful in the market.

(Refer Slide Time: 28:01)

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(Refer Slide Time: 28:02)

Now, competitive priorities we can see the competitive priorities are based on quality
what is the performance of our product whether we are conforming to the standards,
what is the service, prices and other important parameter time is another important
parameter and flexibility, is another parameter flexibility in terms of product mix or we
are going to focus on 1 product or a variety. The order rather the customer wants variety
or the customer wants a quality product, which may be of a single colour product variety
means that suppose you have a cell phone it may come in a single colour it may come in
6 different colours.

Now, 6 different colours means a customer has a variety from which the customer can
pick a specific colour. So, from competition point of view the company has to focus or
focus it is operations strategy on; the quality of the product the price of the product that
time. As these are the 3 important objectives if you remember of our course on
operations management why do we need to do operations management?

Because we have to deliver quality we have to be competitive cost wise we have to

deliver at right time, which is given here introduction and delivery and we have to be
flexible in which the volume is also given. So, we these are the 4 important things which
are important from competition point of view that is quality, quantity, time and cost and
finally, the positioning and the operations strategy.

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(Refer Slide Time: 29:34)

So, here you can see we have seen that we have to make a strategy that what should be
our product? What should be the product line in which we are focusing our attention on?

Now, we have to see once we know that what is the product we have to focus on? How
to make that product? And here we can see that is the customisation on y axis, you can
see is the customization is low. Low means that standard products are made minimum
variety and customisation is high; which means that a lot of varieties of products are
being made. On x axis we can see we have low volume one of a kind type products and
high volume may be large number of products of being produced 1000 of cars are being
produced in a year.

So, there we can see we have we can focus on the type of manufacturing system, type of
production system of that we are going to adapt or that we are going to follow. Here very
easily very quickly we can see. That when low volume the number of products to be
produced is less and the customisation is high. For example, I want to get a shirt stitched
as per my particular dimensions or as per the details for as per the specifications maybe a
pocket here and a pocket here or maybe a specific design on the shoulders may that is
one type of shirt I want to make.

So, the volume is less we do not want thousand such shirts we want one shirt only. So,
the customisation is high, the customisation is high, but the volume of production is low.
So, what type of system we will use they will use a job shop type of production system

81
or a intermittent and type of production system , but when the volumes are high then we
can see that, we will use batch type of production system and when the volumes are very
very high way as I have given an example thousands of cars produced in a year or in a on
a quarterly basis, we will use a line type of production system or a continuous type of
production system or we can say mass type of production system.

So, for high volume mass type of production system, but the customisation is low for any
car you take any standard car any company. If you see large number of such cars are
produced, volume is large number of cars is large, but the variety is less same car you
have to buy, but if you want to buy a completely customised car that the steering should
be at this much height. The accelerator should be at this much length only as per your
legs or length of your legs.

And the gears should be may be in the hands only gears should not be in gear should be
at the steering only even sometimes you may say accelerator should be along with the
steering. You do not want to use your foot for using the accelerator, then that is a specific
type of product, which means it the volume of such type of product will be less you will
be making only one such product. So, when the volume is less you will go for job shop
type of production system.

So, we have to develop our strategies in such a way that the company is successful. So,
with this we close today’s session and as well as the discussion of week 1 of our course
on operations management, with the thought that we have understood that what is
operations management? What are the objectives of operations management? Then what
are the, we can say functions and scope of operations management? What are the
different types of production system?

And what type of operations strategy we have to develop what are the factors we need to
keep in mind and with last point that we have to effectively and efficiently make use of
our resources in order to be successful in the business environment. And the course on
operations management will equip us with tools and techniques, which will help us to
achieve the objectives functions laid out in week 1.

Thank you.

82
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 06
Product Life-Cycle

Namaskar Friends, welcome to lecture 6 in our course on Operations Management. As

you are well aware in the first week we have already discussed about the basic
fundamentals or basic philosophy of the subject that is operations management. We have
seen that what is the requirement of managing our operations? We have also seen that
what are the objectives and functions of operations management? We have seen the
operations strategy.

So, basically what is the use of studying this subject we have seen in our week 1? We
have tried to understand that various companies are producing different types of goods, if
you see the examples we have taken from laptop to maybe up hair pin. The degree of
sophistication may vary, but the operations the conversion of raw materials into the final
product will remain same.

So, the basic principle that is we have to add some value to a material or to a service in
order to make it important in order to make it useful for the customers is the basic
fundamental behind any value addition process or behind any process or service. You
may see in hospital we have different types of services, in a car making industry we have
different types of operations that are done. So, there is the service sector, there is a
manufacturing sector and in both the operations have to be managed properly.

So, basically we have to see that if we are focusing on the manufacturing sector then
what we should produce or we what we must produce? What means the product? We
have to focus on the product. If our product is niche if our product has gotten innovation,
it will definitely capture the market. If the product is an improved version of an existing
product definitely the product is going to be successful in the market, if there is a need
for that product.

So, once we know that how we have to manage our operations? What are the various
strategies to manage the operations? We have to start from stage one of operations, that

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is we need to understand that what we must make or what must our product be. If we are
sure that what our product is going to be what we are going to make? Then the next stage
is how much? So the first answer that every engineer has to look for is what the company
should make? What should be the new product? What should be the improvised version
of the existing product? So, what first answer has to be what, the second answer has to be
how much?

How much means once we know that we are entering into a very very specific domain of
the customers, our customers are not going to be a common man. For example, a
company decides to start making aeroplanes or aircrafts, every individual will not be
buying an aircraft only few selected companies will be buying the aircraft.

Now, depending upon the customer that decision has to be made that how much should
be our quantity of production? That is, we need to forecast that how much we have to
make? So, these are preplanning decision before we venture into full scale manufacturing
or production, we have to decide these things, that what we are going to make in how
much quantity it will be required in the market.

And finally, we will go to the shop floor operations and try to manage those operations
on the shop floor; maybe the capacity planning the time planning, the resources planning,
the materials planning, all that will come at a subsequent stage. So, in time if we draw
this all these operations or all these activities or all these jobs, first thing will be every
company has to take a decision that what they must produce? And these days there is lot
of focus on innovation, lot of focus on creativity each and every company is looking for
definite products for important products, which can capture the market and which is the
need of the market.

And they are focusing their attention on development of new and new products. In
improving the life or improving the efficiency or improving the performance of their
existing products and that is the idea with which we have included the discussion on
product design and development in our course on operations management, but I think I
have been able to address the point that why product design and development is an
important process. In the overall operations strategy of any organization and therefore,
we are addressing this point at the very beginning of our discussion on product design
and development that is week 2.

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So, that the learners may try to appreciate or may appreciate the importance of product
design and development in today’s scenario. And I must also address here that the
product design plays a very vital very important role in defining the overall success of an
organization. For manufacturing the product there maybe standard processes or we can
say standard procedures that may be adopted at a later stage, but what we are going to
make and whether that product is required in the market or not that is going to define or
definitely define the success of the organization.

And therefore, product design and development becomes very very important. So, in this
we have seen maybe just 1-minute review of what we have already discussed. We have
already discussed the basics of operations management, we have seen the scope
functions objectives of operations management, we have seen the different types of
production systems, we have seen the fundamental of operations strategy. So, our week
one discussion is over only related to the introduction of the course on operations
management.

Now, we are specifically focusing on individual domains of operations management and

the first important domain is the product that the company has to manufacture. And in
product design and development I must address here that this is a very wide subject.
Product design and development is taught as a full-fledged course in many universities
and institutes.

So, you can see that it can be a 42 lecture course in which different aspects of product
designer covered in the class. I must also tell you here that we have already recorded or
we have already run one course on product design and development under the moocs
scheme in the last to last semesters. And there was a lot of interest lot of enthusiasm
among the learner regarding that course. And I am hopeful that the course maybe re run
in the sub sequent semesters and if you feel that it is an important course you definitely
can get certified with that course.

So, in that course that was a 10-hour course and there were 20 sessions of half an hour
each, but in this overall course of operations management we cannot be we can say, we
cannot give that much time to this particular topic. So, here we have tried to include
basic you can say tools that can be used that are important from knowledge point of view
for every engineer.

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So, we are not going to cover the product design and development in totality, but we are
definitely going to learn some important tools which a product designer must know or an
operations manager must know, during the course of his service or during his you can
say working, he must be acquainted with this tools or he must be aware of these tools.

So, we will be covering 5 different sessions in product design and development. The first
session will focus today on the product life cycle, the second will be on value
engineering a very important tool for product designers, then third will be designed for x
we will cover design for manufacturing design for assembly we the specific examples
and then we will see the ergonomics of product design and finally, we will see once our
design is ready how we can make a prototype quickly with the concept of rapid
prototyping.

So, basically 5 important tools we will be discussing here. First important we can say
information is related to the product life cycle. So, our first session today will focus on
product life cycle, I must say here that we have covered; I think lot of introductory part
in today’s session.

So, I will be slightly you can say quick in the discussion part may not go into the detail
of each and every point that is there on the slide, but I will try to address the importance
of product life cycle in the overall scenario of operations management and for details I
think you can refer different books literature internet YouTube there are number of
lectures, or number of you can say videos or number of e-notes number of e-books
available, in which you can find the discussion related to the product life cycle.

So, quickly we will start our discussion regarding the product life cycle.

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(Refer Slide Time: 10:43)

So, product life cycle is the course that a product sales and profits take over its lifetime.
So, if we plot the product life cycle on x-axis it will be time as it is showing that the PLC
depicts the course that the product sales first thing is sales another things is another
important point is profit.

So, we will see how the sales and profits will vary over a period of time and that will
represent our product life cycle. It shows the stages that the products go through from
development to decline from the market. Now any product you take may be I may take
the example of my pen.

Now, this particular pen may have been you can say manufactured using the raw
materials since it is a plastic product different plastic processing techniques may have
been used to make this pen; so from conceptualization to prototyping, to development of
manufacturing of the product, to the sales in the market and finally, the decline of the
sales that will overall represent the product life cycle.

So, for example, the human beings also have a life cycle similarly every product has got
the life cycle. So, the life cycle of the product is represented for the company in terms of
the sales or the profits that the company make over a period of time. So, we will see what
are the various stages of the product life cycle, before going to the stages let us see that
what is the importance or why an engineer should have any information related to the
product life cycle.

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Now, product life cycle determines the revenue earned because it is giving us the sales.
Now once we know the volume of sales or the number of products sold we can multiply
it with the profit for product and very easily we can calculate the revenue earned from
the product life cycle.

So, if we have a product life cycle for a product we can determine the revenue earned at
this revenue earned is also important, because once our earnings start to decline we need
to think, that whether we should continue with the same product or we should come up
with the improvised version of this product or we should completely eliminate this
product from our product segment and come up with a new product completely new
product. So, that decisions have to be made based on the revenues earned. Similarly,
product life cycle also contributes to the strategic marketing planning.

(Refer Slide Time: 13:33)

Now, strategic marketing planning depicts that once we know that this is going to be the
product life cycle, we can make our planning accordingly. What type of plans do we
need to make? Once the product is in the growth stage we will see the different stages I
am just taking an example; once the product is in the growth stage we need to emphasize
aggressive marketing, proactive marketing. So, that more and more customers join our
product segment or just join our may buy our product or may join the people or the group
of people who are using our product.

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So, once the product is in the growth stage maximum profits are derived from the market
and our focus is on more and more aggressive marketing. Once the product is in the
decline stage, we know that there are competitors in the market. The competitor’s
product is better than other products, we will see or we will say that, we must not put too
much money into marketing or advertisements, because we know that our product is not
able to compete with the competitor’s product rather we must put that money in research
and development. So, that we can come up with the better product then the one we are
that we are already selling in the market.

So, we have the product life cycle gives us an idea that how we should many manage our
marketing efforts in order to derive maximum benefits out of the marketing efforts. Then
the product life cycle also helps the companies to identify when a product needs support,
redesign, withdrawal etcetera.

Now, since we know that this is going to be the product life cycle or these are the sales
what is forecasted? For the sales like how the sales are going to vary over the next 6
months over the next one year? We can take decisions like, whether we should invest in
redesigning the products, whether we focus on the withdrawal of the product from the
market as I have already highlighted in the previous point.

So, such type of decisions are taken based on the product life cycle also it helps in
planning for the new product development, which I have already highlighted as well as it
helps in forecasting and managing the cash flow. So, we can see that if we have an
understanding about the product life cycle very easily we can take decisions which are
beneficial to the organization. And therefore, information related to product life cycle
must be there with each and every engineer working for the organization.

Now, we will try to see the different phases of the product life cycle on your screen you
can see the product development is the first stage we have to first develop the product,
using innovation creativity and then sketching it conceptualizing it and then making a
prototype and finally, testing the prototype and then seeing the in service conditions of
the products. Finally, we come up with the tested product that this is the product which
can now be launched into the market. So, from the product development once the
product is ready we come to the introduction or the launch stage.

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(Refer Slide Time: 17:03)

Then growth; the growth of the sales, the growth of the revenue, the growth of the profits
that we are going to make from the product, finally there is a maturity stage in with the
growth stops the market share is maximum at the growth at the maturity stage and once
we spent some time or the product spent sometime in the maturity stage there are
competitive products in the market at this stage. And finally, the sales start to decline and
similarly or consequently the profits also start to decline.

So, we will try to see this with the help of a diagram and try to understand that how the
sales vary over a period of time and how the profits vary over a period of time? So, here
on your screen you can see the variation of sales and profits over the products lifetime.

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(Refer Slide Time: 18:00)

So, we see x-axis as I have already explained is time and these are the sales and profits
on the y axis. So, we see the profits are depicted by the blue line and the sales are
depicted by the red line. So, in the product development stage or the phase we do not
have any sales, because we are in the process of development and the profits are also
negative.

Because we are spending money in research and development and prototyping and
testing so there is no profit at this stage, but once the product is launched in the market or
it is introduced in the market, the sales start to increase. As well as the profits also start
to increase and finally, we reach a stage where the profits are in the positive segment or
in the positive domain.

So, if we focus on individual variation from sales point of view let us see from
introduction stage the sales start to increase, but in the growth stage we see there is a
steep increase in the sales. And finally, at the maturity stage the sales become more or
less stagnant and then in the decline stage the sales start to decrease.

And similarly if you see the profits the profits in the growth stage we see are increasing
maximum at the maturity stage and finally, towards the decline stage the profits start to
decrease. So, this is the basic variation of sales over a period of time and this type of
diagram number of such diagrams you will see which will depict the product life cycle
over a period of time.

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Now, we will try to understand the importance of each one of these stages very quickly.
So, that we are able if we have a product life cycle for a product in front of us in the form
of a figure or a data. We must be able to deduce some information which can help us to
take our decisions regarding the success of an organization.

(Refer Slide Time: 20:26)

So, first stage is the product development stage. New ideas are there if I must say that
ideas we can say develop number of idea, because idea mortality rate is very high we
may generate 100 ideas, but only 2 maybe culminating into or 2 maybe developing into a
tangible product.

So, the importance of idea generation is very very important. So, we in product
development stage, we have to generate lot of ideas, then we do the market survey that
whether the product is required in the market can it be produced at a profit? Because no
company wants to make a product just for making a loss, product development and
refinement, test marketing, analysis of test marketing results preparation of launch,
publicity, and marketing campaign.

So, in product development we can have other stages also other technical stages also, but
here we are just coming up with the basic idea that in product development what we do?
We have some idea we develop it into tangible product we see, whether it is just do the
test marketing we see, whether it is going to be successful in the market or not and then
finally, we plan that how to launch in which part of the country we have to launch in

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which way we have to launch, whether we have to go for a television marketing or
television advertisements or we have to go in the print media. So, all that is covered in
the product development then the next stage is very very important that is the
introduction or the launch stage.

Now, we have taken all decisions related to the product we have a product with us now
the product is introduced in the market. Now introduction of the product in the market is
done in this stage.

(Refer Slide Time: 22:14)

It may be a new product or old product to the new market now old product to the new
market, maybe we are selling ice cream of specific brand maybe in one part of the
country. So, we are introducing in to the other part of the country. So, it is a old product,
but the market is new. In introduction stage if you see the sales are increasing it means
that initially the demand is low.

So, in the introduction stage demand is low, but as the word of mouth spreads, that this is
a good product the sales will definitely increase in the growth stage, high cost low sales.
So, sales are low the product is costly advertisement and promotion is required as we
have seen that PLC product life cycle helps us to take certain decisions related to the
aggressive marketing strategy.

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We have to monitor the initial sales in this case why, because in the introduction stage
we see that the sales are less we have to see that how we can increase these sales and
what are the teething troubles? What is the problem areas asocial associated with the
product? That we need to iron out in order to reach the product into or in order to reach
the maximum growth at the growth stage so, in the initial stage there are challenges
teething troubles are there that we need to look at.

(Refer Slide Time: 23:41)

Now, this is summary of the introduction phase sales are low as clear from the diagram
costs are high per customer, because in a heist to launch the product quickly we
sometimes do not optimise the cost. So, get cost optimization is done at a later stage and
that we will cover in our next lecture on value engineering. That initially once we have
developed or designed the products, why there are unnecessary cost in their products and
how we can overcome those cost at a later stages of the product life cycle.

So, the costs initially are high per customer profits are negative as we have seen in the
diagram, initially, the growth profits, become positive in the growth stage only and
marketing objectives are create product awareness and product trials.

Now, in the growth stage this period is the time to improve the efficiency and product
availability as well as service.

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(Refer Slide Time: 24:39)

So, 3 points are here efficiency, availability and service. So, we have to ensure that if a
customer goes to the market our product must be available on the shelf. The efficiency of
operations also must be good, because we have seen that the cost is higher in the
introduction stage. So, we have to keep a close tab on the cost of the product and how we
can manage the cost? So, that the product is competitive in the market. So, we have to
improve is improve the efficiency. Then the availability I have already highlighted as
well as the service should be good, cost efficiency, time-to-market, pricing and discount
policies are the major factors in gaining the customer confidence.

So, we have to focus on these points also. We have to focus on cost efficiency, time to
market, price it should be competitive pricing, and the discount policies of 4 points
further are added to the efficiency availability and service, increased customer awareness
through marketing sales growth rate increases, because of limited or no competition. So,
initially once our product is new it has been introduced in the market people have come
to know about this product.

So, in the growth stage there is not much competition if it is a monopolistic type of
market. So, the product will definitely have a growth trajectory and it will and the
growths the sales will increase at a rapid rate revenue also increases. So, that is not to
mention that because when the sales are increasing the revenue earned will also increase.

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So, growth phase these are the we can say characteristics and objectives sales are rapidly
increasing cost per customer is average.

(Refer Slide Time: 26:31)

Because we have focused on cost efficiency profits are increasing, marketing objectives
are maximize the market share by improving the customer awareness.

(Refer Slide Time: 26:42)

Now, the maturity stage slightly red zone in maturity stage highest returns from the
products are actualized, this period is the period of highest returns from the product sales
are at it is peak, marketing cost of the product declines, because in the introduction and

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the growth stage we have done aggressive marketing, for improving the or for increasing
the customer awareness, but at the maturity stage we know that the competition has set in
now there are other products also available therefore, we do not focus too much on the
marketing ratio of revenue to cost is high sales growth are likely to be low.

Now, growth stages we have seen the sales are rapidly increasing, but at the maturity
stage the sales become more or less stagnant. And competition is likely to be greater in
the maturity stage and we have to monitor the market changes and we have to adopt the
new strategies in order to be we can say; successful in the market or in at least in order to
sustain in the market. There is a famous saying that if you do not obsolete your product
you will be obsoleted from the market.

So, that decision we have to take that we deliberately or intentionally should make our
product obsolete and develop a strategy in which we come up with a new product, which
again enters into the growth stage after the introduction. So, every company wants to be
in the growth stage only. So, the maturity phase these are the characteristics sales are at
their Peak, Costs, low per customer, profits are high, because the sales are highest
marketing objectives are maximize the profits while defending the market share.

(Refer Slide Time: 28:26)

So, we have to put efforts to sustain in the market.

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(Refer Slide Time: 28:50)

Finally, the decline stage the competitors enter the market with better product features,
advanced technology, reduced prices. So, lot of competition is there. So, we have to see
that how to manage the product sometimes there is such a technology shift such a change
in the technology that our product may automatically become obsolete. So, the sale starts
to decline marketing cost of the product rises, because now we are only spending the
money on marketing, but we are not getting the returns out of the marketing and ever are
the marketing efforts that we are putting.

Now, we have to take a decision to withdraw it may be dependent on the availability of

new products and whether the fashion trends will come around again. So, if it is specific
to a specific segment of industry, but in many cases we have to take a judicious decision
that whether to continue with the product or we should focus on some other product or
some other market segment, where we can again be in the growth stage of the product
life cycle, where the profits are also increasing and the company is making profit.

So, with this we come to the end of today’s session that is session number 6 in our course
on operations management and we have started the week 2 discussion in which our focus
will be on product design and development. Today’s session was focused on product life
cycle and in next session our focus will be on value engineering.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 07
Value Engineering Concepts

Namaskar friends; so currently we are discussing week 2 that is focused on product

design and development. If you remember in our first session in week 2 that is on
product design and development, we discussed the product life cycle. And in product life
cycle if you remember we have seen what are the various phases of the product life
cycle. We have seen starting from product development to introduction or launch of the
product into the market then growth maturity and finally, the decline. If you see that the
product goes through or the sales of the product go through a particular cycle and that
cycle, we call as the product life cycle and we have seen that for each and every stage
there are certain decisions that have to be taken.

So, as a learner it is not important that we are able to draw a product life cycle and we
mark the various phases that first is the introduction then the growth stage then maturity
and finally, the decline. Most of the students understand the product life cycle from that
point of view only that is from the examination point of view. But as a good learner we
should try to understand that if we see a product life cycle of a particular product or a
related product in the last class I think I have not addressed this point that how we will
construct the product life cycle.

So, based on a similar type of product or based on forecasting or based on the diffusion
curve we are having basic information that how similar products have behaved in the
market or how the sales of the products have varied or similar products have varied or
competitive products have varied over a period of time. So, from that we get an idea that
how the product sales are going to behave over a period of time. So, as a good learner
our focus must be to understand that what type of decisions can be made by engineers or
managers for the success of an organisation based on the product life cycle. So, its not
only the information or the knowledge that we gain that what is a product life cycle, but
we should try to understand that how we can use this product life cycle for decision
making during our job and for ensuring success of an organisation. So, during our job

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profile we have to deduce the information and knowledge from the product life cycle and
use that knowledge for making judicious intelligent decisions for ensuring the success of
an organisation.

Now, today we are moving slightly further in ensuring a particular word that is value
engineering that we have information related to value engineering also, why it is
important, we have seen in the previous session that new product design or innovative
product design or creative product design is very very important. Currently we are
focusing on that what the organisation must produce in order to be successful. We have
seen in the first week the fundamentals of operations management and now we are trying
to understand that what the company must produce.

Then we will see may be in the next week how much the company must be produce that
is the sales forecasting or the demand forecasting now when we try to address what the
company must produce we have to answer a very pertinent question that is what should
be our product design what factors we should keep in product design when we are
designing a product. We have recorded a complete it was run successfully a course on
product design and development where we have addressed all these points in much more
detail. But in this course on operations management our focus is to align our students or
learners in a direction in which they are introduced the specific tools that are used for
product design or the tools that help us in making a successful product design. Value
engineering is one such tool which must be used during the product design process in
order to ensure the success of the product.

Now, what is value engineering, what are the historical perspectives of value engineering
and sorry what are the advantages of value engineering that we are going to cover in
today’s session.

I must, maybe I am compelled to make this point that value engineering is a complete
course which can be taught as a 35 or a 40 lecture course in any UG curriculum, but here
we are trying to understand only the fundamentals behind value engineering because
what I see in most of the UG curriculum value engineering is not taught as a subject. So,
the learners must have an idea about this wonderful concept which helps or which has
helped over the years’ number of engineers and product designers to make successful
products. So, we will try to understand that what basically value engineering is.

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And we have seen that initially in the product life cycle during the growth stage the cost
of the product is high. At the maturity stage when the sales get stagnant at that time the
company has to focus on competition and competition has to be ensured with cost
efficiency. If you remember in the previous session we have used this word cost
efficiency in the product life cycle now that cost efficiency is very very important we
have to ensure that our product is cost efficient, our product is competitive price wise the
selling price of our product is competitive as compared to the price of the competitor’s
products. So, that cost efficiency is achieved using the concept of value engineering.

Now, value engineering can be applied at various stages of product design as well as
manufacturing. We can apply value engineering just at the start of conceptualization of a
product, we can apply the principles of value engineering during the manufacturing stage
also, we can apply the principles of value engineering during the marketing stage or
during the logistics management of the product when the product is travelling from
warehouse to the retail market. So, these are to the universal concepts and can be applied
at various stages of the product development cycle.

So, we will try to understand what basically value engineering is and I have already
recorded few lectures on value engineering which are already available on YouTube for
details on value engineering you can refer to those lectures also which are freely
available on YouTube. But today we will only try to introduce the concept of value
engineering that what value engineering actually is. So, let us start our discussion with
the very basic essence of value engineering trying to understand the historical
perspective of value engineering now on your screen you see the historical perspective of
value engineering.

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(Refer Slide Time: 08:01)

So, basically during the world war two there was shortage of materials shortage of
materials in terms of repair maintenance of the army equipment or the defence
equipment. So, the general electric company found that many of the substitutes have
better or equal performance at less cost.

Now, first thing the one word that we have to focus till now is the substitutes. There was
shortage of material during the war there is damage their defence equipment gets
damaged because of one reason or the other reason. You have to substitute it with
different equipment. For example, we are using a car one of the component or a part gets
damaged what do we do we get another part and replace the old part, but here those
materials were not available that designs were not available then what was done.
Substitutes were found out, substitutes in terms of materials, substitutes in terms of
design changes, substitutes in terms of the manufacturing processes that were used for
making these parts or components and finally, it was found out that they are equal in
performance, but their cost is less.

So, you can see that when substitutes are used with less cost at same performance
everybody would be more than happy to adopt the substitutes, why because substitutes
are giving a similar performance, but at a relatively less cost. And with this background
this concept of value engineering was developed further and finally, it became a
completely new subject which is now taught in many engineering institutes as well as

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management institutes. So, Lawrence D Miles, L D Miles most more popularly known as
launched an effort to make the concept systematic.

So, earlier it was in bits and pieces for some particular defence equipment some changes
are done and then the substitute has been found to be better or at least of equal
performance then in some other component some changes were done and that was found
to be better as compared to the original ones. So, finally, Lawrence D Mile thought that
this is a good concept let us make it systematic and in that process only a Society of
American value engineers SAVE, the Society of American Value Engineers was
established in 1959.

So, this is the background now I think the whole purpose of showing this slide is that
what was the basic concept. The basic concept was that if you change the design, if you
change the materials, if you change the manufacturing processes for making a particular
part component or a particular product you may achieve a better performance or at least
equal performance, but at a relatively lower cost. So, the performance has to be same, but
the cost is lower so that is the basic concept behind value engineering.

When I first heard of this term value engineering maybe 10 years back I thought this
topic has to do something with the moral values and that is what the most in about value
engineering. If you ask somebody what is value engineering many engineers will not
have an idea that what value engineering actually is. But after this session or after
attending various other sessions which are freely available on electronic media you can
very easily try to understand this concept. And the basic concept is again I am
highlighting we have to ensure the performance by change in materials, change in
processes, change in design without compromising the cost part maybe we have to focus
on the course cost also we have to ensure the performance ensure the function is
achieved, but at a relatively lower cost. So, that is the basic concept of value engineering
we will read one or two definitions also today, but the theory part maybe explained or
can be understood from different text books and from different other media, but the basic
understanding that what value engineering actually is must be clear to the learners.

Now, what value engineering is I have tried to explain, what is not value engineering that
also you need to understand, now value engineering is not cost cutting. Some of you may
be wondering that we are reducing the cost of the part or the component therefore, it is

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cost cutting no in cost cutting we sometimes compromise on the quality, on the
performance, on the serviceability, on the maintainability, on the reliability of the
product, but in case of value engineering.

We are not going to compromise on any of these aspects the performance of the product
has to be ensured we have to ensure that the product that we are designing must be
reliable easy to service, it should be easy to maintain, life cycle cost should be low. So,
we have to ensure everything in value engineering, but still we focus on reducing or
minimising the cost of the product. So, therefore, there is a difference between cost
cutting and value engineering value engineering is more design focused we will try to
achieve the function at the minimum possible cost whereas, in cost cutting we just look
at producing the product in a way that the cost gets reduced.

So, design based value engineering manufacturing based cost cutting in cost cutting we
may change in cost cutting also we will look for alternative materials, we will look for
alternate processes, we will look for alternate designs, but in cost cutting the focus on
alternate designs is minimal. Whereas in case of value engineering we will only focus on
design and we will see that what the design modifications can be done in order to ensure
that our function is achieved.

So, value engineering is design based, cost cutting is production on manufacturing based
where we focus on reducing the cost or cutting the cost of the product. So, cost cutting
and value engineering is very very different and you must be able to answer very simple
question that what is the difference between value engineering and cost cutting. Then
some people say that value engineering is design review now from this two words design
review very literal meaning comes to me that once first we design and then we review, it
no, this is not design review we will use the concepts of value engineering during the
design process itself.

We are not going to review the already designed product we are going to focus on the
design only that what should be the ideal design for this product or what should be the
ideal design that will satisfy the desired function. For example, the function of this wrist
watch is to show time. Usually if you go into detail of value engineering for indentifying
a function usually use a two word verb and noun definition now verb and noun definition
means verb is show time is noun. So, we use verb and a noun type definition that is show

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time for a shaft it can be transmit torque, for a fan it can be circulate air, for a newspaper
it can be provide information. So, for different products we will have a two-word verb
and a noun type of a definition.

So, we will try to see that when we are designing a product how the principles of value
engineering can be used to achieve the desired function. Now, desired function I have
already told you that for this wrist watch the desired function can be show time. Now, I
have to ensure that whatever product I design it should be able to satisfy this function of
showing the time, I will not start my design from this watch, I will start my design from
the basic function that is show time.

So, this wrist watch is completely ruled out I will think I will use my creativity to design
a product which will satisfy this basic function of showing time it can be a completely
new design completely eliminating the use of the wrist watch whereas, in case of cost
cutting I will just take this watch and try to see that how I can change the dial how I can
change the various components of this watch. So, that the cost gets reduced whereas, in
value engineering I will focus on the design of a product in such a way that the use of
this band and this watch is completely eliminated and I am still able to satisfy my desired
function of showing the time or seeing the time. So, during the design only we will focus
that what is the desired function and how it can be achieved with modification in the
design simultaneously ensuring that the cost is also minimal. Similarly, value
engineering is not project elimination.

So, we are not going to eliminate any projects or it is not a criteria for evaluating the
projects and then eliminating those projects based on value engineering no it is not
project elimination. It is not scope reduction many times people feel that if you use a
well concept of value engineering the overall scope of the product will get reduced no
the scope of the product may further increase quality reduction I have already told we are
not going to compromise on quality when we are using the concept of value engineering.

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(Refer Slide Time: 18:42)

Similarly, this is not detailed cost estimation, so we are not going to do cost estimation
definitely we are you going to see what is the cost of the new design, what was the cost
of the old design, whether we are saving some cost in many cases the cost may further
increase also, but the overall performance of the product is increasing. So, it is not cost
estimation it is the design philosophy in which we design a product in such a way that
our intended function or the intended function of the product is satisfied at the minimum
possible cost.

So, it is not only a cost estimation technique it is basically a design tool which helps us to
focus on the basic function of the product and try to achieve that function at the
minimum possible cost without compromising the quality performance reliability and
service serviceability of the product. Moreover, it is not redesigned it is a design tool
which can be used by the engineers.

Now, I think with this background let us go through one or two definitions of value
engineering. What is value engineering? On your screen you can see, an organised study
of functions now all of you know function I have told the function of this wrist watch can
be show time the function of this tube light can the illuminate room, the function of glass
can be store water.

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(Refer Slide Time: 19:59)

So, you have you can see products around you and you can identify the function of the
product. Now, value engineering is an organised study of functions. Why do we need to
study the functions? To satisfy the user needs now I am using this wrist watch I am the
user, what is the function for which I have bought this watch I want to see time. So, I
have find that the watch should satisfy user’s need it is satisfying my need I am able to
see the time in this watch.

So, an organised study of functions to satisfy the user needs with the quality product no
compromise on quality, at the lowest life cycle cost yes, without compromising the
quality cost should be less through applied creativity. Now, how that is possible we have
to use the creative juices of our mind of our brain to come up with modified solutions.
So, this is the basic concept of value engineering to satisfy the desired function reliably
at minimum possible cost.

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(Refer Slide Time: 21:30)

These are the other definitions of value engineering. I will just read these definitions for
you.

An analysis of materials, processes and products in which functions are related to cost
and from which a selection may be made so as to achieve the desired function at the
lowest overall cost consistent with performance. So, I have already explained everything
related to this definition.

Another definition can be it is an organised, creative, organised systematic it is not

maybe haphazard or philosophical it is organised step-by-step approach systematic
approach an organised, creative, cost search technique for analysing the functions of a
product without the purpose of sorry with the purpose of value enhancement without
compromising with its quality performance and efficiency.

Now, what is the purpose? The purpose is enhancement of the product or the quality of
the product. So, purpose of value enhancement. So, value can be directly proportional to
the quality, reliability, weight reduction or efficiency. Now, what is our focus in value
engineering? Enhancement of the value of the product without compromising with the
quality performance or other parameters of value.

Mathematically also the value of a function is defined as the relationship of cost to

performance.

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(Refer Slide Time: 23:01)

So, we need to maximize the value on your screen you can see we need to maximize the
value performance and cost are two things that we need to take care. Now value is
directly proportional to the performance and inversely proportional to the cost.

Valuemax = Performancemax/Costmin

So, if the performance of the product is increasing value is automatically increasing. If

the cost of the product is reducing the value is automatically increasing. So, therefore, we
see that enhancement of value at a lower cost or by increasing the performance of the
product both ways we can enhance the value.

Many a times it may so happen that the performance is remaining unchanged, but the
cost is reducing still the value of the product increases. Sometimes it may so happen that
the performance is increasing, but the cost is remaining same still the value is increasing
in the last case it may also have that the performance is increasing at the same time cost
is also increasing, but the relative increase in performance is much more than the
increase in cost still the value is increasing.

So, we can adopt different strategies to ensure that how the product value can increase or
how the product value can be enhanced and that is the, you can say place or situations
where our creativity will come into picture. We can come up with different solutions of
increasing the performance or the functions of the product without changing the cost or

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by reducing the cost of that is the major maybe. If today’s lecture you want to summarise
or you want to just remember one particular thing from today's session that is value is
equal to performance by cost or value is equal to function by cost. We need to maximize
the functions and we need to minimise the cost or we need to maximize the performance
and we need to minimise the cost. So, this equation can be helpful to you for
understanding the basic concept of value engineering.

Now, why there are poor values in the product? I just read these points for you lack of
poor coordination among designers.

(Refer Slide Time: 25:29)

Failure to network with customer poor definition of needs and wants. So, sometimes you
see different products all around you and you find out that this product could have been
designed in a better manner, but why this has not been designed in that particular manner
these are the reasons. There is lack of coordination among designers and then the design
is based on habitual thinking or mistaken beliefs. Many times we just follow change is
always not welcome by engineers or scientist many times we are doing a particular thing
we are using a particular algorithm we are using a particular procedure we follow we
want to follow the same procedure we do not want to change. So, design is based on
habitual thinking.

Definitely it may not be the best design which could be done to satisfy that function.
Outdated or inappropriate design standards there are number of design standard which

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have become completely outdated in today’s scenario, but still many designers focus on
those design standards only. Incorrect or inaccurate assumptions based on poor
information, sometimes designers or engineers do not have the latest information
therefore they design the products with whatever information they have and fixation with
the previous design concepts.

So, basically the summary is that our designers need to be innovative, our designers need
to be creative they need to shed their inhibition they need to get away from the already
established methodology of product design in order to design products which can satisfy
the function at a relatively lower cost and there the value engineering and the creativity
comes into picture.

(Refer Slide Time: 27:25)

Now, when to apply value engineering? If you see the cost reduction potential in the
graph, the cost reduction potential is coming down as a life cycle phases are increased.
So, during the design stage only the saving potential is more because everything is fixed
at the design stage the shape, the weight, the materials everything is fixed at the design
stage. So, the cost design potential is maximum at the design stage. So, the design team
has the greatest impact on the cost saving. Then the question is that when we must apply
the concept of value engineering we must apply the concept of value engineering during
the design stage of the product and therefore, we are covering value engineering in the

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product design and development process this is value engineering cycle it is available on
Google images.

(Refer Slide Time: 28:16)

So, creativity and idea generation is the backbone of value engineering, then we do the
evaluation and selection of the ideas, and then we do the functional analysis that whether
the desired function that the customer wants is achieved by our idea or not, if it is
achieved then we go further and we do the final report and recommendation. So, maybe
this is the value circle - creativity idea, generation, evaluation, functional analysis and
finally, the decision whether the product will be successful or whether the idea can be
taken further develop for developing it into a tangible product or not.

Now, what are the application areas value engineering has been, I am applying has been
value engineering has been successful in construction projects, it has been successful in
manufacturing industry or manufactured products.

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(Refer Slide Time: 29:18)

In business systems and processes also the concepts of value engineering have been
found to be successful as well as in service organisations.

(Refer Slide Time: 29:26)

Now, what can be the advantages let us quickly understand. It helps in achieving an
improved product design and quality. So, we are able to design a better product if we use
the concepts of value engineering because now we are focusing on the basic function and
we are trying to understand that how this function can be achieved reliably at the
minimum possible cost and it suggests to eliminate the unnecessary functions in the

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organisation that increases the cost. Not only in the organisation in the product also if
you see all of us use mobile phones, smart phones, but many of the functions in the
product we may not be using we may be using maybe 10 or 15 functions on a regular
basis, but the product may be having or the mobile maybe having so many different
functions now all those functions involve cost. And if the customer or the user is not
using those functions the company can focus on those functions and try to eliminate
those function in place of these functions they can bring in some additional functions
which can add value to the product.

So, value engineering helps us to identify the unnecessary functions and we can focus on
additional functions which can add value to the product, product. It emphasizes on
seeking the alternative for achieving the function and on applying the best alternative
among the various courses of action available. So, the backbone of value engineering is
creativity, innovation.

So, it will help us to find out number of ways to achieve the same function and in that
process it will give us the best idea that what can be the best product to achieve this
particular function for the customer and therefore, it helps us to come up with the
product which is better as compared to the competitor’s product enhances the customer
satisfaction and sales by determining the exact needs and expectations of the customers.
So, we voice of customers is taken the needs and wants of customers are you can say
taken into account while designing the product and then we focus on the desired function
and we try to achieve the desired function at a minimum possible cost.

So, I think with this we will end today’s session. I have tried to introduce only the
concept of value engineering and that is very very relevant concept during the product
design process and value engineering most of the times is not covered in the product
design and development chapter so therefore, we thought of introducing this tool to the
engineers or the learners so that engineers can further enhance their skills and focus on
the product design keeping in mind the concepts of value engineering. And further
information is available on various other sources so I request all the learners to look up
for other sources and improve or increase their knowhow in this important aspect of
value engineering.

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In our next session we will see another aspect that is very very important that we usually
call as DFX or design for x and it is important from the product design point of view.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 08
Design for X (DFX)

Namaskar friends, welcome to session 8 in our course on Operations Management. So,

currently we are in the week 2 of our course on Operations Management and in week 2
our major focus area is product design and development. So, we are not going through
the run of the mill type of sessions on product design and development because there is
lot of literature, lot of good books available on product design and the steps have been
outline in a very clear and precise manner. So, all of us know that when we have to
design a product, what we must take care of or what are the steps that we must follow,
but we are trying to acquaint ourselves with the tools that may help us during the product
design process.

So, within the broad gambit of Operations Management, we have seen in week 1, what
Operation Management is, what are the functions and scopes and strategies of operations
management. Then we focused on what we should make in order to make our
organisation or our factory or our enterprise successful; what means what product we
must make. And there we have seen that in product design and development, we are able
to identify the products that will that may make a successful. Now in week 2, our focus
broadly from Operations Management point of view is that what we should make to be
successful in the market. Within product design and development, if we see, we are
going to have 5 sessions; in first session we discussed about product life cycle. So, what
we could what can be the take home point from that product life cycle session. We have
seen that how the sales vary over the lifetime of the product, how the profits vary over
the life time of the product.

So, we were able to establish that, no there is no product which can continue on and on
and on and on. There has to be a period when the sales or the profits of the product will
start to decline. And as soon as the sales or the profits start to decline, the company either
has to come up with an improvised version of the product or has to come up with the
completely new product. First session gave us this I think understanding that product

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design has to be done regularly by every organisation either to sustain in the market or to
capture additional market share. So, product design is important which was established
by the product life cycle session. In second session we focussed our attention on value
engineering, that once we have decided that we are going to come up with the
improvised version of our product or we are going to come up with a completely new
product, what we need to do. We will try to understand the needs and wants or the
requirements of the customer.

We will try to see what are the functions the customer wants from our product, we will
focus on those functions, we will identify those functions, we will break down those
functions into individual functions of the components and then we will try to achieve
those functions at the minimum possible cost either by redesigning the product or by
changing the material of the product or by changing the manufacturing processes that are
used to fabricate or manufacture that product. Once we have made our design, we have
finalized our design, then we will go to the next stage that is we have to look for the
manufacturability. We have to look for the assembly of the various components into the
product. So, we have already conceptualized our product, but during the design stage
only, we have to see that how this product will be manufactured, how this product would
be assembled and for that we need to understand a completely new aspect that is design
for X.

Now, X here is variable and may depend upon the particular situation or environment
where we are going to use this concept. There is a term called design for manufacturing
and assembly where there are guidelines that, if we follow those guidelines, we will
come up with the product which is definitely going to be successful in the market, if we
follow these guidelines. But still, there are failures of the product. The failure may not be
because of the DFMA guidelines, but because of the design that we have made or we
may not have been able to address all the needs requirements wants of the customer. So,
if the product is not accepted by the market, not accepted by the customers, the
guidelines may not be blamed for that reason; the reason can be that the mapping
between the wants and the functions that the designer has designed into the product is not
accurate; the mapping is incorrect.

So, today in our session we will try to understand that once the functions have been
identified, a conceptual design has been purposed; what are the other guidelines, rules,

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regulations that we must follow during the design process so that our design is
successful. And we are going to understand this important aspect of Design for X. Many
times you will hear the word design for manufacturing, design for assembly; so, all these
are subsets of the concept of Design for X and that we are going to cover in today’s
session. Then once we understand that Design for X, there is another important aspect
that is ergonomics, because every product mostly will be used by human being. So, this
man machine interaction also has to be taken into account and we have to take into
account the concept of ergonomics also during the design process of a product. So, we
will see in the next session the concept of ergonomics.

So, let us today try to understand the concept of Design for X and we will just rush
through the presentation and see with examples that how this can be helpful to us or to
the product designers.

(Refer Slide Time: 07:22)

So, on your screen, you have a very fundamental definition for Design for Excellence or
design for x. So, design for excellence or DFX is a systematic design approach that
entails wide range of guidelines and standards.

Now, this is the design approach which is comprising of or which incorporates a long list
of guidelines. Now guidelines can be, you can say rules of thumb which can help us in
easy manufacturing of our product. This can be guidelines, which can help us for
ensuring the easy assembly of the various components into the final product. So, DFX is

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something which is systematic in nature and it entails guidelines and standards which
optimise the product realisation life cycle.

Now, we have seen from the product life cycle, we have seen that new products are the
need of the hour. Every company comes out with innovative and creative products with
passage of time; if they want to sustain in the market or if they want to build themselves
in the market. So, new product design is inevitable for every company which is well
established. Then value engineering concepts help us to map the functions that the
customer want with the product design. Now once our concept is ready, we take into
account these guidelines; we take into account these standards which help us in further
fine tuning our conceptual design into a tangible design, which can then be sent for
manufacturing.

So, during the design process we must take into account all these guidelines. So, in
reality the term DFX is better thought of as Design for X, where the variable X is
interchangeable with one of the many values depending upon the particular objectives of
the venture. Now objectives of the venture can be that, there can be a product which is
may be which has 5 different subcomponents or subassemblies. Now these
subassemblies have to be assembled together in the form of a tangible product.

Now, the X here can be assembly that we have to follow the guidelines already
established for design for assembly and we have to develop the assembly sequence in
such a way that it is easy to assemble these 5 sub components together. It may take
minimum time, minimum cost, minimum effort to ensure the assembly of the 5
subcomponents into the final product. So, X will take the; we can say value assembly
there. So, our guidelines which guidelines we have to follow, we have to follow design
for assembly guidelines. So, we will see one case study today and try to understand the
DFA, how DFA is beneficial to us.

Now these guidelines, whatever design for manufacturability, design for assembly
guidelines and shows the issues related to manufacturing, cost, quality, assembly and
serviceability are addressed at the design stage only.

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(Refer Slide Time: 10:41).

Why I am emphasizing on design stage only because, the most of the cost associated
with the product is locked, l o c k e d, locked at the design stage only. So, we should
follow we must follow all these guidelines at the design stage to ensure that our product
is of good quality, our product is easy to manufacture, our product is easy to assemble,
our product is easy to service. So, if we follow all these guidelines at the design stage
only, we are ensuring the success of our product in the long run. So, if these guidelines
are not adhered, then what is going to happen. So, if we do not follow these guidelines, it
can lead to engineering changes occurring at later stages of the product life cycle. The
latter stages can be during the manufacturing of the product which are highly expensive
and can cause product delays and cost overruns. Very simple examples of this point can
be making up of a building or construction of a house. So, architect has designed the
house; during the design many things have been overlooked.

Now, you make the foundation and you erect the walls and you leather roof and do the
plastering and later stage if you identify that oh this thing is missing, we must have
incorporated this thing; what you need to do you need to change the complete things
physically, but at the design stage only, if you find out that, yes this thing is missing this
thing can be incorporated in the building, in the design stage only on your system, you
have to only make changes. Only the CAD file or the soft file only or the computer based
file only, you need to change you need not physically demolish walls or may be roof of
the house to make the changes. Therefore, if we follow all these guidelines at early stage

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of the product life cycle that is during that design stage, our life becomes much easier
during the manufacturing phase; why because, everything is locked at the design stage
and if you have followed all the guidelines we need not make any changes towards the
manufacturing stage of the product life cycle. So, it is important, again and again I am
emphasising that there can be a question somebody may asked you that when we must
follow these guidelines of DFA, DFM, DFMA, DFQ; immediately you must be able to
answer that we must follow these guidelines during the design stage of the product.

Now, some of the common substitutes for X I have already in the previous slide
highlighted that DFX, X can be a variable in which X can take different values. So, some
examples are given here Design for manufacturing, Design for Assembly.

(Refer Slide Time: 13:52).

So, X can be Manufacturing, X can be Assembly, X can be Manufacturability and

Assembly, X can be Production, even X can be Quality also, X can be Safety also. So, on
the right hand side you can see a figure DFX; Design for Manufacturing, Design for
Production, Design for Cost, Design for Service, Design for Safety. Similarly Design for
Reliability, Design for Assembly, so X can take any value. So, we must ensure that when
we are designing a particular product, we must follow these guidelines religiously and
judiciously. Otherwise what is going to happen, in most of the companies there is a
design centre or a design cell, there is a manufacturing plant; note the design centre can
be in city A, manufacturing plant can be in city B, now the design people without having

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much knowledge about the manufacturing versatility or the manufacturing and ability of
a company they will design the product.

Now, the design will be sent to the manufacturing plant and there may be iterations in the
design based on the availability of machines in the manufacturing plant and that may
lead to time wastage. So, these days this DFM, DFA concepts are very helpful and a
product team or a project team is appointed which has different members. Now members
can be definitely from the design stage, design team; means people will be from the
design, people will be from the manufacturing, experts of manufacturing will always be
there in the product design team or product development team as per the basic principles
of DFM and DFA, then there will be people from the legal department, there will be
people from the sales department, there will be people from the marketing department,
there will be people from the finance department.

So, a complete multifunctional product team will be formed or will be constituted to take
this product from the conceptualization stage to the final launch in the market and there
the concept of DFM, DFA will be well adapted. Why? Because, as soon as the designer
will come up with a suppose a particular shape of a product the manufacturing expert
who is there in that product team will be easily able to establish there or will be easily
able to tell at that point of time that whether the company has that particular capability to
make that shape or whether some design changes are required in the shape to map or to
match with the manufacturing facilities available with the company. So, this will save a
lot of time and this is the basic fundamental concept of DFX that is Design for
Manufacturing or Design for Assembly. So, at design stage only, we will take into
account all this aspects, the aspect of safety is also at covered during the design stage
only.

Now, let us take 2 examples. Now example number 1 is Design for Manufacturing.

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(Refer Slide Time: 17:20)

Now, DFM is the method of design for ease of manufacturing. Ease of manufacturing
means that once we are, we have conceptualized our idea we need to take into account
that once this product will go to the shop floor, once this product will go to the factory, it
should be easy to manufacture this product. It should not be too complicated a product
that it is difficult to produce it our difficult to manufacture it. So, DFM will ensure the
ease of manufacturing of the collection of parts that will form the product after assembly.
So, further it goes 1 level down

So, we are saying ease of manufacturing of the product. For example, the camera that is
recording this lecture; there are so many parts components small parts that I can see in
this camera. Ease of manufacturing says that the different parts that had been assembled
to make this structure or make this camera must be easy to manufacture. There maybe
probably I can just make a wild guess that maybe more than 50 to 60 parts that have been
used to assemble this camera. So, ease of manufacturing means or Design for
Manufacturing means that each and every part should be easy to manufacture and what
should be our objective. Our objective is to minimize the manufacturing costs. So, that is
one broad bottom line that we have to ensure that the cost of the product or cost of the
individual component is minimized.

So, what is our focus optimization of the manufacturing process at the design stage only.
We are not going to first design and then on the shop floor we are not optimizing the

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process, we are optimizing it during the design stage only. So, that is the beauty of this
concept of Design for Manufacturing. Now, Design for Manufacturing is a development
practice. So, during the design only we have to take into account these guidelines
emphasising manufacturing issues throughout the product development process. Usually
this used to happen towards the end of the product development process, but now with
the invention or with the development of concepts like DFM and DFA, this is this has
become a routine or this has become you can say long process or a continuous process I
must say, not a long, I must say a continuous process from the conceptualization of the
idea to the final launch in the market the manufacturing concepts have to be considered
or the manufacturing issues have to be considered. Successful DFM results in lower
production cost without sacrificing the product quality.

(Refer Slide Time: 20:20)

So we can say, we have studied in the last session value engineering. In value
engineering also we are not compromising the quality, but we are still focusing on
minimizing the cost. So, here also our focus is to minimise the production cost without
sacrificing the qualities. So, the concepts are overlapping, here also we are doing value
engineering.

So, this is just overview of what the manufacturing system is overall made up of; our
target is the red colour here, the finished goods.

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(Refer Slide Time: 20:53)

What are the various inputs; raw materials, labour, purchased components, for sub
assemblies, equipment, information, tooling, energy, supplies, services and then
sometimes we have some rejected parts that go as waste. So, our final product are the
finished goods only. So, we have to focus on each and every element, each and every
component of this system in order to overall optimise the manufacturing process

Now, in DFM method we can see here.

(Refer Slide Time: 21:36)

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There is a proposed design which already has taken into account the concepts of value
engineering, it is satisfying all the functions as specified by the customer. So, we have a
input that is a product design or a concept design. We will see, as per DFM, what are the
manufacturing cost. So, in the previous slide we have seen that the manufacturing system
is made up of so many inputs.

So, we will establish the manufacturing cost based on all these things, raw material,
labour, information, tooling, services and electricity and other part other things whatever
was mentioned in the previous slide. So, we will estimate the manufacturing cost. Now
that is our benchmark, that for this design, this is the cost. Then we apply the guidelines
of DFM. So, we will see we will try to reduce the cost of the components as I have given
an example of this camera, we will focus on reducing the cost of the individual
components, but without sacrificing the quality. So, we will try to reduce the cost of the
component, we may in some cases combine the 2 parts together. So, they can achieve all
the functions for which there were 2 parts earlier.

Now, we can combine them into a single part and then we can re-design that part in such
a way that the cost is reduced, but the quality is not sacrificed. Similarly, we can reduce
the cost of assembly. So, if we are combining the 2 parts together achieving the desired
function without sacrificing the quality, we are saving 1 assembly operation. So, we can
reduce the cost of assembly similarly, we can reduce the cost of supporting production.
So, we will focus on all these areas and then we will consider the impact of DFM
decisions on other factor. So, these 3 steps we will follow 1 step, second step or these 3
things we will follow as per the guidelines of DFM. And finally, we will see what impact
this guideline has on the cost. So, consider the impact of DFM decisions on the other
factor recompute the manufacturing cost.

So, other factors can be the overall look of the, suppose we are minimizing some parts
we are combining certain functions. So, how the product is looking now; what is the
effect on the safety, what is the effect on the aesthetics of the product, what is the effect
on the legal aspects of the product. So, we will see what this changes, how these changes
are effecting the other factor. So, if there is not much change in the other factors we will
recomputed manufacturing cost. And if it is good enough, we will say we can accept the
design modified design as per the guidelines of DFM, but suppose we feel that no there
are certain issues, there are certain safety issues related to the re design, we will a go and

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go back and we will follow the iterative process of design until and unless we are
satisfied that our new design is giving us all the functions it is satisfying the design
requirements, the specification at a lower cost. So, we will say let us now fix the or let us
now freeze the final design.

Now, this is an example, very simple example we have taken.

(Refer Slide Time: 25:07)

So, I will just read it for you. In a sheet-metal design, specifying hole sizes, locations and
their alignment is critical. So, we can see here, there are holes in this sheet metal. It is
always better to specify hole diameter that are greater than the sheets thickness T. So, it
is always better that the diameter should be greater than the sheets thickness. Spacing
between 2 holes also is important, it should be at least 2 times the sheet thickness if not
more. So, the spacing between the 2 holes is also important. Distance between the holes
ensures strength of the metal and prevents holes form from deforming during the bending
of bending or forming processes. These are the Design for Manufacturing guidelines,
DFM guideline, for sheet metal with or the design of the sheet metal with holes.

So, once you need to have holes in the sheet metal, it is always better it is always
judicious to follow these guidelines in order to make a good design. So, these guidelines
will be considered during the design stage of the product development cycle. Now
coming on to Design for Assembly, let us have a quick discussion on DFA. DFA is a
method of design of the product for ease of assembly. So, I am not going to explain DFM

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ease of manufacturing, DFA ease of assembly; optimization of the part or system
assembly.

(Refer Slide Time: 26:50)

Now, DFA is a tool used to assist the design teams in the design of products that will
transition to production at a minimum cost focusing on the number of parts handling and
ease of assembly.

Now, 3 things are important here. First is, what is the total number of parts? So, as per
DFA, Design for Assembly, we will focus on reducing the number of parts in the
product. How to handle these parts? It should be easy to handle and finally, they should
be easy to assemble. So, these are the 3 things that we have to take into account. First
thing is number of parts should be less, this part should be easy to handle while
assembling and the assembly operations should themselves be simpler. Now this is
Design for Assembly principles, quickly I will read.

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(Refer Slide Time: 27:44)

I have already highlighted some of them. Minimise the part count; number of parts
should be less. Design parts with self-locating features; so, part should be so designed
that they locate a one above the other easily.

Design parts with self-fastening features; so, self-fastening concept should also be there.
Minimise reorientation of parts during assembly; so, we must avoid the reorientation of
part. Design parts for retrieval, handling and insertion. Emphasize Top-Down
assemblies; so, Top-Down assembly, means that the heaviest part we should keep at the
bottom and on that we should assemble the smaller parts. So, standardized parts,
minimum use of fasteners should be ensured encourage modular design which is again
we can say is related to the first point that is minimise the part count. So, number of parts
should be less, modular design must be ensured. For example, one example can be, 3
wires going independently into an electric switch or the other thing can be 3 wires fixed
into a 1 modular design and only one we can say switch is being fixed.

So, that is the kind of modular design that we need to use the concept of modularity in
the design. Design for a base part to locate the other component which is again related to
the top down assembly approach, design for component symmetry for insertion; if 2
parts have to be joined together, we must ensure that the orientation should be such that
there is symmetry and the 2 parts can be combined together easily. So, these are design
guidelines. Since we have paucity of time you can just go through these guidelines and

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search for DFA, you will get so many good examples in which you will see that this is a
modular design, this is not a modular design, this is a poor design, this is a good design,
this is a top down approach, design related to top-down approach, this is not related to
top down approach, this is poor assembly operation, this is good assembly operation. So,
all these points must be taken into account when we are designing a product that when
the different parts will be assembled together, these guidelines if we are following our
assembly will become very easy and therefore, we can easily say that after following the
DFA or Design for Assembly guidelines, the assembly was easier.

Let us take very quickly one example and then we will wind up the today’s session.

(Refer Slide Time: 30:27)

This is one, source is Boothroyd, Dewhurst and Knight. So, this is a good book on
product design, Design for Manufacturing and assembly guidelines are given. So, this is
Boothroyd, Dewhurst and Knight’s book. So, the example has been taken from there. So,
the original design for a thermal gunsight reticle in the US tank made by Texas
instrumenting, there are large number of fasteners here we can see, redesigned thermal
gun sight reticle simpler to assemble and less to go wrong. So, you can see the previous
again there are number of fasteners designed here.

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(Refer Slide Time: 31:07)

And this is a redesign it is going the redesigned part or the product is going to achieve
the desired function as was being done by the previous design, but here you see, far less
number of fasteners and the parts have been redesigned in such a way that they are easy
to assemble. Now what are the advantages or improvements noted, assembly time
improvement is 84 percent, number of different parts original design had 24 parts.

(Refer Slide Time: 31:30)

Redesigned part has only 8 sub component. Total number of parts were 47 and in
redesigned there are only 12 number of parts.

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So, some of you may be wondering number of different parts and total number of parts
how they are different. So, different parts mean 24 different designs are there. And total
number of parts can be 47, may be there are there is a type of a fastener which is 4
fasteners of same type are used. Therefore, the total number of parts are more, because
different parts are 24, but total number of parts are 47, but they have been reduced finally
to 12. So, total number of operations are also reduced because there are less number of
parts to be assembled from original 58 operations, now redesigned part as only 13
operations.

So, that is basically you can see that, if you apply the design for assembly guidelines you
get lot of improvement which saves your time as well as effort without compromising or
without sacrificing the functionality of the product design. So, with this we come to the
end of today’s session and if you have, if will go through this session again if you will go
through those guidelines, definitely you will get certain examples in various books where
you will be better able to appreciate the concept of Design for Manufacturing and
Assembly. In our next session we will focus on the concept of ergonomics and how
ergonomics can help us to design a better product.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 09
Ergonomics in Product Design

Namaskar friends, welcome to session 9 in our course on operations management; we are

currently in week 2 of our discussion on the course on operations management and in
week two, we are focusing on product design and development. Now just to have a brief
review of what we are covering, we have covered the basics of operations management
or fundamental aspects of operations management in week one, in which we have seen
the scopes objectives and strategies of operations management.

In week 2 our focus is on product design and development, because when we have to
manage the operations of an organisation we have to see that what we are producing,
how we are producing, how well we are producing so, that the overall profits of the
organisation increase or we are able to maintain a market share in the overall business
environment.

So, basically our focus is on identifying that what is the market requirement, and what
we should produce in order to be competitive in the market. And in that quest that what
we must produce our product design and development session or section becomes very
very important. So, we have already seen three sessions in this course; that is first was on
product life cycle that how the sales as well as the revenue or the profits of an
organisation change over a period of time. Then in session 2 we have seen a very
important aspect of value engineering, which is usually not covered in the UG
curriculum.

So, in value engineering we have seen that we have to focus on the functions of the
product; we have to focus on the design of the product so, that we are able to achieve all
the functions at the minimum possible cost to be competitive in the market. Then we
have seen in the previous session, we have discussed the design for x we have taken few
examples of design for manufacturing, we have taken a Texas instrument example of
design for assembly.

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So, currently our focus is towards the design of the product, and in that context only we
are today going to cover another important aspect that every engineer must keep in mind
while designing a product, that the human product interaction should be very very good;
good in the sense that both should enjoy the interaction. The person should enjoy and
interacting with the product and the product should also enjoy interacting with the human
being; and how that is possible? That is possible way if we take into account the aspect
of ergonomics. Now in ergonomics we have we can see that there are different types or
different faces, for different we can say aspects of ergonomics. So, in today’s session our
focus primarily would be to understand the basic concept of ergonomics, types of
ergonomics and then we will try to understand it with the help of suitable examples.

We will see that how we can apply the aspect of ergonomics, in order to improve the
product designs. So, ergonomics is all around us for example, I am using this pointer; we
can use the basic aspect of ergonomics in the design of this also. If you could see the
shape of this particular pointer it is easy to hold in the hand. So, easily we can have one
good example of ergonomics right in front of us, where we can see that how the shape
has been designed. It would have been a straight rectangular cross sectional also, but a
particular shape has been given. So, that I am it is easy for me, it is comfortable for me, it
is enjoyable for me to hold this pointer.

So, that is basic aspect. So, we need to focus on that interactive aspects, that how the
person is interacting with the product and how the product is interacting with the human
being vice versa so, that we have to take into account, we have to fit the product to the
needs of the person or to the benefits of the person, or to the comfort of the person or to
reduce the fatigue of the person or to reduce the tiredness of the person.

So, we have to design the product in such a way that the person is able to perform his
task without any fatigue, without any extra effort that is the basic purpose of the
ergonomic design, and I with this introductory we can say session, I will just now move
towards the presentation in which we will try to understand the basic aspects of
ergonomics from the fundamental point of view as well as we will have a structured
discussion, with the help of slides and this presentation.

So, let us know quickly go to the term ergonomics, that what do you mean by
ergonomics.

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(Refer Slide Time: 05:20)

Now, it is derived from true 2 Greek words Ergo and Nomos. Now ergo means work and
nomos means laws. Hence ergonomists study human capabilities in relationship to work
demand. So, we will see that ergonomics will help a person to achieve his task with the
minimum possible effort. Now task has to be achieved and ergonomic design will help us
to match or to map the demand of the work to the capability of the human being.
Sometimes it so happen that a person has to lift a very heavy load, which is beyond his
capability, which is beyond the human capability now how that can be done. We can
have a pulley type of arrangement or we can have a lever type of arrangement, which can
help us to push that load.

So, that type of arrangement basically is a ergonomic design of a product, which is

helping the human to exceed his human capability. So, we will try to map the 2 things
together. We will try to see what is the demand, what is the capability and how that
capability can be manipulated in order to satisfy the work demand or the demand of the
work that has to be completed. One example I have taken maybe a very vague examples
that just came to my mind, but similar type of facts or figures we will try to understand
that, how we can make the work easy for the person who is going to perform that task.
So, that is the basic concept of ergonomics again, I will read the last sentence which I
have tried to highlight with examples. Ergonomist the people who are experts in the field
of ergonomics, they study the human capabilities in relationship to the work demand.

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The work demand means the specifications of the work that has to be completed. Now a
more structured definition of the word ergonomics is given.

(Refer Slide Time: 07:30)

The source is international ergonomics association. So, I will read this definition and
then try to explain this definition to the best of my ability, whatever example I can give
related to this definition. The scientific discipline concerned with understanding of
interactions among humans and other elements of a system; now the interaction between
the humans and the other elements of the system.

Now, let us consider this system, where this recording session is being organised. Now
my interaction with your system as a whole is what the ergonomics is all about. To study
this interaction, now what can be the objectives? The objectives can be that I must feel
happy in this environment, it should be easy for me to record this session of 30 minutes, I
should not feel may be tired at the end of this 30-minute session, I must feel fresh after
this session. So, how that can be ascertained? That can be ascertained by providing an
environment which is we can say cordial, which is we can say congenial for recording of
a session, that can be achieved through maybe air conditioning, that can be achieved
through a proper lighting system. So, we have to design the system in such a way that the
interaction between the man and the system is good or efficient or effective.

So, the first sentence I have tried to explain with the help of an example. The scientific
discipline concerned with understanding of interactions among humans and other

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elements of the system. I am a human and this recording studio is a system, and the
profession that applies theory principal’s methods and data to design. Now for designing
a system what is the basic information required? We require basic theory scientific
theory, principals, different structured techniques, tools and data to design in order to
optimise human well being and overall system performance.

So, the system performance must also be ascertained, and human well being also has to
be ascertained; the system performance how we can ascertain? If we are providing good
environment to a professor who is recording a session we can have more efficient
recording, we can have more may better management of time we can have more sessions
per day, if the system is performing well.

So, that is basic definition, the main point here is if we try to understand we can divide
this whole thing into three. We can say broad categories or three broad areas, first one is
that word interaction, second one are the elements the one is the human element another
one is the system or an organisation and a third thing is what are the objectives now
objectives are what are the objectives I think all of you must be able to address now,
objective is to ascertain the well being the human being as well as optimisation or the
maximisation of the system performance or the organisational performances.

So, basically we are trying to understand or to modify the interaction between the man
and the machine in order to improve the performance of both the man as well as the
machine. So, that is the basic aspect of ergonomics and we will try to do this, we will try
to understand this with the help of 2 case studies in today's session. Now what are the
benefits if we take into account the principles of ergonomics in product design? So, the
basic benefits in simple English language they have been highlighted on your screen, you
will see increased productivity and efficiency. If I am happy in this recording studio I
will be able to record this 30 minutes in 30 minutes only, but if maybe the system is not
performing well, I key I maybe start sweating after 10 minutes of recording, I will stop I
will just wipe off the sweat and then again get ready for recording there will be a break
in the overall recording.

So, if the system is not performing well the productivity of a professor will come down.
So, he will be recording a half an hour session maybe in one and half hour. So, overall
effectiveness and efficiency of the system will also suffer. So, if we have a ergonomic

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design I am feeling comfortable in the studio because of the principles of ergonomics,
there will be increased productivity as well as efficiency. Reduced fatigue and
discomfort example, completely clarifies that if it is happy environment if it is congenial
environment, it will result in reduced fatigue and discomfort. Helps to prevent injuries;
now it is really important where a person is doing physical work, especially where
physical work is being done it will help us to provide injuries. The design is such that the
ergonomically person is performing the task, and there are safety measures already
incorporated into the machine design or the design of the equipment that he is he or she
is operating.

So, the chances of injuries will be minimised; more over there are musculoskeletal
disorder specifically, where a person is using some muscles repeatedly over a period of
time there are MSDs or WSDs work related disorders. So, this MSDs can be avoided if
we put into account or put into use the principles of ergonomics. So, from health point of
view also, from accident point of view also the ergonomic design is more safe as
compared to a normal design of a product.

(Refer Slide Time: 13:58)

Now, it will improve the quality of work and life. So, when the both the system and the
worker are getting benefited. So, the overall quality of work and life will improve and
improved moral and job satisfaction. So, if the work environment provided to me is good
for my health, is good for my productivity, is good for my efficiency, I would definitely

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be satisfied with the job that I am doing. So, more or less if we see, that all the
advantages will not only lead to the happiness or the enjoyment of the worker, but when
the worker will be happy he will be more productive; if he is more productive the overall
organisation will also benefit and the operations would be more smooth and efficient,
and that will lead to the overall improvement in the profit of the organisation.

So, I wish that all organisations focus on the aspect of our ergonomics, and try to make
their system, try to make their operations much more comfortable for the workers. So,
that their overall productivity improves, which will lead to the overall profits for the
organisations. So, ergonomics has got lot of benefits, and I believe that all organisations
must address this issue of an ergonomic design of the work system. Now let us quickly
have a look at the types of ergonomics.

(Refer Slide Time: 15:28)

Now, on your screen you can see we can have three types of ergonomics. First is
physical ergonomics, cognitive ergonomics and organisational ergonomics. Now I have
taken an example of physical ergonomics that, I am recording, if I feel comfortable, I do
not feel much fatigue in recording, I will be much more happier I will be much more
comfortable in recording this session. So, that is related to my physical well being.

So, that is we can say an example of physical ergonomics. Cognitive ergonomics means
that if you are doing mental task, if you are doing some coding, if you are developing
some algorithm. So, we have to design a system in such a way we have to design the

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work in such a way, that it does not put much strain much stress into your brain or into
your thinking domain.

So, that is related to cognitive, that is related to mental stress as well as train as well as
an anxiety that will fall into the cognitive ergonomics. And organisational ergonomics
suppose 10 people have to do that ask they are sitting on the same floor and in different
cabins, how the system has to be designed how the interaction among the various people
sitting on the same floor in different cabins have to be designed so, that they feel
comfortable, they feel efficient, they feel effective in the discharge of their duties.

So, the office ergonomics maybe an example of organisational ergonomics, we will try to
understand each one of these maybe with a slide or two. Now first we can see physical
ergonomics and example.

(Refer Slide Time: 17:24)

The source of the image is also given www.toc.md. Physical ergonomics is the human
body responses, to physical and physiological workloads. Repetitive strain injuries from
repetition, vibrations, force and posture fall into this category. So, if we design our
product in such a way that it can avoid the repetitive strain injuries from repetition,
vibration, force and posture, it means that we have achieved our target of the ergonomic
product design. That is these are the focus areas, we have to avoid these type of injuries
by our product design and it is related to the human body responses. So, here we can see
on your screen, I think some of the information may not be available, but you can look

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up in Google images, you will get lot of such images where all the design features are
given.

So, there is a worker typing on the system and working on the computer systems. So, this
is an overall work system and it has to be designed in such a way, that the person
working on the computer feels comfortable. So, there is data that is related to this what
should be the height it is given maybe 16 to 20 inches is the height of this chair, then
desk height 23 to 28 inches, what should be the angle of the elbow all these this thing
what should be the distance between the eyes and the screen. So, these all things are
designed in such a way, that are optimised in such a way that the person feels
comfortable. So, this all is related to the physical responses and therefore, falls under the
category of physical ergonomics.

Next is the cognitive ergonomics; in cognitive ergonomics we can see deals with the
mental processes and capacity of human not the physical capacity of human.

(Refer Slide Time: 19:31)

It is the mental capacity of human which we can sometimes objectively classify as the IQ
So, cognitive ergonomics deals with the mental processes and capacity of human when at
work. mental strain from workload decision making human error and training fall in this
category. So, it is related to the mental work that a person is doing at his job.

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Organisational ergonomics is the third type of ergonomics; it deals with the
organisational structures policies and processes.

(Refer Slide Time: 20:02)

In the work environment; such as shift work scheduling, job satisfaction, motivation,
supervision, teamwork, telecommuting and ethics. Now basically office ergonomics or
organisational ergonomics is related to the interaction between the various workers or
various engineers or various computer programmers, who are working with the overall
system. So, they are working on a shop floor, how the shop floor should be designed how
the office space should be designed to improve the interaction between these people. Our
people who are working they should feel more productive, more efficient, more effective
in the discharge of your duties.

So, basically or organisational ergonomics is related to framing of policies, framing of

we can say processes in such a way that the overall efficiency of the work system
improves. So, three types of ergonomics focus areas we have seen; ergonomics can focus
on the physical domain ergonomics can also focus on the mental domain that is the
cognitive domain as well as ergonomics can focus, on the processes or the procedures or
the rules or the guidelines of the organisation and try to improve the overall effectiveness
of the organisation.

So, we can use the concept of ergonomics in the design of various we can say processes
and systems within the organisation now some of you may be wondering where to apply

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the principle of ergonomics. So, it is a global subject. So, you can apply it where a
person is operating on a single machine single person, single machine yes you can apply
the concept of ergonomics. There are 20 people working on 10 different machines, yes
there also you can apply the principal of ergonomics. There are 10 office people working
on the accounts of the organisation which is producing maybe automobiles or cars or
motorbikes, yes in that office space also you can apply the concept of ergonomics.
Basically where ever any kind of work is being done, the work maybe physical work the
work maybe mental work.

So, all those places you can apply the aspect of ergonomics in order to improve the
overall system performance as well as the overall worker’s performance. Now what can
be the objectives, all I think I have already highlighted what are the objectives.

(Refer Slide Time: 22:40)

But to have a more structured information to all of you we can have a just reading of
what are the objectives. So, the objective is to improve the efficiency of operation by
taking into account, the typical person height strength speed, visual capability and
physiological stresses such as fatigue speed of decision making demands on memory and
perception.

So, basically our focus is to improve the efficiency of operation or efficiency of the
system. So, we will take into account as we have seen earlier also the capability of the
human being. Now capability can be in terms of his strength, in terms of his speed, in

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terms of his vision. So, those are the human capability similarly from cognitive point of
view we can also take into account the speed of decision making and the how much
demand the work is putting on his memory or how much information how quickly a
person can bring from his memory or memorize the things. So, all those things are taken
into account, but the overall objective as highlighted on the screen in the form of red
colour font is improve the overall efficiency. To maximize the productivity by lowering
the risk of musculoskeletal disorders MSD.

(Refer Slide Time: 24:15)

So, the other aspect can be to make a safe design, which is good for human being causes
less fatigue as well as causes less injuries and lead to lowering the risk of
musculoskeletal disorders. Now musculoskeletal disorders what are these? These are
injuries and disorders that affect the human body’s movement of musculoskeletal
system, that is muscles, tendons, ligaments, nerves, discs, blood vessels etcetera. Now
why MSDs do happen in office or in the shop floor? Because of the repetitive nature of
the work that a person is performing MSDs do happen and have been reported in various
types of organisations. Wherever a person is repeated repeatedly working with his hands
if you observe the hands of a person who is doing manual work, you will be able to
understand that yes they are shape of the hand and the shape of the fingers has changed
because of the working of this person maybe for last 10 years or 15 years or 20 years.

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So, many such cases do we do observe in our day to day life, and those can be avoided if
we design the system in such a way that it does not lead to musculoskeletal disorders.
Now let us very quickly see the case study. So, we will see case this is a case study 1 that
is design of ergonomically efficient office chair. So, we will quickly go through this case
study.

(Refer Slide Time: 25:58)

An average person makes 53 change to his or her torso position in an hour while sitting
in a chair according to a study. So, these are the maximum changes that a person usually
does usually, when we are sitting on a chair we move slide back and sometimes you
move forward. So, these are the changes that have been counted maybe scientifically,
that 53 changes to his or her torso position. Torso position is the body position above the
waist height I think that is what I know anatomically the design of the chair should be
such that it is stable it should promote dynamic active natural motion allowing sitting in
any position.

So, you should be able to move comfortably while sitting on the chair, that is the thing
that is objective of an office chair or for the design of the office chair. The chair must
support you in whatever position you feel most comfortable. So, it should provide us
with four or five different options of sitting, and be each position should be comfortable.
So, these are you can say expectations of a chair that out of a chair, which is
ergonomically designed all of us use different types of chairs and in some kind of chairs

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we feel very comfortable, in some other chairs we do not feel that comfortable if we have
to sit for a longer period of time. And why design of a chair is very important in office
because a person has to sit on the chair maybe 6 to 8 hours in the whole day and maybe 5
or 6 time in a week and maybe 25 times in a month.

So, therefore, the design, is very important because if the person is feeling comfortable
for long hours of sitting on the chair, he will be more productive and effective.

(Refer Slide Time: 27:44)

Now these are the components usually in office chair, there is a headrest there is backrest
there is a seat, there is a rotating wheel at the bottom castor 5 arm stand; 1 2 3, 4, 5
height control knobs and armrest. Now this is a typical design of a chair. Now what we
can design, we can design the seat separately, we can design the backrest the angle at
which backrest should be placed make we can give 2 or 3 options, as we have in these
days the buses high end buses as well as in aircraft sometimes in trains also where you
can slide back your back rest. So, that is another versatility or another you can see option
given to the user, then armrest can also be adjustable as per your requirements. So, the
components have to be designed in such a way that the person sitting on the chair feels
comfortable.

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(Refer Slide Time: 28:40)

Now, we can see the base, armrest, footrest there are different guidelines, that for base it
should be ergonomically and ergonomically designed, chair has a solid safe and stable 5-
posts chair base, it must be made of strong material to support up to five times the body
weight. Now just one factor of safety is given that if we are designing the chair for
hundred kg person, the base should be able to take a load of five hundred kg. So, it
should be five times the body weight we have to design then armrest are there curved
armrest with depression in between to support the four arm properly

So, guideline for arm rest is given similarly the guideline for foot rest is also given
footrest must be adjustable does not restrict the leg movement if we want to move our
leg the foot rest should not maybe come in the on the way in the direction in which we
want to move our legs as wide as your feet at least it should be as wide as our feet. So,
that we can feet our feet comfortably large enough for the soles of both feet has a non
skid surface it should not happen that we are putting our foot on the foot rest and foot is
sliding again and again. So, it should be non skid surface. So, head rest must.

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(Refer Slide Time: 30:02)

We can say facilitate relaxed posture that helps relieve the pressure on your postural
muscles which can decrease fatigue and increase comfort the back rest should be large
enough to cover the entire width of the back a minimum twelve inch is recommended for
width. So, the back rest is also very important headrest is important footrest is important
seat is also equally important there is lot of work people have done on the design of the
seat also

(Refer Slide Time: 30:34)

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Now, this is we can say the final view or 3-D view the source is also given here of an
office chair. So, maybe this is one design and the design of the office chair will also
change as per the geographical location maybe far east if we go from India perspective
we are saying we will have a different design of an office chair the different dimensions
of the office chair the seat will be designed accordingly backrest and other dimensions or
the specifications will be accordingly because that depends on the average data of the
human beings of that particular country.

Similarly, from Indian perspective if we go to the western side we will have a different
design or different we can say the dimensions of the similar type of design because of the
anatomical change in the anatomical or the we can say anthro anatomical sorry may not
be the right word as a mechanical engineer I am not that convergent with the biological
terms, but yes the anthropometric data is very important.

So, based on the anthropometric data we will have a different dimensions on the western
side of India and western side of the world as per Indian perspective and different
dimensions on the eastern side of the world from Indian perspective, but the overall
objective of the design of ergonomic chair will be to improve the performance of the
worker who is seating on that chair in terms of overall productivity more over the person
must also feel comfortable fitting on the chair or seating on the chair, well it should also
be providing him some space where he can move or change his posture comfortably that
is one design and the case study 2 is of ergonomics of a tower crane cabin

So, quickly we will go through this.

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(Refer Slide Time: 32:35)

We can see this is a person on seating; so in the tower crane cabin. So, this is the tower
crane cabin and this is what we look for outside and this is the position inside. So, you
can see all the controls are within his reach minimum reach he can look down there are
glass cabin this is a glass cabin. So, he can look down he can look sideways he can look
straight. So, it provides good visual you can say comfort for the person because he can
look sideways as well as what is happening just behind the tower crane. So, what are the
recommendations for these tower crane fully adjustable seats with adjustable arm head
and back rest.

(Refer Slide Time: 33:15)

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So, you can see in this system again the chair is playing an important part. So, it is not
that ergonomics can be applied to one system only it is a global principle which can be
applied to different you can say areas in engineering as well as in sciences

So, fully adjustable seats with you can say the chair now if we have designed
ergonomically our first point is taken care of then use of tilting forward seat with options
available to work by seating or standing this is very important this may be an additional
thing as per this system requirement the first person may be able to lean forward to look
down what is happening which may not be the requirement in an office chair. So, this is
a specific requirement from the tower crane cabin point of view now it should observe
the shock and vibration yes that is specific requirement for these particular design
primary controls must be located within the cabins operator visual field without having
to twist and turn the neck beyond the normal range.

Now suppose I am operating that crane I must have all the controls within my reach easy
reach and second thing is I must not be required to turn back beyond normal position in
order to get to a particular control. So, that is very important improve the visibility by
cleaning windows equipped with wiper blades and washer because we are proposing the
glass windows are there must be arrangement in case of a dusty environment sometime
the glass may get covered with dust and it may affect the visibility outside. So, there
must be wiper arrangements; so that the glass can be cleaned properly sliding windows
for ventilation and outside window wipers with washers to clean the debris.

So, this is a specific requirement where there is lot of dust and dusty environment is there
we should always clean the glass window. So, we can see for a particular application
where the cabin is there on a tower we need to design it properly. So, few
recommendations are given here and if we follow these recommendations in the design
of this tower crane cabin very easily the work environment the work you can say
performance of the person who is performing the task will be improved and overall
system performance will also improve.

So, we have taken 2 examples one a design of a chair the another the design of a cabin in
which a person is going to operate. So, basically we can see that ergonomics is a
phenomenon or it is a science which can be applied in various aspects in order to

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improve the interaction or in order to study the interaction between the man and the
machine and overall objective is to improve the system performance.

Now, in our session on ergonomics we have tried to highlight the basic aspects of
ergonomics only in the next session we will see that if we have designed our product
how we can make a prototype easily. So, our overall product design and development
five sessions will equip us with the latest tools which are helpful for the product
designers in designing of successful products and if the products are successful the
organisation is successful and the organisation makes lot profit.

So, in next session we will now focus on rapid prototyping. So, with this we close the
today’s session.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 10
Rapid Prototyping: Concepts, Advantages

Namaskar friends, welcome to session 10 in our course on Operations Management and

today we are going to finish the discussion for week 2 in which our focus is on product
design and development. So, session 1 or in the first session of this particular week we
have seen what is a product life cycle. Then we have seen the concepts of value
engineering finally, we have seen design for x where we have seen two examples of
design for manufacturing and design for assembly.

In the last session we have seen that how we can design a product by keeping in mind the
concept of ergonomics. So, basically we have learnt we have discussed 4 important tools
which are very important in decision making in context of product design and
development. We have seen the product life cycle which helps us in decision making, we
have seen design for X that is design for manufacturing design for assembly, design for
manufacturing and assembly that also helps us to design our product. We have seen the
concept of value engineering which also helps us in decision making related to the
functions of the product, related to the functional analysis of the product, related to the
functional cost evaluation of the product and the last session we have seen ergonomics
which also helps us to take judicious decisions in context or in reference to the
interaction between the customer and the product, the man and the machine or the
interaction between the man and the system as a whole.

So, basically we are not learning the different steps involved in product design process,
but we are learning the various tools and techniques which can help us to design a
successful product which will help like to improve the economic health of the
organization.

So, in that series our focus today would be to discuss the rapid prototyping concept that
time is also very important. We have seen the product should be good, it should be
functional, it should satisfy the functions for which the product is being bought by the
customer, it should be easy to use it, should be comfortable to use, it should be

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ergonomically design, it must be cost effective it must be efficient. So, there we can use
n number of objectives to define a successful product, but the time is also very important.
I may have an idea today; I wish that I should make a product out of this idea which is a
tangible product which is a commercial product which can be sold in the market.

So, an idea has to be converted from an ideation phase into the actual manufacturing
phase and that time is very important the gap or the time gap once you have an idea and
that launch of the product in the market the time gap between this these stages has to be
minimized. And as a mechanical engineer usually we feel that the prototyping takes
away a lot of time, usually the designs today are made using software using CAD. So, we
know an auto CAD we have an idea we can directly make that design on our screen we
can have 2-D representation of the design, we can have 3-D representation of the design
we can look that design from different views. Once that design is ready we want to check
the functionality of the product and for that we need to make a prototype and that
prototyping will take a lot of time.

Then if you see the conventional manufacturing processes there are a number of courses
being offered under MOOCs, on fundamentals of manufacturing processes. So, once you
see or understand these processes like casting, welding, forming their other joining
techniques like adhesive joining, mechanical fastening. So, number of processes are
there which can be used to make a prototype, but all these processes have a time you can
second straight or time domain in which they can convert or a raw material into the final
product. So, it is always difficult it is not impossible, it is difficult to make the prototype
in a very short duration of time or in the shortest possible time, but that is our target.

Today I have an idea any other person may be in any other part of the word may also
have the similar idea. Now, the person who is able to the engineer who is able to convert
that idea into the tangible product or a commercial product will be the first person to gain
advantage and all these study or all these topics that we cover are interrelated. If you
remember in product life cycle, we have seen that during the growth stage the profits are
maximum. So, if the product which has been designed by our competitor or any other
person in the other part of the world before we can converge to a product before we
could launch the product some other company or an individual has launched that
product. That person or that company will definitely gain more advantage will be
profitable as compared to our company why because we are late we are delayed in the

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launch of our product because we have taken a lot of time in prototyping the product.
Therefore, we need to focus on the prototyping technology that how quickly we can
convert our idea into the final product or into the prototype.

The prototype can be just it can be a non functional type of prototype we are just looking
at it that how the product would look like or it can be a fully functional type of prototype
in which suppose 3 parts are made and then we have to check that whether they will
assemble properly or not or how they will look after assembly. So, it can be a function,
we can even check the functionality of the product of the material for which the product
is going to be made up of is similar to the material that we have used for making the
prototype.

So, we can make both functional and non functional type of prototypes. But the major
focus is quick methods of making the prototype and on your screen you see rapid
prototyping. Now, rapid prototyping means that we have to quickly convert our idea
convert our design into the prototype. So, rapid all of you know means quick and
prototyping means we have to make or fabricate or process a prototype.

There are a number of tools and techniques or methodologies which have been invented
and commercialized by researchers and scientists number of machines are available
based on the different technologies. There may be around 50 to 60 different technologies
that fall under the broad umbrella of rapid prototyping. We will not be covering any of
these technologies in today’s class. Our focus primarily is to focus on this concept that
what is rapid prototyping actually and how we can get benefitted by adopting the concept
of rapid prototyping. So, we will just be focusing on the concept and we will be focusing
on the advantages that we can derive out of these principles of rapid prototyping.
Otherwise there are machines available like stereo lithography apparatus SLA, laminated
object manufacturing, 3-D printing which is very common these days, selective laser
sintering. So, there are a number of technologies that are available which can be used for
converting the raw material directly into the product in the minimum possible time.

And all these technologies may use the raw material which may be in terms of a liquid
polymer, it can be particle, it can be sheets of material. So, depending upon the type of
raw material that is being used for converting into the prototype these processes can also
be classified that these processes use liquid type of raw material, these processes use

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solid raw material in the form of particles or there can be a group of processes which
makes use of layered sheets for making the prototype layer by layer by layer,
consolidating these layers, layer by layer. So, depending upon the type of raw material
used we can very easily classify these rapid prototyping technologies.

So, I have named a few of them and in our course on product design and development
which was a 10-hour course which was offered under MOOCs and I think the videos are
now available on YouTube. You can refer to these technologies also and try to
understand the basic concepts we have tried to explain them with the help of images with
the help of schematics and you will be able to understand that how a particular tech rapid
prototyping technology actually operates and converts a raw material into the final
product into the minimum possible time.

But today our focus would primarily be to understand; what is a rapid prototyping I think
by the discussion we had today maybe 5 to 7 minutes have already passed. Many of you
might have got an idea about rapid prototyping and in the structured lecture that we have
today we will further try to cement this concept of rapid prototyping and we will see that
what are the various stages involved. Because in different technologies as I have already
told you the major steps involved are more or less same the raw material may be
different, the process of consolidation may be different, but the basic steps involved in
the overall rapid prototyping process are same. We will try to understand what are the
steps involved and finally, we will see; what are the advantages that we can derive out of
rapid prototyping.

So, let us quickly start our presentation and try to understand the concept and advantages
of rapid prototyping process.

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(Refer Slide Time: 10:50)

On your screen you have the meaning of prototype, prototype basically originated from
the Greek word in 1603 prototypon a first or primitive a first or primitive form. So,
prototypon own is a Greek word from there it is a first or the primitive form. So, if for
any product you say; what is the prototype of this product it can be the model of that
product or the first form of that product. So, protos means first form and typos means
form. So, proto plus typos means first form of the product. So, protos means first and
typos means form. So, prototype means the first form of the product.

It is an art of managing the expectation. So, it is art of managing means that we have to
see, we have imagined a product, we have designed a product on our computer screen
using any CAD or designing software. So, once we have designed the product we have
imagined the product. So, here what we are doing we are managing that expectation we
are producing that expectation in the form of a tangible or a physical product. So, it is an
art of managing the expectation.

An original, it will be an original means a new product full scale. So, it can be made up
to the scale or we can make a scaled up or scaled down model also, but usually we try to
make a full scale model or a full scale prototype and usually working model of a new
product or a new version of the existing product. So, we can make a working prototype
of a product. So, as I have told you I have used the word functions because we have
already discussed the functional analysis or the value engineering. So, it can be a

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functional product. For example, suppose we are making outer covering of a mosquito
repellent all of us use mosquito repellent devices. So, we are making an outer covering of
a mosquito repellent device and it is a completely new design which has different
aesthetics involved. So, what we can do we can directly make a CAD file of that
particular design and convert it using any machine into a product. So, it is a functional
product now what do we can do we can use it as a product also and see how it performs.

So, usually in rapid prototyping we try to make the functional or the working products
only are the working models of the designed product. Many times we may just make
product just to see as how aesthetically it will look. So, those may not be the working
products, but in many cases our focus would be to make the working products only or the
working prototypes similar to the product that we want to design.

(Refer Slide Time: 13:47)

Now, this is the history of rapid prototyping. So, in 1770 the concept of mechanization
came into being I will not read I each and every step involved here, but in 1988 the first
commercial rapid prototyping mechanism or technology was developed.

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(Refer Slide Time: 14:12)

Now, rapid prototyping technologies are able to produce physical model which I have
already explained in a layer by layer manner directly from their CAD models. Now, you
can see that; what is the output the output is a physical model of the product. How it is
made? It is made layer by layer manner. From where do we get the information? From
the CAD models; without any tools dies and fixtures and also with little human
intervention, so these processes can be fully automatic, human intervention is minimum.

So, we can say that if we have a CAD file or we can say design file of a product in the
form of we can say in a memory stick or we can interface directly the computer where
we have designed the product with a rapid prototyping machine. So, the input required is
the soft copy or the design in the form of a CAD file. So, that is the pre primary
requirement we need to have a CAD file of the design.

In many cases when we do not want to develop the CAD file of the design we have
already have a product available with us. We do not have the CAD file of the product,
but we have a product a physical product available with us which is slightly damaged.
We want to reconstruct that product what we will do there are scanners available in the
market. These scanners will construct a three dimensional file for that product just by
scanning the product and once we have that file in our system we can use that file from
our computer as an input file to a rapid prototyping machine and it can be converted into
the physical product using the file that we have created by using the scanner. So, there

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are lot of we can say opportunities available with the rapid prototyping technology. So,
without use of tools and dies and fixtures we are able to produce a rapid prototype in a
very time effective manner. So, RP is capable of fabricating parts quickly.

So, as the word rapid, they are able to generate quickly, with complex shape easily as
compared to the traditional manufacturing processes. Two advantages are coming here;
one is quick another one is complex. So, one thing is that we are able to produce our
prototypes quickly I have highlighted that maybe number of times today and the second
point which I have not highlighted is that if the product is also very complex still we are
able to make a prototype quickly as compared to the traditional manufacturing
technologies.

Simple example I would like to take here, that suppose there is a complex product and in
earlier days you would like to make a prototype using a casting process how we will
make a prototype, it has to be a metallic prototype. So, if it is very complex it is difficult
to machine. So, we have decided let us do the casting, but for making the casting
operation or for performing the casting operation we still require a pattern because that
will help us to make a mould. So, for making a pattern again we require maybe another
technology that how to make a pattern suppose you use a wooden pattern we need to cut
the wood into that complex shape. So, traditional manufacturing route of making a
pattern making a mould and then making a casting and then finishing the casting may be
a longer route of making a prototype.

Whereas, in case of rapid prototyping what do we require? We require only a CAD

model of that product and if that model is available to us we can very easily fabricate it
using any of the rapid prototyping technologies. So, complex parts are also made easily
by the rapid prototyping process as compared to the traditional manufacturing
technologies. RP helps in earlier detection and deduction of design errors.

Now, you see if we have designed a product and we have used the conventional route of
making a prototype and after making the prototype we do the testing and inspection and
find out that these are the design errors again we have to revert back to the design stage.
But here since the time required for making the prototype is shortened it is less, so
quickly we will be able to identify that these are the errors that are happening. So, we
will just revert back and modify and then again come back and make the prototype.

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Now, this since the input here also is a CAD model it is very easy to make the changes.
So, it is easy for design modification concept point of view or design modification point
of view again the rapid prototyping technology is much better as you can where as
compared to the conventional method of design as well as to prototyping or
manufacturing of a prototype. So, we can see that there are a number of advantages if we
adopt the concept of rapid prototyping.

(Refer Slide Time: 19:39)

Now, all RP techniques employ the 5 step process. So, basically there are 5 steps or 5
stages in which we can make a prototype. So, first of all what we have to do? We have to
create a CAD model of the design. So, CAD is computer aided design. So, we have to
use any software and make a 3-D model of the design.

In second stage convert the CAD model to STL format. So, we have to because these
machines understand a specific language only therefore, whatever CAD software we
have used to design the product we have to convert it into a language which the machine
can understand. So, we have to convert that model to the STL format. Now, we have to
slice that STL file into thin cross sectional layers. Now, suppose I can take an example of
this pointer I want to make a prototype of this pointer, I have to first make a CAD file
which is as per the dimensions this is the length, this is the width, this is the thickness,
thickness is varying across the length. So, we will see up to this particular length this is

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the thickness and after that this is the thickness. So, we will make exact dimensions a
CAD file three dimensional file of this particular product.

Now, once we have to make a prototype because we have seen that most of the rapid
prototyping processes produce the prototype layer by layer, we have to see that in how
many layers this product would be made because you see here the thickness is more and
here the thickness is less. So, we have to slice this product into number of layers and that
number of layers will be deposited one after the other and this 3 dimensional physical
product or the prototype will be created.

So, the third stage is the decision regarding the number of layers. Now, we can use more
number of layers, thickness will be less. We will go for less number of layers, thickness
of individual layer will be more. Now, depending upon the technology that we are
adopting we have to do the slicing of the product into number of layers. So, that is done
in the third stage.

What we have done till now, we have used any CAD software to make a model a CAD
model. Now, this CAD model has been converted into the STL file and this STL file has
now been sliced into individual layers. Now, construct the model one layer a top another
once this product this is we can say the planning process the first three stages and now
we are going into the execution of the program. So, first we have a CAD model which is
all now available we have converted into a STL file we have sliced the STL file input
number of layers and now this is the input to a rapid prototyping machine and once this
input is given to the rapid prototyping machine it starts to produce or fabricate or
manufacture the product layer by layer or manufacture the prototype layer by layer.

So, first layer will be deposited as per that design, then the second layer will be deposited
on top of the first layer, then a third layer on top of the second layer, then fourth layer on
top of the third layer. So, layer by layer the material will be deposited and the physical
three dimensional prototype would be produced.

Then the last is clean and finish once this layer by layer you have created your prototype
you have manufactured your prototype, you have produced your prototype, we will take
it out and because it has been done layer by layer by layer it will require a finishing
operation in order to have a smooth surface that is the we can say requirement of the
design. So, last stage is cleaning and finishing of the model.

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In case of a very very complex shape sometimes we use supports also during the
fabrication and during the last stage we have to remove these support systems in order to
get the product or the prototype only. So, this supporting system which has been used to
create the prototype will be of a different material may be for example, vex and later on
we can heat our prototype slightly. So, that wax can melt and go away and we get our
final prototype. So, sometimes supporting structures are also used during the fabrication
of the prototype. But still compared to the traditional method compared to the
conventional method of making the prototype rapid prototyping technologies are much
superior in terms of quality produced, much superior in terms of type required maybe
less time is required for making a prototype using the rapid prototyping technologies. So,
these are the 5 steps that are followed.

(Refer Slide Time: 24:42)

Now, quickly let us see the rapid prototyping system. The source is given here iitd.ac.in.
So, this is we can say there is a CAD model of the part, then converting to STL format
converts slicing, converting into layer then there is a rapid prototyping machine through
which we are creating the prototype and finally, in post processing or finishing of the
part. So, here you can see CAD model converts conversion to its STL format layer by
layer slicing of the model and then finally, the creation of the model here, generation of
the physical model and finally, in here the creation may be the generation of laser
scanning paths or material deposition paths.

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So, we know now for making the product this is a path in which the material or this is the
area in which the material has to be deposited, how our head will move in order to
deposit the material at the respective places that decision is also taken. And finally, if
you if you can read on your screen this is the box type of arrangement here is a rapid
prototyping system it can be any machine it can be a 3-D printing machine, it can be a
stereo lithography upright as it can be a selective laser sintering setup it can be a
laminated object manufacturing machine this is the RP system.

So, before entering into the RP system or before using the RP system we have to do all
these calculations, we have to see we need we do we have a CAD model, have we done
that we, have we converted it into the STL format, have we sliced the model properly
decided on the number of layers have we generated the path to be followed by the head.
Once all this input is ready we give this input to the rapid prototyping machine and then
it will create a prototype and finally, we will do the post processing and finishing of the
part.

(Refer Slide Time: 26:44)

Now, CAD model creation first the object to be built is modelled using computer aided
design I have highlighted already. Solid modular such as Pro/ENGINEER tend to
represent 3-D objects more accurately then wireframe modular such as auto CAD and
will therefore, yield better results. Now, that is from the CAD point of view that once
you are making a CAD model of your product you need to make a judicious decision that

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which software is going to help us to make your model better. This process is identical
for all the rapid prototyping techniques. The steps that we have followed are more or less
identical for all rapid prototyping technologies.

(Refer Slide Time: 27:23)

Conversion to STL format, but maybe the previous was that the CAD model is required
for almost all rapid prototyping technologies. Conversion to a STL format the second
step therefore, is to convert a CAD file into that STL format this format represents a
three dimensional surface as an assembly of planar triangles. So, we have to convert it
into this format that CAD file into STL format.

STL files use planar elements, they cannot represent curved surfaces exactly. Increasing
the number of triangles improves the approximation. So, we have to convert our CAD
file into the STL format which will represent the planar surface in the form of small
triangles.

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(Refer Slide Time: 28:10)

Slice the STL file, in the third step pre processing program prepares the STL file to be
built. In a pre processing software slices the STL model to number of layers you know
what can be the thickness of layer it can be 0.01 millimeter to 0.7 millimeter thick
depending upon the rapid prototyping technique that you are going to use. So, you can
see are lot of range is there that what can be the number of layers, that we are slicing,
that will be used for fabricating the part or the fabricating the prototype.

The program may also generate an auxiliary structure as I have told earlier a support
structure to support the model during the build, you know during the building process or
during the fabrication process. Supports are useful for delicate features such as
overhangs, internal cavities and thin walled sections. So, once your product your
prototype is being fabricated there may be certain sections which may require some
additional support during fabrication and this support is provided by the auxiliary
material which I have told you earlier can be wax which later on can be removed and
then you get your actual prototype. So, this is the third stage.

And then we do layer by layer construction, the fourth step is the actual construction
actual fabrication of the product or the prototype. RP machines build one layer at a time
from polymers papers or powdered material I have already highlighted in the beginning
of today’s session. Most machines are fairly autonomous needing little human

166
intervention. So, these are more or less automatic machines which help us to create our
prototypes.

(Refer Slide Time: 29:50)

Clean and finish, the final step is post processing this involves removing the prototype
from the machine and detaching any supporting structures. Some photosensitive
materials need to be fully cured before they are used. So, we have to use additional
maybe heating mechanism or additional furnaces to fully cure these resins before making
them fully functional prototypes.

Prototypes may also require minor cleaning and surface treatment. Sending ceiling under
painting the model will improve its appearance and durability.

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(Refer Slide Time: 30:27)

Now, what can be the advantages? I think I can ask this question to all of you I have tried
to explain it in the most simplistic manner. Everybody must be able to answer now that
what are the advantages of rapid prototyping. Simply it is process is fast and accurate,
superior quality surface finish is obtained, separate material can be used for component
and support, no need to design jigs and fixtures because we are not using the
conventional methods of producing or fabricating the prototype. We are using a
completely advanced technology for creating a prototype and therefore, there is no need
of jigs and fixtures and no need of a mould or other tools. Only requirement is the CAD
file of the product. Once we have the CAD file we can convert it to STL file from there
we can slice it, we can create the tool path and finally, use any rapid prototyping
technology to convert that product into its prototype.

So, with this we come to the end of today is session on prototyping concept and
advantages. In our next week we will start a discussion on a completely new topic, but
just to summarize what we have covered.

Till today we have finished two weeks of discussion: week 1, was on fundamentals of
operations management we have seen their objectives, scopes, functions as well as
operation strategy. In second week we are focused on that once you are managing the
operations you must know that what the company must produce in order to be successful.
And there we have seen different tools techniques which can help a designer to develop

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or design a product which is much more you can say competitive and successful in the
market. We have seen, we have seen product lifecycle, we have seen value engineering,
we have seen design for x, we have seen ergonomically, we have seen rapid prototyping.
So, all these tools are helpful for designers for designing a successful product. With this
we close today’s session.

Thank you.

169
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 11
Sales Forecasting

Namaskar friends, welcome to session 11 in our course on Operations Management. We

have completed 2 weeks of discussion and currently we are starting the third week of
discussion on the course. Till now, we know that what are the basic requirements, needs,
scope, functions, objectives of operations management.

In first week, we have tried to cover the basics of operations management; we have seen
that what are the different operations strategies? Why do we need to do management of
operations? What benefits we derive out of operations management? And in week 2, we
have focused on a very important aspect in which the government is also giving lot of
focus these days; that is innovative product design.

In week 2, we have covered the product life cycle, we have covered the value
engineering concept, we have covered the design for X concept, we have covered the
ergonomic design, we have covered rapid prototyping.

So, basically we have tried to focus on those areas which help us to make a successful
product design. Product design cannot be covered in a discussion of two and a half hours
only it requires very elaborate discussion, but we have tried to equip our learners with
tools and techniques which help engineers as well as researchers to come up with
successful or efficient and effective products.

Now, once we know that our product is ready we have designed the product keeping in
mind all the important aspects that can be covered during the product design stage
everything, has been taken into a count and now the product is ready for full scale
manufacturing. We have done the prototyping also we have seen that the prototype is
functioning properly it is a working prototype or working model. So, we see that yes the
product is now ready, what can be the next stage. We have a product we want to sell it in
the market we have done all market analysis initially during the product development
cycle only we know that these are the important markets we are targeting.

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So, we have the market data available with us we have a product available with us. Now
the question is how much we must produce? We have to forecast that how much
products are what is the volume of the product? What is the number of the product? That
can be sold, that can be manufactured and sold in the market.

Now, you can yourself imagine; if we start producing without a forecast we have no
number in mind we are producing, producing and producing, but later on we feel that
there is no market for the product. On the contrary, as soon as the product is launched in
the market there is a we can say deluge there are people are rushing to buy our product,
but we are not able to supply. Why? Because we have not forecasted properly, we
thought we will be able to sell may be 1 million in the world, but the demand is 3 million
in the world; so, maybe we are lacking.

So, the forecast therefore, is very important making a forecast some people say it is an
art others believe; it is some science some people believe it is data analysis. So, different
people look at forecasting in a different manner.

We have to see that how we can make an accurate forecast rather I must say that it is
very difficult to make a very precise and accurate forecast, but yes we can try to achieve
the target, we can try to match the actual demand by the use of may be certain
mathematical tools certain we can say the data that is already available with us.

So, based on the previous data based on the mathematical tools, based on the intelligent
tools sometime; these days people use many artificial intelligence tools also for making a
forecast. So, based on the scientific logic we can try to develop a forecast and forecast is
very important for any organisation, because as I have told you it is directly going to
influence the success or failure of the organization.

Moreover, it helps in the planning activity; the decision making activity of an

organisation. One example that I usually give is that suppose a company is
manufacturing cars; it is an automotive company which is manufacturing cars. Now if
the company is forecasting may be 10000 cars per quarter, for 2018. Suppose the
forecast for the year 2018 first quarter starting first January 2018 till 30 first March 2018
is 10000 cars. And this forecast is done in the month of September 2017, they can plan
everything based on this magic number of 10000. How because they know 10000 cars

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will require 10 multiplied by 4 maybe; 40,000 tyres because each car having 4 tyres plus
1 in the reserve also.

So, they know that how many tires they need to procure, they know how many steering
systems they need to procure, they have to take all these decisions and this number will
help the company, help the operations in such a way that they can now decide that how
many number of tires we have to order? How many number of steering systems we have
to order? How many number of seat covers we have to order? So, accordingly the
decision making process will be influenced by the forecast.

So, we also know that our work force can produce maybe 9000 cars in 1 quarter, but we
see a huge increase may be a 10 percent increase from 9000 we are having a demand of
10000 in the first quarter. So, we need to have more number of people, more number of
work force, which will help us to meet that target of 10000 cars. So, we can do
manpower planning also, we can do material planning also, we can do our financial
planning also based on the forecast.

So, it is basically going to help an organisation to make judicious decisions and to be

successful and competitive in the market must I address here that all the time it is not
possible to make a very accurate forecast, because if we see these days this is monsoon
season most of the time we will see a forecast of rain only, but many times we see the
mobile phone is showing that it is raining in your hometown, but actually it is quite
sunny outside.

So, you see that the forecast is not matching properly similarly in operations
management also in business environment also in various companies the forecast
sometimes are not accurate and companies need to be dynamic in nature to adjust to this
type of fluctuation in the demand in respect of the forecast. Forecast is maybe giving a
number x plus the actual demand can be x plus minus delta x.

Now delta x is what we try to minimise we try to go to the target that is x as we can say
accurately as precisely as possible, why I am emphasising on the concept of forecasting;
because this week our focus is on forecasting only and once you are able to understand
that what is the importance of forecasting why forecasting is important for any
organisation then the tools and techniques that we are going to cover do not involve
much mathematics or differentiation or integral calculus only it requires simple plus

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minus type of mathematics just addition subtraction and we are able to make a forecast.
So, the techniques are not that difficult to understand, but the importance of forecasting
is important to digest important to understand that if we are making a forecast why we
are making a forecast. And if we are able to make a successful forecast how it can help
us in running or in managing the operations of our organisation.

So, with this background I am now switching to the presentation where we will try to
understand the basic concept of sales forecasting and we will try to understand the
concept of forecasting with the help of an example also.

So, let us quickly switch to our presentation sales forecasting this is a definition given by
M. J. Moroney this is in a book on elements of production planning and control.

(Refer Slide Time: 09:56)

So, is forecasting a black art. So, as I have told it is very difficult to make accurate
forecast. So, this sentence completely explains or explains it clearly that forecasting can
be we can say a failure also it is not always possible to make an accurate forecast. So,
economic forecasting like weather forecasting in England is only valid for the next 6
hours beyond that it is a sheer guess work.

So, these days it is possible to accurately forecast the weather maybe for the next 2 days
or next 3 days. Similarly, M. J. Moroney says that economic forecasting is also maybe a
forecast can be made fairly accurately if the duration is small or if it is for a week or 2

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weeks’ time only, but beyond that if it today says that after may be 2 years this
technology in mobile phones will still hold good we are I think not true to ourselves we
know that the technology is changing at a very fast pace. So, we cannot accurately
predict that what is going to happen in the telecommunication market in the next 2 years.

So, it is difficult to forecast, but yes the expertise the experience the past data the
technology knows how people who have all these skills or this type of skills help us to
make a forecast, which can be fairly accurate we cannot say it will be absolutely
accurate.

But yes it can be fairly accurate people who are able to make accurate forecast are really
precious for the organisation are really indispensable for the organisation, because such
people are able to take the organisation to greater height because they have that we can
say skills or skill set which can help them to make them accurate forecast. So, it is we
can from this definition we can conclude that we di difficult to make a long term
forecast.

Now, numbers of definitions are there for sales forecasting.

(Refer Slide Time: 12:14)

So, forecasting is the process currently this is the definition of forecasting. Forecasting is
the process of estimating future demand in terms of quantity, timing, quality and location
for desired products and services. Now here there are 3 things I will say first is

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estimation the word estimation is there what we can estimate we can estimate the
demand or the future demand. Second is in what terms many times people correlate
forecasting with the numbers only number means that, this many number of cars will be
sold, this many number of motorcycles will be sold, this much kilogram of soap will be
sold or this much number of pizzas will be sold.

So, mostly people try to related with numbers, but it is forecasting is not only related to
numbers only numbers will come in quantity. So, what we are forecasting we are
forecasting the quantity we can also forecast the timing we can forecast that maybe a
particular country will be able to reach to the mars in. So, many years or win by such and
such year or we can become superpower by the end of this year or by the end of may be
10 years.

So, that is basically the timing. So, forecast not only has the quantity dimension only
forecast also has the timing dimension we can forecast in terms of time also we can
forecast in term of quality also. We can forecast in terms of location also sometimes we
say that a highway is now going to be, we can say laid out in this particular area of the
city. So, it is forecasted that in that location number of companies are going to come up.
So, that is we can forecast in terms of location also what we are locate trying to forecast
we are forecasting for products and services.

So, we are forecasting that how the products will change over a period of time how the
services will change over a period of time. So, we are forecasting the nature of products
and services. So, forecasting is the process of estimate the future we can say demand
especially in case of demand forecasting in terms of quantity timing quality location for
different products and services.

So, forecasting is an art and science of predicting the future events forecasting is a tool
used for predicting future demand based on past demand information. So, we have some
data that is already available with us and we make use of that data for making our future
predictions. So, these are simple definitions of forecasting now a very important diagram
on your screen.

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(Refer Slide Time: 15:02)

You can see if we go inaccurate if your forecast is not proper what will happen we will
buy the raw material we will convert it into the final product and product will not be sold
into the market what will happen the company will be at loss. On the other hand, we
have brought the materials we have converted the material into the final product and the
product is successful in the market we will get lot of money.

Similar is the case in the entertainment industry also if we see none of the producers, will
make a movie expecting that it will flop at the box office all the producers, will invest
their money in order to make successful film which will on them profits, but many a
times they are not able to gaze the mood of the audiences and therefore, the movies
generally flop and the flop movies what do the lead to they lead to loss is for the
producers and the promoters.

So, that is also a case of forecasting only they are trying to forecast that this movie will
definitely do good in the we can say entertainment industry, but many times the forecast
are not correct. So, why sales forecasting is important by now I think all learners might
have quite clearly understood that what is sales forecasting and what is the importance of
sales forecasting, but again we will just read these points to reiterate the fact that I have
already explained it is a key element of business decision making as I was already told.

That once you know that magic number or the volume or quantity of product to be
produced based on that your other secondary decisions will be taken that as I have taken

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the example of manufacturing of a car or assembly of a car we have seen that the number
of car will be directly proportional to the number of tyres, that we need to order and that
will help us in the materials planning it will help us in the planning of our schedule it
will help us in the planning of our quality.

So, we can say that if we have the number we can do all the calculations and do our
planning activity in a well-informed manner the planning activity will not be based on
assumptions it will based on the number and therefore, the planning activity will be more
successful and effective as well as efficient.

So, once we have done the sales forecasting it will strongly influence the organisation
strategy regarding its future direction priorities and activities.

(Refer Slide Time: 17:32)

There is a famous saying that if you do not obsolete your product you will be obsoleted
from the market. So, we have to always keep a tab on the performance of our product in
the market and if it is not performing well we have to forecast that what is going to be
our strategy or what is going to be the technology in the next 3 years or technological
development in the next 3 years. So, that we are able to match up with our products we
are also able to revamp our product that we are able to match the technological advances
in the next 2 or 3 years.

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So, the forecast will help us to see that how and where our priorities lie and how we can
change our product in order to be competitive in the market. So, it will overall help our
operations strategy regarding the future direction priorities and activities. So, that
number of the forecasting activities not just numbers, it will help us in the overall
decision making regarding that organisation or overall management of the operations and
the organisation.

Now, again I have already highlighted the need of forecasting with number of example
quickly I will read these points.

(Refer Slide Time: 18:58)

So, that you are able to understand and always remember that what is forecasting? And
why it is required? So first point is lead times require that decisions be made in advance
of uncertain events. So, we need to plan in advance that what is going to happen maybe
in 2018 our planning activity must start in 2017.

So, that we are able to match up the demand that is going to be there in 2018 and in that
planning we have to keep in mind the lead times also. Now what is lead time? Lead time
basically we can say that, today if I order something I get it after 1 month. So, may be 1
month will be called as the lead time.

So, if I have decided or the company has decided that we have to come up with this
particular software or this particular product by 31st March 2018, today we have to start

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planning today we have to start forecasting that what type of inputs? What type of a sub-
assemblies? What type of product? Or we can say parts, components will be used for this
product and what will be the lead time when should we order. So, that we are able to
come up with our final product on 31st March 2018. So, we have to start our planning
activity may be 6 to 8 months in advance.

So, lead times will also be taken into account and forecasting will help us to take
advantage of the lead times, as well as the planning activity related to the launch of the
product forecasting is important for all strategic and planning decisions in a supply
chain.

So, supply chain is something a may be a new word that has come in our discussion. So,
basically we can say supply chain is right from the procurement of the raw material to
the final, we can say delivery of the product to the customer the overall supply chain is
or the overall chain is called as the supply chain.

So, here we see that in the overall supply chain starting from the procurement of the raw
material, to the final delivery of the material, to the or the product to the customer; sales
forecasting will help us in the decision making approach. Forecast of product, demand,
materials, labour, financing are an important input to scheduling acquiring resources and
determining the resource requirements.

Now, the third sentence on your screen is directly we can say the theory, but I have
already explained with the help of an automotive example or a car manufacturing
example. Now forecast of product demand what is this? This is the number that we have
forecasted or the materials labour and finance are an important input. Now, once we
know that our number is 10000 cars in the first quarter of 2018; that number will help us
to schedule it we need to produce those 10000 cars in 3 months. So, we have to schedule
our operations properly.

We have to acquire the resources as I have told the number of tires is directly
proportional to the number of cars that, we have to produce we have to acquire the tires,
we have to acquire the steering systems, we have to acquire the seats. So, that acquiring
of resources also depends on that and finally, the resource requirements how many
people will be required, who will be responsible for what. So, all these decisions depend
upon the forecast. So, if we have done the forecasting properly our decisions will also be

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informed decision they will be judicious decisions and the decisions that will lead to the
success of an organisation.

So, as I have again and again reiterated that forecasting is a decision making process.

(Refer Slide Time: 23:07)

So, the essential problem of management is to transform a company’s strategic

objectives into decisions and actions the constantly increasing volatility of business
emphasizes the critical importance of forecasting in decision making processes. So,
whatever is written here is I already explained that the constantly increasing volatility of
business dynamics.

So, these days the lead times are reducing the product development cycle are reducing
time between the conceptualization of an idea to the launch of the product is also
reducing. So, the business environment is quite volatile technology is changing every
now and then and therefore, the importance of forecasting is very high why, because if
you are able to make a forecast accurately we know that may be after 6 months, these
technologies to change. So, we will plan our operations for the next 6 months only
because we have forecasted that after 6 months the technology is going to change.

So, in today’s scenario the importance of technology the importance of forecasting has
become even more relevant then it was maybe 50 years from now 50 years or may be 80
years back a company has come up with a product they know that this product will be in

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market maybe for the next 20 years, but no company maybe todays until unless it is a
monopoly type of product can claim that their product will be successful or will be in the
market for the next 20 years or 30 years because the things are changing so, quickly so
fast. So, therefore, there is further you can say emphasis on accurate forecasting of the
future demand or of the future activities.

Now, this is fairly simple it is given you can make a short term forecast, you can make a
medium term forecast, you can make a long term forecast. So, short term is 0 to 3
months, medium term 3 months to 2 years and long term 2 years and more.

(Refer Slide Time: 25:09)

So, short term for inventory management and scheduling 0 to 3 months we know what
will be the materials required who is going to work on what particular system. So, all
that is under short term medium term for production planning purchasing and
distribution may be we will make a completely yearly, plan for the purchase that in the
financial year 2016-17 or 2017-18 what is going to be our purchasing procedure and how
we are going to purchase. Finally, the distribution can also be covered in the media
medium term planning, in long term for capacity planning facility location and strategic
planning.

So, when we are talking of long term we will see how the technology is going to change,
where all we can add the further facilities the further factories, where they should be
located. So, all that what is the capacity how the demand is varying? So, if we have

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forecasted a large increase in the demand we also need to map it with our capacity, that if
we do not have the capacity to meet that demand we need to build our capacity in order
to in increase our manufacturing. So, that you are able to meet the demand.

So, they are these are the forecasting horizons we can make a short term forecast we can
make a medium term forecast, we can make a long term forecast long term forecast are
majorly strategic type of forecast and mostly they are done at the higher level or higher
hierarchy in the organisational; structure may be at the CEO or the Vice President level
and short term forecast are usually done on the shop floor by the engineers or the
foreman or the shift supervisors.

Now, what are the key issues in forecasting a forecast is only as good as the information
included in the past data. We will see this that when we make a forecast what is the
information that we take as input and what type of output we produce and how we do a
forecast or what are the various methods of doing the forecast. So, there we will try to
understand that the previous data is one of the most important source of information
which helps us to make accurate forecast.

(Refer Slide Time: 27:26)

So, here we are relying too much on past data history is not a perfect predictor of the
future that is there is no such thing as perfect forecast. So, may be many times we will
see that the historical data is ambiguous it is not giving us any trend and therefore, we
cannot believe on that data to make a forecast. So, history is not a perfect predictor of a

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future. So, we must remember that forecasting is based on the assumption that the past
predicts the future.

So, when forecasting thinks carefully whether or not the past data is strongly related to
what you expect to see in future and your intelligence your skills, your knowledge, your
knowledge of the technology, your knowledge of technological advancements will come
into picture in nutshell your knowledge of the market scenario will come into picture.

So, we have to see as engineer that what is the previous data, why this data is like this
can we use this data to make a forecast for the next year or we need to do some tweaking
this data in order to make a forecast for the coming years. So, there your expertise will
come into picture it is not simply mathematics we will see that some of the techniques
are purely mathematical in nature, add the things and make an average you get a forecast,
but are these things really going to help us in today’s scenario that we need to
understand.

So, we have to see that what is past data whether it is relevant in today’s context or we
can use it for making a future forecast that is where our knowledge will come into
picture as a forecasting expert.

(Refer Slide Time: 29:14)

Let us take a very simple example. So, here you have a E-class car and M-Class car. So,
the monthly forecast is given January it is not the forecast sorry it is that actual demand

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that is given for January 23, 345 for June 22, 684. So, that complete demand data or the
sales data is given we need to forecast for July for E-Class as well as we need to forecast
for M-class for which there is no previous data available maybe it has been launched by
the end of June.

So, can we predict the new model M-Class sales based on the data in the table may be we
need to consider how much the 2 markets have in common? Moreover, we have to also
understand that what is going to be the customer base for the 2 different class of cars. So,
basically we cannot use data one particular product for other particular product or other
specific product.

So, we have to may be very judicious in the selection of the data, we cannot directly
copy this data and put it in the next column and make a forecast based on that data,
because the terms and condition and the requirements are entirely different the market
segment may be entirely different the type of customer each car is focusing can also be
different the age wise segment also may be different, area where the cars are to be sold
may be different. So, we cannot directly take any data and use it for forecasting maybe in
the same segment also.

(Refer Slide Time: 30:46)

So, what should we consider when looking at the past data? So, we have to consider the
trends. So, here we see that there is a trend all the data points sorry we have not
mentioned the x and y coordinates here. So, x coordinate here is the time, y coordinate

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here is the sales. So, basically we are seeing that with time the sales are increasing and
there is an increasing trend in the data.

So, this is you can see a seasonal we can see component here; the sales are increasing
then decreasing, then increasing decreasing, increasing, decreasing. So, there is a trend
component or the seasonal component here. So, may be these four data points; these four
data points here represent 1 year. So, the third quarter of the year has the maximum
value.

So, here we can see that there is a seasonality component in the data, there is a cyclic
variation where we can see a cycle top value and then there can be random variation. So,
it is not close to the trend line; so, there is a random variation we cannot classify this
variation as a trend. So, it can be further random in nature; so, basically once we are
looking at the data we have to be very judicious. Now we have plotted the data and we
have seen that we have to look for the trends; whether there is some trend in the data we
have to look for the cyclic patterns in the data.

We have to look for the random variation there is no clear cut we can say distinction that
it is increasing or decreasing or there is a cyclic pattern, we have to look for a seasonal
pattern that every season or may be every quarter, there is some trend may be seasonality
one example can be the sales of umbrellas.

So, you will see maybe in North India the monsoon season will be there from maybe in
the month of July and August. So, we can say that in the third quarter of the year the
sales of umbrellas are maximum for every year. And in first, second and fourth quarter
the sales of umbrellas are less in northern part of the country.

So, here we have a seasonal component every year in the third quarter there is a jump in
the sales. So, that we can say that this is seasonal components. So, basically in today’s
session, we have tried to understand that is sales forecasting is an important topic; it
influences the operations management in many diverse ways; it helps in the strategic
planning of the organisation and as a forecasting expert, we need to be very judicious
and careful while selecting the data; based on which we are going to make a forecast.

In our next session we will focus on the inputs the outputs as well as the various methods
that can be used for making a forecast, with this week come to the end of today session.

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So, we close today’s session with we can say thought that in next session, we will cover
the sales forecasting system.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 12
Forecasting System

Namaskar Friends, welcome to session 12 in our course on Operations Management. As

you are well aware that we are currently into week 3 of our discussion on the various
aspects of operations management, in week 1 we have covered the fundamental and
basics of operations management, in week 2 we have covered the product design and
development.

In product design and development, we have covered the product life cycle, we have
covered the basic concepts of value engineering, we have covered design for X in which
we have seen design for manufacturing and design for assembly, we have covered the
ergonomic design of a product and finally, we have seen the basic aspects of rapid
prototyping that how to convert our product idea into a prototype quickly.

We till now know that if we have to come up with the innovative creative product, we
have to do the product design effectively and efficiently. Once we have that product idea
with us we have done the prototyping, we have converted that product into a tangible, we
can say a commercial product then what is required? Then, we have to go for full scale
manufacturing. And then managing the logistic, we have to supply the products for the
customers to use that product.

For that, we require an important decision that is how much we should produce? For
example, suppose I start making breads; I start a bakery, I cannot just out of maybe out
of my own whims and fancies I cannot start making bread that my own, you can say
decision. I have to take a judicious decision that how many breads? How many cookies I
need to make? I need to judge the market, I need to see the demand, I need to see who
are going to be my customer? I need to understand that what is the pattern of sales of my
competitors? How many other bakeries are available in the city or the town or the area?

So, it is not a very easy decision to make that; how much I should produce? What I
should produce my product as I already told you are bakery items. And I have used the

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various principles of product design and development to come to that product that this is
going to be my product, this has got a unique selling point, this will certainly capture
some amount of market.

Now, how much to be produced? How much to be manufactured? How much to be

fabricated? How much to be processed? That is the most important question. And in that
series we started our discussion for week 3 in which, we had first session on the
fundamental aspects of forecasting. We have seen the need of forecasting, we have seen
the if we do successful forecasting, we will get lot of benefits, we will get lot of profit,
we will earn a lot of revenue, but on the contrary if we make a poor forecast or a wrong
forecast; the company may suffer losses.

So, we have to be very careful while making a forecast and we have also seen one
famous saying that forecasting is a black art. So, some people treat forecasting as art,
some people treat forecasting as science, some people treat it as a combination of art and
science; why? Because this science we have scientific principles, we have scientific
methods, we have mathematics, through which we try to develop a forecast; we have
some data with use our mind, we do the calculations and come up with the forecast.

But suppose we do not have any data then our intuitive things will come into picture our
cognitive domain will become active, we will look around and see, we will see the pulse
of the market, we will see the pulse of the business cycles and try to make a decision,
that this is the; we can say the forecast or a judicious number or can be said as a
guesstimate that this is what can be done, it is guess plus estimate.

So, it is more of guessing less of estimation. So, we use our mental faculties to make a
decision, which is not based on any science, not based on any mathematics, not based on
any numbers, not based on any information, not based on any data; it is our intuitive
guess that the product may capture the market.

So, we always make a balanced guess that this can be the number. So, all that different
types of methods that can be used for making a forecast, we are going to discuss in our
subsequent sessions; very simple mathematical problems we will try to solve and try to
understand that, what is the importance of forecasting? That is the most important thing.
If we can understand the importance of forecasting very easily, we will be able to prove
our organisation or take our organisation on the positive not or towards the success.

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So, we will try to see in the last class we have seen if you remember in last session.

We have seen that if we are able to make a right forecast what are the other decisions
down the chain that can be helpful to us? We can do the manpower planning, we can do
the material planning, we can do the time planning or scheduling. So, once we know that
how much we have to produce? We can do all the other back calculation successfully, so,
overall organisation will get benefited.

So, the overall operations are better managed if we have the right forecast available with
us. And today we will see very quickly. What is a forecasting system? The forecasting
system is the overall domain of sales forecasting, that what are the issues and challenges?
What are the inputs? What are the outputs? And how we should go about solving the
problem of making an accurate forecast?

So, that is the overall objective of the learning outcome of today’s session that what are
the various elements, factors, parameters affecting the forecasting process? And this has
been taken from a book on operation management, by Kostas and published by McGraw-
Hill a very very good book, on operations management and we will try to understand the
forecasting system as described in the book.

So, going on to the more structured part whatever was in my mind related to the
background of forecasting or the summary of what we have covered in the previous
class, I have tried to just bring my thoughts together and share it with all of you. Now we
will have the structured discussion on the forecasting system. Now what is a forecasting
system?

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(Refer Slide Time: 07:44)

As an activity within an organisation, forecasting is expected to provide relevant

information concerning the future. So, our forecasting activity is required to give us the
relevant information regarding what? Regarding the future so, that our marketing,
finance, production others can make use of this information for their planning purpose.

So, it is clearly written this point is very valid, very important from understanding of
forecasting point of view, that why forecasting is all that important, because I have
highlighted in the previous session also again I am highlighting, today that the
information that we get after forecasting is very important and it is used by marketing
people, it is used by finance people, it is used by the manufacturing or production people,
in their overall planning activity. This function is performed by a system which like any
other system can be analysed in terms of a key components.

So, we will see that the forecasting system that we are going to cover today has got
number of components or elements, there are inputs, there are output, there are
constraints, there is a performance criteria, there are decisions that the forecasting system
need to make.

So, we are going to understand each and every element of the overall forecasting system.
And based on that we will see that the main heart or the main cog or the main you can
say activity in the overall forecasting system is to make a forecast. What are the various

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methods, tools, techniques, that are used for making a forecast? That we are going to
understand in our subsequent sessions.

Today we will be seeing the overall system and then we will be focusing on a specific set
that is the methods, which can be qualitative in nature, which can be quantitative in
nature. So, then we will focus on the exact methods that are used for making a forecast.
So, overall the system will give us some output and those outputs will be used by the
decision makers within an organisation for planning their activities.

Now, in forecasting system as I have already ended the previous slide by saying that it
will give us some outputs which will be useful to us. So, here we can see the forecasting
system output is an important element of the overall forecasting system. It is a
information provided by a forecast.

How we will make a forecast that we will try to understand we will see that, we have
qualitative methods of forecasting, we have quantitative methods of forecasting. So,
these methods will help us to make a forecast and the forecast will give us some output,
but this output will be based on certain input. So, input is also equally important. So,
information is needed to prepare a forecast.

(Refer Slide Time: 11:02)

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Now, what is that information we will see it can be historical data, it can be related to
some technological changes or information. So, we will see what are the various types of
information, that is used as an input in order to produce a forecast.

Then there are constraints what are the factors that limits the methods used. So, there
may be a method which is very complicated to use, you do not have a skill to use that
method how you make a forecast with that method. So, there will be certain constraints,
there can be a method to make a forecast which will take a lot of time and you are short
of time you do not want to spend lot of time for using that method because it is time
consuming.

So, definitely there are constraints for various methods some methods may be very easy,
but not very accurate. So, you will say no I want lot of accuracy. So, you have to take a
decision there will be certain constraints. And then once these constraints are there you
have to take your decisions. Which method to use? Why we should use that method?
What type of data we should use?

So, these all are the decisions that any forecasting engineering or forecasting specialist
has to take, then the system performance criteria are there. Now suppose you have 3 or 4
methods which can be used for making a forecast, you have to see that which one is the
best method. What should be the performance criteria for selecting a particular method,
suppose you make a forecast using 3 different methods? So, you can use 3 different
methods, but then you can compare those 3 methods for specific set of issues or specific
set of market segment.

Suppose you are making a forecast for automobile segment; one particular type of
forecasting method may be appropriate. Suppose you are doing a forecasting for FMCG
goods; another type of forecasting methods may be more suitable there. Suppose they are
making a forecast for an item which as the seasonal variation. For example, the
umbrellas, some other method may be time series forecasting method may be more
applicable in case of items or products or commodities with seasonal variation where the
demand varies over a period of time on seasonal basis.

So, we have to see that what is the system performance criteria that we have to compare
the various methods based on these criteria, then forecasting method that is although this

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point is mentioned in the end, but this is we can say the most important point of the
overall elements.

Now why it is important because this is actually where we will give the input and it will
generate an output. Now suppose let me give you just an example; that this is right this
month is the month of July. Suppose I have the demand of the motorcycle suppose I take
a motorcycle company x, for a company x the demand in the month of June that is
known to me was 50, 50 motorbikes in our town.

In May suppose it was 40 and in April it was 30. So, in April the demand is 30, in May
the demand is 40, and in June the demand is 50. So, 30, 40, 50 April, May, June. This
demand is actual demand that I have taken from the showroom. I want to make a forecast
for the month of July or for the month of august, then I require the demand for July also.

Now suppose I want to make a forecast for the month of July simple average method can
be one method one you can say technique for making a forecast 30, plus 40, plus 50
divided by 3. So, very easily you can get an average value of 40.

So, that is the simplest method of making a forecast that we called as a simple average
method that is one method, but you can have a variety of methods depending upon the
data that is available to you. Different types of data are available random variation there
can be a trend in the data, there can be a cyclic variation in the data, there can be a
seasonal variation in the data, sometimes the data may not be available. So, this we have
seen in the last class, that how the data varies over a period of time and how judiciously
we have to extract the data which is going to be useful for us. And there is the situation,
where the intelligence, where the experience, where the information available with the
forecaster will come into picture.

So, we will see try to understand within the shorts span of 2 and half hours that is
available with us on forecasting. That how much you can cover related to the various
forecasting methods. Regarding the outputs and inputs constraints decisions we will
cover it today, but last point that is forecasting methods we will carry forward in our
subsequent sessions also.

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Today is the second session on forecasting and we will be having 3 more sessions on
forecasting and we will see that what are the various methods that can be used for
making a forecast?

Now, coming back to our topic today that is forecasting system on your screen you can
see the forecasting system.

(Refer Slide Time: 17:05)

The source is also mentioned rare operation management by Kostas Dervitsiotis

McGraw-Hill publication. So, this book has given a very beautiful very good very clear
representation of the forecasting system. So, you can see here the inputs the inputs are
the internal data that is available with the company, environmental data, which is
external data we can also called it. So, you have certain inputs then there are forecasting
methods, which can be classified as predictive, causal and time series methods.

So, you give some input in the form of information, you use some method May be as you
as I have explained today simple average methods; sum the 3 previous year previous
months divided by 3 and forecast for July. So, you use a method that is a simple average
method, there are other methods also like causal method time series method that we will
see in our subsequent sessions.

And the finally, the output the output would be the estimates of the expected demand and
the forecast error as we have seen in our previous session; it is always difficult to make

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an accurate forecast. And therefore, there is bound to be an error as an engineer our
target will be to minimize this error we would always wish that our expected demand
should match our actual sales.

So, whatever is the demand in our market we should forecast that demand accurately, but
sometimes it is not possible, because of the continuously changing business environment
there are certain rules and regulations being passed or their competitive companies
coming into the picture, pricing policies there are so many things happening at the same
time. And therefore, whatever forecast we make sometimes is quite different from the
actual demand in the market and therefore, we get a forecast error.

So, basically these are the 3 important things in any forecasting system you have certain
inputs, you have the methods and finally, in the output you produce, your expected
demand and you calculate the forecast error. There are 3 types of methods given here we
will see how much time permits and how many of these we can cover in our subsequent
sessions.

Now, we have to take certain decisions as in the previous class also or previous session
towards the end, we have seen 4 or 5 distribution of data if you remember on x axis it
was the time, on y axis it was the demand data.

So, we were seeing the scatter of the data points. So, we have to take a decision that how
much data points are relevant to me. What is the spread of the data? What is the variation
of the data? What is the trend of the data? Sometimes it may so happen that maybe 10
years down the line or 10 years may be from today is 2017 running we talk of 2007, 10
years back.

That data whatever was the amount of sales of cars or maybe the motorbike may have
become irrelevant today, because the economic conditions have change the per capita
income might have change. So, depending upon what was there 10 years down the line
we cannot make a forecast today by using that data, because things have change, but yes
if you take the date of 2016, if you take the date of 2015, certainly that data is going to
be helpful to us, that information is going to be helpful to us, but what was the sales or
what were the sales in 1975 or 1980 for a particular product may not be that relevant.

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So, we have to be very choosy we I must say or very judicious, are very intelligent, in
extracting the data, that we want to use for making a forecast. So, first decision in
forecasting system is the selection of the data. Then we have to see the selection of the
method, because many of these methods that are listed here may require a previous
year’s data or maybe previous 3 years, 5 years, 7 years, 10 years’ data.

Now, suppose today we do an invention and the product we want to launch in the
market. There is no previous date available with us for that product. So, we have to
choose a method, which do not require any previous data. So, the selection of the data
and the selection of the method both are equally important.

So, we have to decide what data we are going to use if data is available, if data is not
available we have to see which method is going to help us in making a forecast, even if
the data is available we have to see that which method will give us the best results, how
we can take or how we can select a method, we can select a method based on the forecast
error, we will try to minimize the forecast errors.

So, if the method is giving us the minimum error the forecast being done by that method
is giving us accurate demand, forecast we will say this method is good because a forecast
error is less. So, that is basically we can say that decision. So, we have inputs, we have
outputs, we have the methods, now for those methods we have to see what data, we have
to use and which method, we have to use.

Finally, we see that there are constraints it is easier said than done, it is easy to say that
you have input, you have output, you have you can select a method, you can select the
data and do the forecast and forecast will be accurate no there are certain constraints.
Now what are those constraints the constraints are the data, sometimes data that we get
may not be very consistent it may not be we can say accurate sometimes the data maybe
fictitious data.

So, data is one constraint expertise available is another constraint many times in small
scale industries you will see people just make the product, without having any much idea
or any idea about what is going to be the demand in next year or so. So, sometimes they
this stand to lose, because they have made something which is not going to be sold in the
market, why because there is no demand of that product in the market or there are better

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products available in the market. So, if you are not able to forecast properly you are
certainly bound to lose.

So, the expertise sometimes is not available with the companies and therefore, they do
not make use of a forecasting technique, then sometimes time is not available, time is a
most important commodity these days the lead times of product development cycles have
reduced. Suppose today I have an idea I wish that my product should be in the market
within a weeks or 2 weeks’ time.

So, I do not have a time to spend on how much will be the sales I feel that mine is the
product, which no other company has made it is going to be a monopolistic type of
environment for this product, yes then you can start making and start selling, but if the
product has to compete with the other products that are already existing in the market
then you definitely need to make a forecast that how much market share this product will
be able to capture maybe in the next 3 months’ time, then in the next 6 months’ time,
then in an years horizon.

So, that type of forecasting we need to make, but many times in the hurry to launch our
product in the market we do not have time to spend on making a forecast. And many
time the funds may also be a limitation, but seeing the type of benefits that we derive out
of making a forecast fund must never or should never be a constraint, in case if you want
to be successful in the market.

So, these are all the elements of a forecasting system that we have input we have output
we have to make certain decisions under some constraints. So, forecasting methods as
have been classified here predictive, causal and time series. And from inputs point of
view just, I am reading that you can have your internal data within the company, it can
be historical data, sometimes it is subjective data maybe some reports that are available
which will give some information.

So, that is another type of data available then the company sometimes may go for service
for which can be done, from the existing customers and that information can be helpful
for making a forecast. Similarly, the external data or an environmental data such as
economic data what is the business cycle, whether it is economic boom or it is economic
depression, then the social and political data, sometime the change in the government or
change in the government policies, often decide the how the markets are going to

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behave. Finally, the technological information there may be some technology which may
challenge the product that you are selling in the that you are making for sales in the
market. So, that technological information is also very important as an input for making
a forecast.

So, you have an internal data, you have a external data, you can have your own
companies data, previous years data, then social, political, economic conditions,
technological, breakthroughs all these are the inputs that are used for making a forecast
or given as a input to the forecasting methods for making a forecast. Now some of you
may be wondering that how so many things can be incorporated into a method.

So, there can always be certain constants in the equations and these values of these
constants can be manipulated or moderated based on the prevailing conditions may be, if
it is economic boom time we can give a higher value to the constant or if it is depression
we can give a slightly lower or a lower value to that particular constant and that constant
can be one of the important parameters in the equation for making a forecast.

We will try to see whatever possible and whatever possible methods that we can discuss
during the remaining session. So, this is the overall forecasting system one thing that is
left here is the performance criteria so that we will try to cover in our subsequent slides.
Now the forecasting system outputs let us quickly read this I have explained everything
whatever is written in the slide. So, quickly I will read this from the production
manager’s point of view.

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(Refer Slide Time: 28:44)

What is needed to plan for different periods in the future is a forecast of expected
demand rather than the future sales. So, from production manager’s point of view what is
needed to plan for different periods in future is a forecast of expected demand. So, as I
have already told you if the demand data is known to the production manager, he can
plan all the activities accordingly, he can plan his procurement, he can plan his machines,
he can plan his manpower, he can plan the schedule that he is going to follow.

So, all that is depending upon the demand data that is available from the forecast demand
relates to orders received from the customer while sales refer to shipments made. So,
demand and sales is different demand is the actual demand that is raised by the market
and that is what we are trying to forecast, but sales are the actual sales that are being
done whatever material or whatever products are being sent out from the company into
the market and are being sold in the market that represents the sales. Sometimes the
demands and sale data may not match.

Now, what are the inputs output as I have told you it is a demand data there will be
forecast error also as an output, the demand data will be used for further decision
making. Forecasting system inputs very quickly let us see the data needed to prepare a
demand forecast can be obtained from internal and or external sources.

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(Refer Slide Time: 30:17)

If you have been attentive in the session you know that what are the internal inputs
internal inputs can be surveys or historical data, that is available external are the social
political, economical and technological information that is available. So, based on the
internal and external data that input is being given to the forecasting method and any
method which has this input will definitely be used for making a forecast, output will be
forecast, input is the internal and external sources or data available from internal and
external sources.

Historical data in the form of time series on previous sales or orders expert opinions of
an organisations personnel and results of special surveys are the most frequently use
inform information inputs that can be generated within the organisation. So, that is
basically the internal data which is available within the organisation, it acts as an input to
the forecasting method for making a forecast.

Now, what are the constraints already all of you know I have a try to explain the
constraints, that constraints most important constraints are the time available to prepare a
forecast, the lack of relevant data from internal and external sources, the quality of
available data the expertise within the organisation and the available computing
facilities?

So, there can be limitations or constraints on a count of all these points listed on the
screen, which may not agar well for the accurate forecasting of demand.

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(Refer Slide Time: 32:05)

What are the decisions as all of us know, now if we have seen the diagram the decisions
are choice of data and the method choice of method and choice of data? In operating a
forecasting system management must make decisions with respect to the data and the
methods that will be used to develop a forecast. The data may be in the form needed or
may require adjustment or aggregation, if there is a long history of demand care must be
exercised with regard to how far back to go.

As I have taken an example 1980’s and 90’s data may not be relevant today. So, we have
to take a decision that we are going to use previous 5 years data, previous 8 years data or
the previous 2 years data only that is the decision that we have to take. And we have to
decide which method we are going to make use of for making the forecast.

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(Refer Slide Time: 32:59)

Now forecasting system performance criteria, which was not given alongside the
diagram or the figure, the forecasting system performance criteria is the effectiveness of
the forecasting system in serving the organisation can be evaluated on the basis of 3
criteria.

Overall forecasting system whether it is working fine or not we can check it check from
it is accuracy, objectivity in the treatment of historical data, and time required to prepare
the forecast.

So, our system is performing better, it is performing the best, if it is making a accurate
forecast, time required to make a forecast is less and it is using objectively the data that
is already available. So, we based on these criteria we can say that the overall system
performance or forecasting system performance is good better or best.

(Refer Slide Time: 34:05)

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Now, two types of forecasting methods are used we know the overall picture of the
forecasting system, we know that there are certain inputs, output will be the demand or
the forecasted demand, there will be some methods that we will make use of as we have
seen predictive, causal and time series method there are certain decisions that have to be
taken under certain constraints and there is a performance criteria.

Now we are focussing only on the central rectangle in which the forecasting methods are
given, certainly all these methods will require some input and they will give some output
in the term of forecast.

So, our focus now is on the actual methods of making the forecast and there are 2
different types of methods; the qualitative methods and the quantitative methods. Now
qualitative methods are subjective in nature since they rely on human judgement and
opinion and therefore, sometimes people called forecasting as arts, because it many times
may depend on human judgement and opinion.

And these type of methods are really important where we do not have any previous data
available with us or any historical data available with us. We have no other options, but
to use the human judgement and opinion and make a forecast. And then on contrary if
the data is available with us we will go for quantitative methods of forecasting. And
quantitative methods used mathematical or simulation models based on historical
demand or relationship between the variable.

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So, in quantitative methods we may sometimes try to derive an equation based on the
data may be based on regression we may have a equation and equation can be used for
making a forecast.

So, with this we close today’s session and in next session we will cover some of the
methods may be qualitative or quantitative for making a forecast. We will learn at least 4
to 5 different methods for making forecast. And this forecast will help us in the overall
better management of our operations.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture Number – 13
Qualitative Methods of Forecasting

Namaskar Friends, welcome to session 13 in our course on operations management. As

you are aware that we are covering the third week of our discussion, and our focus
currently is on forecasting. We have seen that for managing the operations; what are the
various types of information or knowledge that is required. In the first week we have
covered the fundamentals of operations management, in week 2 we focused on what the
company should produce, and what tools and techniques the company should take into
account or the organisation should follow in order to develop successful products.

We have seen very important, very latest tools techniques that are being applied. In
today’s scenario for developing the products, if you remember just to have a brief
glimpse of what we have covered, we have seen the product life cycle, we have seen
value engineering concepts, we have seen design for x, we have seen ergonomics, we
have seen rapid prototyping.

So, all these are the tools and techniques which are relevant in the current scenario. We
have not seen the normal or the fundamental or the basic steps involved in the product
design process, because they may vary from segment to segment, from business to
business, but we have seen that what are the important techniques, which if used you
judicially can help us to develop a successful product in the market.

Once we have that idea that what we want to produce our next stage, or next step is how
much to produce or how to manage the operations, when we have to produce a definite
amount, a definite volume of product; that is important, and how to get the definite
number that is important; that is relevant from sales forecasting or demand forecasting
point of view. And if you remember today is our third session on forecasting. In
forecasting we have seen that in first session, that what is the need of forecasting; what
are the challenges of forecasting. Once we have the demand forecast how that
information can be used for decision making, related to manpower planning related to
materials planning, related to scheduling.

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So, we have seen that forecasting, usually we see is in terms of numbers or volume of
production, but many time forecasting can be technological forecasting, where we have
to forecast that what are going to be the technological changes, in the next 5 to 7 years, it
can be forecasting of time that when a particular country will become a developed
country that is also forecast. So, forecast is not only related to demand forecast, can be
used in various other dimensions or various other decision making approaches or can be
useful for various other areas also.

So, in our discussion we have already seen two sessions on forecasting. In session 1 we
have seen the importance, need, requirements and the benefits that we can derive out of
forecasting. In second session we have seen the forecasting system. In forecasting
system, we have seen that there are certain inputs those can be internal inputs, those can
be external inputs. in internal inputs we have seen the information or data or the
historical data available within the company, can be internal input for making a forecast,
external input can be the environmental factors. Those can be the social political
economic factors that influence the business cycle or the business environment.

So, you have certain inputs that you give to the forecasting methods and these methods
can make use of this input to produce an output, and output basically is the demand
forecast and the forecast error. So, there is an input, there is a processing system or
processing unit which are the forecasting methods, and then you get the output know this
system works with certain constraints. Constraints can be in terms of data available the
veracity of the truthfulness of the accuracy of the data, then the time required the skill
required.

So, all these are the constraints that this system has to overcome. Then we have seen that
certain decisions have to be taken. What are these decisions you have to decide that
which method you have to use, like today’s topic is qualitative methods of forecasting,
then there are quantitative methods of forecasting also. As you seen in the previous
session, the last slide was the classification of methods in which we have seen that there
are qualitative methods and quantitative methods of forecasting.

So, today we are going to cover the qualitative methods of forecasting. So, in the
forecasting system you have to take a decision that whether you are going to use
qualitative method of forecasting or you are going to use quantitative method of

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forecasting. Once you decide that i am going to use qualitative method of forecasting.
Further you have to make a decision that which type of method you are going to use.
Similarly, for quantitative also, you have to take a decision among the quantitative
method, which method is most suitable to the current scenario, for to the current market
segment or for the current product that decision has to be done. Similarly, the decision
has to be taken related to the information or the data that is available to you, whether we
are going to use the last 10 years’ data or we are going to use the last 5 years’ data only
for making a forecast.

So, that decision also has to be taken. So, the various elements of the forecasting system
are the inputs the forecasting methods. The output, the constraints and the decisions that
you have to take, and now our focus primarily in today’s session and in the subsequent
sessions on forecasting will be on the forecasting methods. Only we will try to learn the
simple, most simple methods that are use for making a forecast. Although, these days
people are making use of artificial intelligence tools also for making the forecast
prediction. Markets are being used for making the forecast, but those methods we can
say are in the research and development. Stage show will not be covering them as a text.
In the course we will be covering whatever is available in the textbook, which is usually
taught to the learners who are the beginners in the field of forecasting.

So, we will be learning the basic methods of making of forecast, and in that series our
first focus is on the qualitative methods of forecasting, qualitative methods of forecasting
are applied in very special circumstances. Now what are those circumstances? we will
try to understand today, you must be able to answer this query that where you are going
to use the qualitative methods of forecasting. And where you are going to use the
quantitative methods of forecasting and important questions. And the answer to this
question we are going to look forward to in today’s discussion

So, let us start our presentation on this topic. The topic for today is qualitative methods
of forecasting. This is just the repetition of the last slide that we have seen in the
previous session.

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(Refer Slide Time: 08:19)

Qualitative methods are subjective in nature, since they rely on human judgement and
opinion. So, many times we say that these are, may be dependent on the experience, the
information available with the people working in the organisation quantitative methods,
on the other hand use mathematical or simulation models based on historical demand or
relationships between variables.

So, mathematics and simulation is involved, in case of quantitative methods of

forecasting we may develop and equation, as i have discussed in the last session also, we
may have an equation of a straight line, if we have a trend component. For example, on x
axis is if we take x axis, we take time y axis, we take the demand data; that is available
with us for the last 5 years and we see, that there is a continuous increase in the demand
for the last 5 years.

So, 5 data points we have for 5 different years. We have 5 demand data available with
us, what we can do? We see that there is a trend, very easily we can develop a straight
line equation fitting this data, and then we can use this equation for making a forecast for
the sixth or the 7th year. So, basically that type of equations can also be used
mathematically for forecasting the future demand. So, here we can see that sometimes
we make use of the previous data; that is available with you, simple average method,
moving average method, weighted moving average method. All these methods depend
upon the previous or depend upon the previous year’s data or records.

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So, in qualitative methods we will focus on human judgement experience and service,
whereas, in quality sorry, whereas, in quantitative we will focus on mathematics and
simulation models for making a forecast. So, there is a difference between the two
approaches, but today our focus is on qualitative methods of forecasting.

(Refer Slide Time: 10:36)

So, there can be number of qualitative methods, different companies maybe following.
What we have tried to summarizes these into 2 or 3 important techniques that are used
for making a forecast.

So, first one is analogies or historical comparison, the second is survey technique and the
third one is the Delphi method. Usually we cover Delphi method may be one session of
40 to 45 minutes can be dedicated to only to the Delphi method, but since we have to
cover all these techniques in today’s session of maybe half an hour. So, we will be
quickly trying understand that what are the basic once reason, what are the basic you can
say contractual things or contextual things in relation to each and every methods.

So, we will try to understand the basic context of each and every method that is
mentioned here. So, let us start our discussion, but prior to that we need to understand
that where our qualitative methods are going to be used quantitative method, this is again
repetition.

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(Refer Slide Time: 11:42)

So, quantitative methods are average, moving average exponential smoothing and causal
methods, like linear regression, multiple regression and we will be covering them, it
covering these methods in our session 4 and 5 for this week.

So, today is session 13. So, we will be covering these two in session 14 and session 15.
So, today our focus primarily is on qualitative methods. So, I will not speak much on
these method, because maybe the next session, and next to next session will be focused
on quantitative methods of forecasting only. So, let us start with the qualitative or
subjective methods of forecasting. So, why they are used as I have told that there has to
be a strong case where we can apply a qualitative method of forecasting.

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(Refer Slide Time: 12:24)

So, we have to make that strong case and what are the application areas, where we are
going to use qualitative methods are listed here. So, I will read it for you on your screen,
you can see qualitative methods rely primarily on the experience and opinions of people
inside or outside the organisation. So, as i have already highlighted the experience of the
information or data available with the people within the organisation or outside the
organisation, can be used for making qualitative type of forecast, employed either when
there is little time or no past relevant data.

So, this sentence is very important, the previous sentences; yes, we can say it is based on
experience, based on judgement, based on intuition, based on sixth sense. So, that is we
can say the basic crux of making of forecast in case of qualitative methods of
forecasting, but the second point is very important, you can see here this will answer
your question, where you can use qualitative methods of forecasting, you can very easily
answer these are employed either when there is little time.

So, it means that qualitative methods of forecasting can be used where you have little
time for making a forecast, when you want to launch your product as quickly as possible,
in those circumstances, in those cases instead of going for a rigorous mathematical
calculation and then analysis, we can make a qualitative type of forecast based on
judgement, based on comparison, based on the historical information or the experience

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available with the people working for the organisation. So, when time is a constraint
qualitative methods can be employed.

Similarly, when no past relevant data is available; so I am saying information. So, there
is a difference between information and data. So, experienced person may be having
some information, because of his experience, because of the time he has spent in the
organisation. So, that information or that we can say intelligence or that kind of know
how that person has developed over a period of time, is used for making a qualitative
type of forecast. In case of quantitative type of forecasting we will make use of the data,
the mathematical data.

The numbers that are available with us for the previous years. So, we can see that
qualitative methods are most suitable in two cases. Case number 1, when you have time
constraint that you have very less time for making a forecast, and the case number 2
when you do not have the numbers, when you do not have the relevant data available
with you. There is no historical information or data that is available in the form of
numbers are the volume of products which have been sold in the previous years.
Similarly, we can say that when you are introducing a new product, it represents an
activity with limited or nonexistent historical data

So, you can further add that if time is a limitation, no historical data is available as well
as when the new product is being launched the product has no predecessor. There is no
product which is related to this new product, which is based on a completely new
technology. So, you would have no previous information or data available with you. In
those circumstances qualitative methods become more handy or more useful. So, major
application of qualitative methods is a long range strategic planning. So, we have seen
that we can make short range forecast, medium range forecast and long range forecast.
So, for long span of time when we have to make a strategic forecast, we can go for
qualitative methods of forecasting.

So, we can say one example can be the technology forecast, maybe what is going to be
the technology 10 years here on in case of communication, or in case of mobile
communication. So, we can make a forecast. So, it may not be relevant what is
happening in the last 5 years in mobile communication. So, last next 10 years we can say

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that instead of focusing on what is happening in the last 5 years, we have to see and
forecast that what is going to happen after 10 years.

So, the previous data becomes irrelevant, but we have to use our judgement, we have to
use our information we have to study the technology, we have to study the research
papers, and come up with an idea that what is going to be the mobile communication in
the next 10 years or maybe after 10 years. Therefore, we can say that the application of
qualitative methods of forecasting is the long range strategic planning. So, we can say
with confidence. Now that where qualitative methods of forecasting can be used, number
1 then we can also see that what are the applications. One of the major applications is
long range strategic planning or long range strategic forecasting can be done using the
qualitative methods forecasting.

(Refer Slide Time: 17:57)

So, let us see in subjective we have seen the previous slide; that is qualitative subjective
methods, where they can be employed what are the major application areas. Now we can
say that; what are the estimates of survey technique for qualitative methods of
forecasting. So, this is one of the methods of forecasting which falls under the qualitative
methods. Now forecast draws on the experience knowledge and the sixth sense of their
own people. So, when an organisation is going to make a forecast they will tell their
people, seek their opinion that how much do they feel the company must make in order

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to satisfy the demand in the market. So, the sixth sense, the knowledge, the experience of
the people working for the organisation is used in the survey technique.

Now, individual salesman is usually asked to submit estimates of estimated or

anticipated demand. So, individual salesman will give their forecast based on their
experience that knowledge of the market or their interaction with the retailers. So, the
salesmen are the source of information for making a forecast, know whatever forecast
has been made by the salesman, these estimates are pooled at the regional level and
adjust to account for economic demographic and other factors.

So, whatever numbers are coming from the salesman we are not blindly going to follow
these numbers they require some kind of moderation based on number of factors maybe
demographic factors there can be economic factors also there can be political or social
factors also. So, we have to adjust the numbers in order to make an accurate forecast in
survey technique, the salesman act as the maybe basic source of information which is
pooled to make a forecast.

Now, the revised regional estimates. Now maybe we can take an example of the state of
Uttarakhand. Now we are in Roorkee. So, we the salesman may get an estimate for the
town of Roorkee which can be pooled at Roorkee level. Then finally, in district Haridwar
there maybe 2 or 3 such town. So, that estimates of each town can be pooled at the
district headquarter and then can be adjusted based on, maybe the various, maybe
seasonal variations, may also be there. Sometimes the estimates may be based on the
nature of spending the people in the town or in the city. So, number of parameters are
used to fine tune our data or information.

So, the revised regional estimates are combined at the headquarters with further
adjustments related to the economy international trade competitors and other
development.

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(Refer Slide Time: 20:58)

So, number of parameters are taken into account while deciding that what is going to be
the demand for the next, maybe a month or a quarter or a year. So, survey technique with
salesman’s act a source of information, the data is collected in a pyramid manner. So,
maybe larger base, then consolidated, further consolidated at head quarters and finally,
maybe at the country level, the complete forecast for the next 6 months of year of a
quarter can be done. Such an exercise can produce a forecast rather quickly at low cost
and without any need of special expertise.

So, we can say that step by step salesman pulling the data at regional level than at the
central level, the data is pooled, it is adjusted based on the international trade situation
economic depression or boom political situation or demographic situation or
demographic, we can say details. So, based on different parameters the tweaking of data
is done, minor tweaking of data is done in order to reach the forecast, and you can see
the advantages of making such a forecast that it can produce it quickly. So, the time is
saved without cost. So, your funds are saved.

So, as you spend less money and you need not require any special expertise. So, which
means that no special skills are required or knowledge of mathematical tools that can be
used for making a forecast. So, it is easier to make if you remember the forecasting
system. We have covered in the previous session, there were certain constraints and three
of the constraints have been addressed here. Time was one constraint, data was another

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constraint and if you see expertise was a third constraint, and the cost was the fourth
constraint. So, cost also is less, time required is less, skill required is also less and data is
not available. Therefore, we are making use of the qualitative methods of forecasting,
because we are generating the data from the salesman, then it is pooled at the regional
level, then it is pooled at the headquarter level.

So, we are generating the data, we are not using any previous or 5 or 7 years back data
for making a forecast. And therefore, we can say that there are certain advantages with
the qualitative methods of forecasting, which most of the companies try to take
advantage of. Now what can be the drawbacks? there is no method which is always or
can be applied in each and every situation.

(Refer Slide Time: 23:46)

Now, what can be the drawbacks. So, let us quickly go through the drawback of this
survey technique, allow recent experiences to play a more dominant influence, then they
must now, maybe in the last 2 months there have, there may be a situation that there the
sales are very high as compared to the previous 10 months.

But we say that the last month, the sales have been high, we will do not try to average
out based on last 2 months. Only we may forecast for the next month which may not be
correct. Recent experiences play a very dominant role in our decision making, second is
dominant personalities can produce estimates that depart from the general consensus. So,
that may also happen. So, when your pulling the data at the, sorry regional level when

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you are combining the or maybe adding up the data at the headquarter level. There may
be certain dominant personalities who may influence the forecast in qualitative methods
of forecasting, which is not possible in quantitative method, because you are your based,
or your forecast is based on mathematical data and on calculation. So, the role of
personality do not come into picture the lack of any measure of accuracy in the estimate.
So, that is another challenge difficult to plan, how to cope with large errors.

So, lack of any measure of accuracy in the estimates. So, maybe with the performance
criteria for these methods may not be that well defined and we can calculate, maybe at a
later stage, that what is the forecast error which maybe is available with us, if we have
the historical data that we make use of for making a quantitative forecast or values in
quantitative methods of forecasting. Since we have the forecast error available with us
for the last 5 to 7 years, we can judiciously fine tune our data accordingly. So, that we
are close to the accurate value, but in case of qualitative method, the measure of
inaccuracy or the lack of measure of inaccuracy, sometimes maybe a deterrent. In the last
method that I wish to cover today is the Delphi method, very commonly used methods in
organisations.

So, we have seen the survey technique, the advantages and limitations of the survey
techniques. And finally, we are covering the Delphi method. So, in Delphi method we
follow this flowchart. The first is the issue selection.

(Refer Slide Time: 26:27)

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We need to see that what we need to forecast, what is the requirement and what is
finally, the outcome; that is desired from the whole activity. So, first we have to select
the issue or the objective with which we are making a forecast, then there is a panel
selection. Now this Delphi method is based on a panel of experts know. Some of the
experts can be internal experts, some of the experts can be external expert. So, you a
make panel of experts who have the information related to that product segment.

So, maybe if we are forecasting the number of sim cards to be sold or maybe sold by a
company, which is launching its operations. We may have on board experts from the
other service providers, who are working in that market for the last 5 to 7 years. So, first
important activity is the selection of the panel, then we develop a questionnaire. A
coordinator appointed for the whole activity and he develops a questionnaire and
distributes the questionnaire to the panel. Now one thing which is usually practiced in
Delphi method is that, the identity of the panel members is kept confidential. So, each
panel member will not be aware that; who are the other panel members, who are working
for making this forecast.

So, while selecting the panel we have to ensure that the panel do not or the panel
members are, we can say unaware of the people who are the other people on the panel.
So, panel selection is important then the coordinator will develop a questionnaire, the
questionnaire will be sent to each and every panel member. So, whatever answers or
whatever recommendations are given by the panel member, they are collected and the
analysis of the result is done, and if the consensus is reached we can say we have the
number or the forecast for the issue, that we have selected for the area, for which we are
making a forecast of the product, for which we are making a forecast. If it is not, there is
no consensus there is wide variation in the, you can say responses of the panel members,
then we may prepare a new questionnaire by modifying some of the questionnaires or
sometimes a report is prepared which has all the information, which has been provided
by the panel members in their first answers or in their answer to the first questionnaire

So, second questionnaire is produced where we incorporate all this information and
prepare a report, which is sent along with the second questionnaires. Now sometimes it
may happen that a particular panel member may not be having a specific piece of
information, which now he can read in the report, and may like to fine tune tweak or may
be change his value of the forecast, or his forecast that he has done in the first

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questionnaire. So, maybe this iteration can be done two to three times depending upon
the consensus value that is arrived, maybe iteration can be done, two times iteration can
be done, three times the questionnaire maybe to it. The report may be changed based on
the continuous flow of information, when the panel experts are giving their answers to
the maybe subsequent questionnaires

So, basically to simplify the whole thing, a panel is formed or constituted, they are given
a questionnaire, they respond to that questionnaire. The results are analysed and if there
is a consensus, the answers are forwarded to the organisation, but if there is not a
consensus, there is variation another set of questionnaire may be given with or a brief
report of the first cycle of you can say questions and answers, or first questionnaire
maybe as a report based on the first questionnaire will be sent again to the panel member.
So, this iteration can continue two to three times, and finally, we will get our forecast;
that is again a qualitative method of forecasting, because we are not using any 10 or 15
years previous years data, we are directly relying on the experience and judgement or we
can say intelligence of the panel members who are helping us or helping the organisation
to make a forecast.

(Refer Slide Time: 30:54)

Now, a Delphi method, just brief summary a panel of experts respond to a questionnaire
about the future demand, individual estimates are summarised and returned to the panel
member. So, that they can revise their original guesses, critical feedback mechanisms

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make it easier to arrive at estimate that most people will accept. So, critical feedback is
in kind of a report that is distributed among the panel members.

So, with this we conclude today’s session, we have seen the qualitative methods of
forecasting, we have seen where the qualitative methods of forecasting can be applied.
We have also seen the Delphi method of forecasting, and how it can help us to make a
forecast without any previous data available with us. So, we can say that qualitative
methods of forecasting, also have got their specific application areas, and all learners
must have information related to the qualitative methods of forecasting.

In our next session our focus will be on the quantitative methods of forecasting, where
we will do simple calculations to make a forecast based on the previous year’s data.

Thank you very much.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 14
Quantitative Methods-1

Namaskar Friends, welcome to session 14 in our course on operations management. We

are currently in the third week of our discussion, and in this course we have weekly
discussion on specific topics. In week one, we discuss the basics and fundamentals of
operations management. In week 2 our complete focus was on product design and
development, and in week 3 our focus is on forecasting. We want to figure out we want
to find out that how much quantity we should produce, in order to be successful and
competitive in the market. And in that direction we are trying to find out the numbers
actually.

We are trying to find out the demand that is being created in the market. We are trying to
figure out the sales expected in the market. And how we can find out if you remember,
just to have a brief overview of what we have covered till today in our discussion on
forecasting if you remember, in first session we discuss the need requirement of
forecasting. We have seen how forecasting can help us or how forecasted values can help
us in making various decisions; such as the manpower planning the materials planning,
the planning of the various activities, the time schedule of various activities, all that
depends upon the forecast that what actually we are going to produce in a specific period
of future time, or in a specific period of time in future. We have seen the basics of
forecasting, then how to do forecasting. in the second session we discuss the forecasting
system. in which we which we discussed or we in which we have seen that what are the
various elements of the forecasting system.

We have seen that there are inputs. There is a forecasting method and there is an output.
Then we have seen this system operates under certain constraints. Constraints can be in
terms of time constraints can be in terms of data that is available. Constraints can be in
terms of money that is available to carry this excise constraint, can be in terms of skill
that is required to make a forecast. So, there are constraints under which this overall
system or under which we have to operate to use this inputs, using a method to make a

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forecast, and then apart from the constraints there are certain decisions that we have to
take and what are these decisions we have to take a decision that which method is
applicable for a specific set of problem; which data is relevant for making a forecast. So,
2 things the method and the data we have to select. So, that we have covered in the
forecasting system.

Then the next stage we have covered the qualitative methods of forecasting, in which we
have seen the estimate or the survey technique, and we have seen the Delphi method of
forecasting. And we have seen that what are the advantages of qualitative method. if you
remember we have seen that they require less time for making a developing a forecast,
the money required is less the skill set required is less. So, basically all the most of the
constraints are taken care of by the qualitative methods of forecasting. Specially the
survey technique and the Delphi method. But still these methods are applicable if you
remember we have seen they are applicable where we do not have any previous data
available with us the historical data is absent.

Or we are coming up with the completely new product, and there is no comparative data
no historical data available with us. We are doing a long term strategic planning, we are
not relying on the existing data, we want to forecast 10 years from here on. So, there also
our qualitative methods are good. But suppose our product is not new it is an old
product, and we have may be last 15-20 years’ data available with us to be more specific
last 5 years’ data available with us data related to the demand of the product. The actual
sales of the product in the last 5 years. So, that data available with us.

So, once such information is available with us, we can definitely make use of this
information for developing a forecast, and how this information we are going to use that
we will see today. So, we have seen 3 things still now the need requirement and the
importance of forecasting we have seen the forecasting system, we have seen the
qualitative methods of forecasting that is survey technique and a Delphi method. And
today we are going to cover the simplest of the quantitative methods of forecasting. They
these are simple methods do not require much skill and are definitely applicable, when
we have the previous year sales data available with us. So, let us now start the discussion
related to the quantitative methods of forecasting.

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So, again coming back to the classification, we have qualitative methods of forecasting
and we have quantitative methods of forecasting.

(Refer Slide Time: 06:06)

The qualitative methods we have covered in the last class today our session will focus on
quantitative methods. And in quantitative methods we have average, moving average,
exponential smoothing, and we can also have casual method like linear regression and
multiple regression. So, we will try to cover all these methods in our sessions that are left
in the week on forecasting. As I have already told we are focusing, on various topics on
weekly basis.

First week was basics of operation management. Week 2 was product design and
development. Week 3 we are focusing on forecasting. Today is the 4th session, and fifth
session we will wind up our discussion on forecasting. So, let us now see the simplest
methods of making forecast using the previous year’s data, that is available to most of
the companies. So, this is something or this method is something which is applied where
we have a same product, it may not be a new product. And we have the previous data
available with us. Now the data for previous years may vary in a different pattern.

So, let us see what are the variations the top most this is a trend.

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(Refer Slide Time: 07:33)

We see a trend component this is an increasing trend component. So, on x axis we have
time, and on y axis we have the demand data. So, we see a continuously increasing trend
in the demand over the last few years. Similarly, contrary to that we see a trend which is
decreasing in nature. So, with time the demand is decreasing over the last 5 to 10 years.
Similarly, we can see that there are seasonal variations. This type of plots we have seen
in our session 1 or 2, I do not exactly remember where we have seen the variation of
demand data with time. So, there also we have seen the seasonal variation. Then there is
a business cycle variation; in which we see that there is an increasing demand and then it
is decreasing. So, this is a business cycle may be many time we correlate it with the
economic boom or the economic depression. So, may be that cycle may continue for 5 to
10 years time.

So, for 5 years we have may be economic boom. So, the demand will be high, but may
be after 5 years there can be depression. So, the demand comes down. So, basically this
is the variation of the demand in the previous years. Now based on this we have to make
a decision that what we what can be or what will be the forecast for the next year. on
your screen if we see the first graph to take an example the demand is continuously
increasing. So, we can expect that the demand will be higher in the next year. So, for last
5 years if we have an increasing trend we can expect that the next year or 6 or 7th year
forecast must be higher than the demand of the fifth year. So, we are already focusing on
the last 5 years data and trying to forecast for the 6th and 7th year. Since the trend is

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increasing or there is an increasing trend in the demand data we forecast that yes next
year the demand will further increase.

So, we make use of this data in a judicious manner for making a forecast. Similarly, if
there is a seasonal variation we can take into account the seasonal variation, and include
it in our time series model, and calculate the seasonal indices, and make a forecast on
season to season basis, usually we do it on quarter to quarter basis. So, the whole year is
divide in to 4 quarter. And the forecast is made on quarterly basis in case of seasonal
variations. Similarly, there can be random or erratic behaviour of the data. And whenever
there is random or erratic behaviour of the data, we can use a simple average method for
making a forecast. So, we can average out the readings and use that averaged value as
the forecast.

So, this is the variation of the data. Why this slide is put here, because now we are going
to see the methods that make use of this data. So, first of all we have to see, that what is
the variation in the data. Suppose we see a trend we should select our method
accordingly. There is no trend there is random variation of data. So, we will say a normal
average or simple average can give us the forecast for the next year.

So, looking at the data we have to take a decision that which particular method we have
to apply. So, everything is inter-related, if we have seen in forecasting system that there
is an input there are a combination of forecasting methods; and which produce a forecast.
And what decision we have to take we have to take a decision that which method we are
going to use. And here also looking at the distribution looking at the variation in the data
over the period of time we try to select the best possible method for making a forecast.
And we will try to see some of the simple methods of making a forecast for the next
year.

Now, again this is just the classifications based on qualitative and quantitative.

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(Refer Slide Time: 12:16)

And in quantitative models which are we see as more formal because in case of
qualitative we say survey techniques which can be slightly subjective also, but here the
things will be more objective more formal in nature. So, we usually use time series
models or casual methods of forecasting for example, regression we can develop a curve
fitting equation and make use of that curve fitting equation for making a forecast.

(Refer Slide Time: 12:52)

Now, let us see a simple moving average method. Simple average is clear to everybody.
So, here we can see it is simple average only. So, here we have taking last may be end

226
data points, and we are adding all this data points and dividing it by n. So, this we can
see is a simple average method. So, moving I will explain may be slightly later, but here
we can just conclude that is the simple average of the data only, if you see that we are
adding from Dt plus Dt-1 plus Dt+1-n.

t+1 t t-1 t+1-n

t+1

So, basically we are focusing on the last 5 years or 7 years data. Adding all the demand
data for the last 7 years, and dividing it by the number of years for which we have added
to the data dividing it by 7 for last 7 years divided by 7. So, we get an average value
which is simple average method. So, where forecast Ft we can say or Ft+1 is average of n
previous observations or actual or Dt. So, Dt is a demand data for t period. So, we add all
these data points and divided by the numbers of years and we get the simple average
method.

Now, why simple moving average is a required, the previous one, it is return simple
moving average, but it is actually simple average and here we have simple moving
average. Now why a simple moving average is important; now let us see data that we
have with us.

(Refer Slide Time: 14:26)

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Again on x axis, we have time; which can be in terms of years, and on y axis we have
suppose the demand data that is available with us. I am plotting may be last 5 years data,
and this is the trend on your screen. So now, if you see, we use a simple average method
of making a forecast, what will we the average it will be the some were around this point.
So, whether it is a correct forecast. We see if it considers the last 3 data points only.
What will be the average the average will be somewhere here.

So, considering the last 5 years data this is my average, and considering the last 3 years
data this is my average. So, from this graph we say that for examples let us see this is the
actual demand for this year, this is a demand or forecast actual demand we should not
say actual demand actual demand for the year may be this we can say 2018. So, actual
demand is available with us. So, if we see that error actual this was the demand the error
for average method for 3 years is this and if he calculates the average based on all the 5
years this is the error.

So, we can very easily see that the error by using the last years data or last 3 years data is
less as compare to the last why considering the last 5 years data. Why we should focus
on the trend in the previous slides, if you remember we have seen that there are different
data trends. There can be an increasing trend there can be a decreasing trend there can be
a random variation there can be a business cycle there can be a seasonal variation. So, as
a forecast engineer or an engineer who is going to make a forecast we must focus on the
variation of this data try to understand the data so that we are able to make a good
forecast.

Now here if as normal engineer I use all the 5 data points for making the forecast, my
forecast will definitely be lower than the actual demand data. And I will be under
forecasting. But if we slightly change our method we only focus on the last 3 years’ data,
I am slightly closer to the actual demand. So, that is basically the meaning of the simple
moving average method. That if 5 years’ data is available with us, we may not like to
focus on all the previous 5 years, we will only like to focus on the most recent demand
that is available with us or the demand data that is available with us, because that is
going to give us more accurate a more reasonable idea of the forecast for the next years.

So, this type of method were we consider may be 1 2 3. Last 3, last 3 years’ data only we
call this as the 3 period moving average method, or 3 period moving average. Again may

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be when 2018 forecast we have done actual demand data is available we use the 3 period
moving average, this was my forecast this was actual demand data. Now may be for next
year when I have to do the calculation for 2019. I will delete this data, or this data point
and I will focus on this will my become 1, this will become 2, and this will become 3.
The actual demand for 2000. This is actual demand this is the demand data for 2017.
This is the demand data for 2016.

So, again I am considering 3 data points only for making a forecast for the year 2019. So,
I am considering 3 years’ data only for doing my average calculations. I am not
considering the last 10 years or 15 years and 20 years’ data. But some of you may be
wondering that where simple average can be used. Now in similar graph if my data is
varying like this, I have drawn large number of data points. So now, in case 2, I am
considering these data points only which are encircled. So, you see this is my data 1 2 3
4 5 6 7 and suppose this is 8. So, I have 8 data points now. There is no trend I can
observe. So, if I plot them. So, there is no trend. So, in such 5 cases, if this type of data is
available with us we can calculate the average and we can make a forecast. So, when
there is a random variation, and there is not much variation. Random suppose the random
is varying to a large extent, in one year we have very less sales, next year we have very
large sale. So, the variation is large we have to look that which day which method we
should follow.

But if the variation is not that much the value is just scattered around a central line. So,
we say that yes there is not much variation, let us follow the simple average method
only. So, when such type of random variation is observed in the data, we can very easily
use a simple average method for making a forecast. And if there is a trend like in the
previous data there was an increasing trend in those case is we must follow a moving
average methods giving more weightage to the previous year’s data; that is a just may be
close to the year for which we are forecasting. Suppose we want to make a forecast for
2018 we should give more weightage to 2017, 16, 15 and the exclude all the other data
point, when we see that there is an increasing or there is a decreasing trend, and this is
called the moving average method.

But we are giving considering last 3 years’ data only and giving equal weightage to all
the 3 years. But in many cases it may so happen that we are seeing that there is an
increasing trend. So, I will try to just further do my calculation, that I give more

229
weightage to the last years’ data, slightly may be less weightage to the previous year
data. And even smaller weightage to the previous year data. So, when maximum
weightage is given to the last years’ data, smaller weightage to the farther data, even
smaller weightage to the farthest data point, if I am considering 3 data point only. Then
we call this method as the weighted moving average. So, moving average is giving equal
weightage to 3 years’ data, must I also tell you; that it is not 3 years’ data only. We can
have 4 period moving average, we can have 5 period moving average. We can have 2
period moving average. So, that is the decision that lies with the engineer that how or
how is going to select his period. So, it can be 3 4 whatever data the observer feels or the
engineer feels is good for making a forecast.

So, suppose in my example, we have taken that 3 period moving average; so when I give
equal weightage to all the 3 periods, I say it simple moving average method in which no
weightage is assign to the previous year, but if I assign weights also that more rate is
assign to the 2017 data less weight is assign to 2016 data, even lesser weight is assign to
2015 data, then that method we call as the weighted moving average method. So, this is
the basics about the averaging methods for making the forecast. So, 3 I have tried to
explain. The first one was the simple moving average, in which all data are included,
they are given equal weightage and we do the calculation as is this example. So, we see
there is a random variation in the data. So, view the simple moving average sorry simple
average method only. So, we calculate this plus, this plus, this addition of all these data
point and dividing it by 1 2 3 4 5 6 7 8.

So, we get a simple average technique for making a forecast. Then we have seen a
moving average, when we see there is an increasing trend, we consider the last 3 data
points only. And for the next year we consider the previous 3 data point only, that is
simple moving average method. That can we 3 period moving average 4 period moving
average 5 period moving average. And finally, we have seen that if we assign weights to
the previous years, we are using a method that is called the weighted moving average
method. By assigning maximum weight to the last year’s data slightly less weight to the
last to last year data, and even lesser weight to the last to last to last year’s data may be 2
years’ previous data or 3 years’ previous data. So, these 3 method follow under the
averaging methods for making forecast, and let us now quickly see the presentation and
try to revise what we have covered on the board.

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(Refer Slide Time: 25:50)

So, simple moving average may we we will try understand now. Note that the n past
observations are equally weighted. So, in case of move a simple average, all observations
are given equal weight issues with the moving average forecast or all past observations
are treated equally. observations older than n are not included at all requires that n past
observation be retained problem when thousands of items are being forecast. So, simple
average has got it is own limitations. Now in simple moving average what we try to do?
we try to include the n most recent observations only. As in our example you see we
were using only last 3 years’ observations last 3 years data for making a forecast. So, in
simple moving average previous to this we have only covered simple average method or
simple moving average were ever the word moving is coming, we will define that our
calculation are for 3 period moving average we are considering the last 3 observation.

4 period moving average we are considering the last 4 observations only. Please do not
get confused I think in the title it was written simple moving average. So, it was simple
average only. So, moving you can just eliminate from there. So, in moving average it
will include n most recent observation n is the number. So, if n is 3 will call it n is equal
to 3 that is 3 period moving average. If n is equal to 4, we will call it as 4 period moving
average. So, n is a you can say variables. So, they are weight equally.

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(Refer Slide Time: 27:34)

So, in our example we have given equal weights to all the 3 periods that us that are
previous to the year of forecast, and we ignore the older observation. So, in our example,
we had 5 observations. By calculating the simple average, we were not getting the actual
forecast we are seeing that there is lot of variation it is digressing from, but it expected,
but it, but can be we can estimated. So, we thought let us gives last 3 observations equal
weight and try to do the calculation. So, last 3 observations were only considered and the
average was calculated for last 3 observations only.

So, as per my slide ignore the old older observation. So, we have ignored, the 2
observations these 2 were ignored and only these 3s were considered. But why we have
given equal weight age to the calculation. We have calculated for these 3 values only and
we have given equal weightage this plus this plus this, divided by 3 we are getting this
average value. So, simple moving average 3 periods considers equal weight given to
each of the 3 years. But that also we see digressing or there is a forecast error. So, but
how we can overcome this? Equal when equal weightege given there is a problem still,
we are far away from the actual demand value. So, this is just an example.

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(Refer Slide Time: 29:13)

Let us consider simple average examples only. And then we will go to the weighted
moving average. A XYZ television supplier found demand of 200, sets in July 225 sets
in august and 245 sets in September. So, your demand data is now given to you. Because
examples help us understand the theory in a better manner let us take this examples. So,
the 3 previous month data is on your screen.

200 sets for July, 225 sets for august and 245 sets in September. So, a supplier found a
demand. So, this demand is already known to us. Find the demand forecast the month of
October using simple average. What we will do? We will give equal weightage to all the
3 years. 200 plus 225 plus 245, equal weightage means divided by 3. So, that their
simple average method of forecasting. So, the simple average we can see, you add the 3
and divided by 3. So, you can calculate the simple average method.

SA =

SA =

SA = 223.33

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Now, simple moving average method. Now see the XYZ refrigerator supplier experience
following demand for refrigerator during the last 5 months.

(Refer Slide Time: 30:28)

So, 20, 30, 40, 60 and 45. Can you see a trend here? you can see observe the trend 20,
then it increases to 30 in march, then 40 in April, 60 in may and finally, there is a
decrease of 15 re refrigerator in a month of June. But still there is an increasing trend that
we can observe. So, if you use simple average method what will be do? there are 5
months’ data available with us. So, we will add all these data points 20 plus 30 plus 40
plus 60 plus 45 divided by 5. And we will get our forecast for the month of July. But in
simple moving average we will try to give more weightage to the last 3 or 4 years or 3 or
4 months’ data only this problem is related to months. So, we are taking months as our
time domain. in that problem we have taken yearly data. So, we were considering year
on our x axis or on the times scale.

So, here we can see if we do simple average we will be getting a value some were near
let us see if we solve that.

234
(Refer Slide Time: 31:51)

Find out the demand forecast for the month of July using 5 period moving average, and 3
period moving average using simple moving average method. So, we will see 5 period
moving average, in our case will becomes simple average only 1 2 3 4 5. So, we have 5-
month data we are considering giving equal weightage to all 5 month. So, will add up
everything and divide it by 5.

So, let us see. So, the 5 period moving average considering all 5 months or giving equal
weightage to all 5 months. We get the forecast as 39 units. Were as for 3 period moving
average if we seek giving n equal to 3, we get 48.33, that is 49 units.

235
(Refer Slide Time: 32:30)

So, you can see the difference between the 2 forecast. one forecast is giving 39 units or
39 refrigerators another is giving 49. So, basically if we use if we give more weightage
to the previous year’s data or previous month data it will be more realistic, and it will
give us a better forecast as compare to giving equal weightage to all the data that is
available to us, why? because when we looked at trend we could see an increasing trend
in the data, and from there we could see that we must not give equal weightage to all the
5 data points we should give more weightage to the last 3 data points. So, this I think by
now you have understood a difference between simple average and the moving average
suppose now we want to forecast for the month of August. So, we will make use of the
data points of July, June and May. So, May, June and July data we will consider for
making a forecast for august.

MAn =

MA = = 39 units
5

MA3 = = 48.33 49 units

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Now, we want to make a forecast for September, we will use the actual demand data for
August, July and June. So, we will keep on the average will keep on moving, because we
are giving more weightage to the previous 3 years, or previous 3 months’ data only.
Now, let us see the last example for today. I have explained this with the help of an
example there. We have given capital W weightage to the last years’ data then we have
reduced the weightage for last 2 years. So, we will see that with the help of an example
let us check this problem the manager of a resto wants to make a decision on inventory
and overall cost.

(Refer Slide Time: 34:22)

He wants to forecast demand for some of the items based on weighted moving average
method. please note weighted moving average method, for the past 3 months he
experiences that demand for pizzas as follows. Now if we look at this data that is on your
screen, the demand for pizzas in October 400, November 480 and December 550.

Now, there is increase in trend data. So, we wish to give more weightage to the demand
of December, and slightly lesser weightage to the previous 2 months. That is the months
of November and October. So, let us try to see and solution of this problem. We want to
find the demand of January by assuming suitable weights to the demand data.

237
(Refer Slide Time: 35:12)

So, we will give weights to the data of the previous 3 months. The months available or
the data available with us for is for the month December, November and October. So, we
will be looking at the data. We will like to more give weightage to the month of
December slightly less weightage to the month of November and slightly less weightage
to the data for the month of October. So, we will calculate the weighted moving average
by the summation of a multiplication, that is the Ci into Di. So, Ci we say that is a weight
that is a sign to that particular month, and Di is the actual demand for recorded for that
particular month.

WMA =

Ci = Weights for Periods

Di = Demand for Periods

So, Ci is the weights for the periods and Di is the demand for the periods. So, let us see
Ci is 0.25 the weight for the next yea next month is 0.3 and for the latest month is 0.5.
So, ideally it this should come equal to 1, but this is C have C1 may be we can take 0.20,
but this is just to explain the idea that how the calculation can be done. Now we will see
C1 is multiplied with D1 and D1, you can see is October. So, we are giving less weight,
very less weight may be on the 20 percent may be 0.2 only to the October data. So, we
can see 0.2. So, 0.2 being multiplied with 400. And the next data is 480, this we are

238
multiplying by 0.3. And the latest data if you see is 550 it is given maximum weightage.
So, we are multiplying it by 0.5, and once we add these 3 values we will get our forecast.
So, here if we take it as 0.2, we will get this value of 100 as 80 and the total value will be
499 units.

Let C1 = 0.25, C2 = 0.3, C3 = 0.5

WMA = C1 x D1 + C2 x D2 + C3 x D3

= 0.25 x 400 + 0.3 x 480 + 0.5 x 550

= 100+144+275

= 519 units

So, the forecast is 499, and for your exercise you can do a forecasting using simple
average by adding this 3 values, 400 plus 480 plus 550 divided by 3. And certainly you
will find a difference in the forecast as we have forecasted using the weighted moving
average we have given 0.5 weightage to 550. 0.3 weightage to 480 and 0.2 weightage to
400. So, we have reduced the weightage over a period of time. We have given maximum
weightage to the latest data of December we have given slightly less weightage to the
data of November, and we can least weightage to the data of October. Similarly, we can
use this method of giving the weights combining it with the moving average also. in our
previous case we had 3 data points only we assigned weights to all 3 data point, and did
the calculation and make the forecast. Where as in case of if we have large may be last
12 months’ data available with us. Last 24 months’ data is available with us we wish to
in exclude some of the data points we will focus only on the recent data points and will
get a more accurate forecast.

So, here on your screen you can see the past data on the load on the lathe machine is
shown below.

239
(Refer Slide Time: 38:43)

So, we have a data starting from June. June, July, august, September, October,
November. So, we have 6 months’ data now available with us. And if you can see 585,
610, 675, 750, 860, 970. There is an increasing trend. And if we use a simple average
method for forecasting, add all these values and divided by 6, we will be under
forecasting we can very easily look at the data, and it is not to going give us the right
answer or the right forecast. So, what we need to do? we can focus on the last 3 years,
last 3 months, or the last 4 months’ data. So, if we take the last 3 months’ data also, there
also we see lot of variation. for last 3 months you see 750 860 and 970. So, here what we
can do we can assign more weightage to 970 slightly less weightage to 860 and even less
weightage to 750. So, we are combining now 2 things. We are using a moving average,
and we are assigning weights also to the previous year’s data. Or previous months’ data,
and it will give us a fairly accurate forecast based on the information and the data that is
available with us this is a solution.

240
(Refer Slide Time: 40:09)

What is the problem for which we are solving, we want to compute a weighted, 3 months
moving average for December, where the weights are 0.5 for the latest month, 0.3 and
0.2 for the other months respectively.

So, the weights we are assigning same and we want to compute for the month of
December. That is the forecast for the month of December. So, here you can see we have
September, October, November data already available with us. So, 3 periods only we
have to consider, and then we assign weights are also given November 0.5, October 0.3
and September 0.2. using the same approach, we can very easily do the calculation a 3
month weighted moving average forecast for December is given by weightage of
November; that is, 0.5 multiplied by the demand for November 970 plus weightage for
October, multiplied by the demand for October, plus the weightage for September
multiplied by the demand for September. Add the 3 values we will get our forecast. So,
with this we close today session, I think it has been a very busy session. We have try to
see the simple average method, were we can apply it is still on the screen; where there is
a random variation in the data and the variation is also not that large.

A three month weighted moving average forecast for December

= (W Nov. x D Nov.) + (W Oct. x D Oct.) + (W Sep. x D Sep.)

= 0.5 x 970 + 0.3 x 860 + 0.2 x 750

241
 = 485+258+150

= 893 machine hours

So, if the data points are scattered around the central line, we can make use of simple
average method. We have seen moving average method, and we have seen weighted
moving average method. We have try to see simple examples which help us to solve
problems related to simple average moving average, weighted moving average method.
in our next session, we will further try to reinforce our knowledge and information
related to quantitative methods of forecasting.

Thank you.

242
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 15
Quantitative Methods-II

Namaskar friends. Welcome to session 15 in our course on operations management. So,

currently we are discussing the basic aspects of forecasting and if you remember we have
covered 4 sessions. We have completed discussion in 4 sessions on forecasting.

We are trying to find out that how much we should produce from the operations point of
view. We are trying to see that what can be the demand or what is the expected demand
in the next year or in the next month. If you remember we have seen in the previous
session that there are quantitative methods of making the forecasts. We have seen the
simple average method, simple moving average method, weighted moving average
method and we have found out that each one of them can be used in certain specific
application areas.

Now, how to identify where which method can be used? That is really important and that
decision is based on the scatter or the distribution or the variation of the data with respect
to time. So, we have seen that on y axis usually we take demand and on x axis we take
the time. So we try to understand that how the demand has varied over the last 5 years. If
we are taking the yearly demand into picture; if we are taking the monthly data into
picture, we will say over the previous 5 months or over the previous 7 months or over the
previous 12 months; how the demand has varied or how the actual demand has varied
with respect to time?

And based on that, we decide on our method. Just to have a brief review in 4-5 sentences
is what we have covered in the previous session. If the data is scattered over a central
line; there is little variation above and below the central line. We can use a simple
average method. Because, we see the data is scattered at around the central line. We can
make use of simple average method, but in case there is an increasing trend or there is a
decreasing trend observed in the data; our simple average method will not be suitable.
All of us must keep in mind that simple average method will give us average value,
which will be far away from the actual demand.

243
How we can see that? We can see that if there is an increasing trend, the average value
may give us under forecast. If there is a decreasing trend, the average value may give us
over forecast. So, we have to see that simple average may not be relevant wherever there
is an increasing or decreasing trend. So, how to solve this problem? In that case we will
give more weightage to the last 3 months’ data or the last 3 years’ data whatever is our
time domain. If we are doing the calculation on yearly basis. We will consider last 3
years’ data.

If we are doing the calculation of monthly basis, we will cover the last 3 months’ data
only and those 3 months we will do simple average and we will find out that what is
going to be the forecast, but still there can be a problem. There can be an increasing or
rapidly increasing trend in those 3 months or those 3 years also. Now, how to overcome
this problem? We can overcome this problem by giving more weight to the last year’s
data. For example, we are forecasting for 2018 and we have the actual demand data for
2017, we will give maximum weightage to the 2017 data point. Then slightly less
weightage to 2016 data point. Then even lesser weightage to 2015 data point.

So, we are only considering the last 3 years’ data or in our previous session we have
taken monthly data for the last 3 months’ and we are ignoring the rest of the data points.
That are available with us why because, there is an increasing trend for the demand. We
ignore the previous data points. We only consider the last 3 months’ data points only and
within those 3 months also we are assigning maximum weightage to the last month data.
For example, currently it is month of July. We want to forecast for August, we will give
maximum weightage to July, slightly less weightage to June and even less weightage to
May.

From May very less weightage, June slightly higher weightage, July maximum
weightage and then we forecast for the month of August. So, all this we have covered in
the previous session. We have done some calculations also. We have considered very
simple problems also. With assigning weights to the previous months or previous years’
data and then doing the forecast for the next month or the year based on the problem that
we have seen. Just one joke is coming to my mind that emphasizes the importance of
averages and how sometimes averages can be misleading.

244
There was a person who was standing across a river and he wanted to cross that river. He
was may be good at mathematics. He asked a passer by a person who was again passing
through we can say the passage or the path. He asked him that what can be the average
depth of this river. He said it is 3.5 feet. This person said the average height is 3.5. My
height is 6 feet. So, maybe it is higher than the average value. I must be easily able to
cross this river. So, he entered into the river and never came out. The average is can
sometimes be misleading and we should not blindly follow the averages.

So, we should follow the averages, but with the little pinch of salt maybe we should see
the data that how the data is varying. So, if we can fit a central line or the data is
scattered around the central line, we can follow the simple average method. But, if the
data is showing a specific trend, we must not follow the simple average. We must focus
on the moving average or the weighted moving average method. Now there is another
advancement in the field of weighted moving average, which is called the exponential
smoothing.

In which the weights keep on decreasing exponentially. Maybe you suppose we have the
10 years’ or 10 months’ data available with us, we will assign maximum weightage to
the latest data and then the weights will keep on reducing and as we are going far off
from today that weights will keep on reducing. For example, if we want to forecast for
the month of 2008 or for the year of 2018. We will give supposed 0.9 weightage to the
data of 2017 and then for 2016 lesser weight, 2015 even lesser weight, 2014 even lesser
weight.

So, the weights will keep on reducing as we are going further and further from today’s
date. That is what is the basic concept of exponential smoothing. We have understood
that we give weights to the data points in the previous session and how these weights are
assigned. That is adding an element of subjectivity. Nobody has questions or maybe you
may question in the discussion board, that is are how we can decide that 0.5 should be
given to the as a weightage to the previous months’ data. Why it is 0.5, 0.3 and 0.2 only?
Why it is not 0.7, 0.2 and 0.1?

So, these kinds of questions can come and these decisions regarding how much weight
must be given as you can say; element of subjectivity into the objective methods of
forecasting or into the quantitative methods of forecasting. So, there are mathematical

245
tools, there are statistical tools that can help us in the calculation or in the finding out of
this weights also. But, in exponential smoothing it is assumed that the weights will vary
exponentially.

So, we will see that how exponentially the weights will vary with the help of certain
slides and when is the weights are varying exponentially? Where these methods can be
used? Or exponential smoothing method where it can be used? So, it can be used where
we want to give the maximum weight to the previous months or previous years’ data and
we want that the farthest readings must be given minimum weight. So that they have the
minimum influence on the forecast that we are going to make for the future; we will try
to understand the exponentials smoothing method today.

Then it is a bridge into an equation, which can be used for making a forecast. But the
basic concept is that the weights will vary exponentially over a period of time. May be
the most recent will be given the maximum weight and then the weight will
exponentially reduce as we go farther and farther from the forecast period. So, let us try
to understand this with the help of a presentation and start our discussion. In our simple
average method, we have seen all the previous year’s data are considered and equal
weights are assigned.

In case of moving average, we neglect some of the readings or some of the data point.
We consider only the latest data points, but we give equal weightage to all the previous
data points or all the data points being considered for making a forecast. In weighted
moving average we considered the last 3 months’ or 3 years’ data points only, but we
assign specific weights to the 3 data points.

So, all the 3 data points are not given the equal weights. Please keep in mind that three I
am taking as an example. You can use a four period moving average also; you can use a
five period moving average also. Suppose we have 20 years’ data available with you,
you want to focus on last 5 years’ only.

So, you can make use of a 5 period moving average method. So, n is 5 in this case. In my
example that I have taken n can be 3. That is the purely your decision that what is the
period you are going to select, but the important point to note is, in simple average we
give equal weightage to all the previous year’s data or previous months’ data. In moving
average, we consider the previous 3 or 4 or 5 years’ data only.

246
We neglect all the other data points, but we give equal weightage to all these 3 or 5 data
points that we have considered. In weighted moving average, we further fine tune our
forecast by giving specific weights to the previous year’s demand. May be the most
recent may be given the maximum weight and we have also seen this with the help of an
example in our previous session. So, in exponential smoothing we will include all the
past observations.

(Refer Slide Time: 12:50)

But, the weight assigned will be more for the recent observations. So, as is given on the
slide, the weight recent observations much more heavily then very old observations.

So, on your screen you can see on y axis we have the weight. It is not the demand.
Sometimes, the students or the learners confuse it with demand. This is the weight and
this is today we are here. The data which is most recent, we are giving the maximum
weight and the weight is exponentially reducing and this is maybe the oldest observation
or the oldest data point is here and we are assigning the minimum weight to the oldest
data point and we are assigning the maximum weight to the most recent data point.

So, the decreasing weight given to older observations. So, suppose we give alpha value
to our, we can say the most recent data point the next years or data point will be given
lesser weight and that distribution will be exponential distribution. It will reduce
exponentially.

247
So, the value of alpha which we call as the smoothing coefficient, the name of the
method is exponential smoothing so way the recent observations much more heavily than
the very old observations. I have already highlighted. Now, suppose we give the
smoothing coefficient value alpha as 0.7. So, the latest observation is given the way
weightage of 0.7. Then it will keep on changing. Next year it will be alpha into 1 minus
alpha, because, it is varying exponentially. Then for next year it will be alpha into 1
minus alpha to the power 2. It will keep on decreasing. The weight is keep on decreasing.

So, if in these values suppose you take alpha is 0.7. The value of 0.7 into 1 minus 0.7
will certainly be less than 0.7. Similarly, 0.7 into 1 minus 0.7 to the power whole square
will be even lesser. The values or the weights are reducing exponentially. Now suppose
we have considered in our previous session we have taken last 3 months’ data point only.
If we give weightage alpha as 0.7.

So the month if you remember in our previous session we were forecasting for the month
of December. If we give alpha equal to 0.7 for the month of November, if we are
forecasting for December, exponentially the weight will come down for the month of
October and further it will come down for the month of September. We will assign
minimum weight to the month of September or to the value or the demand data for the
month of September, then slightly higher weight in for the demand data for the month of
October and the maximum weight for the demand data for the month of November.

So, September, October, November weight is increasing. November, October, September

weight is decreasing. How it is decreasing? It is decreasing exponentially and this
method will give us you can say easier method, way to decide on the weights that if we
decide on one value that this is going to be my alpha value. The other values can be
calculated based on alpha into 1 minus alpha. Then alpha into 1 minus alpha to the power
2. So, very easily we can calculate the weights that can be assigned to the older
observations.

So, as per the forecast we have seen the most recent.

248
(Refer Slide Time: 16:57)

We are giving the value alpha. F, if we want to forecast for the period t plus 1. So, we
will see alpha into demand for the previous year then alpha into 1 minus alpha demand
for the older observation; alpha into 1 minus alpha to the power 2 for the even older
observation. So, as the observations are getting older, the weights are getting lesser and
lesser. As we have seen in exponential smoothing method when we are making a forecast
Ft represents the forecast.

Ft   Dt   (1   ) Dt 1   (1   ) 2 Dt  2  
Ft   Dt  (1   ) Dt 1   (1  a ) Dt  2  
Ft = αDt-1 + (1-α) Ft-1
So, if that we are forecasting for t that is, t may be the forecast for the month of
December as we have seen in the previous session when we are forecasting for the month
of December. We should have here the value t minus 1 or we can write here F t plus 1.
So, t plus 1 becomes equal to December and your t become then November. We we can
make use of the previous month’s data for making a forecast and this is basically then the
forecast for the month of November.

So, this is a forecast for the month of November. This is the demand for the month of
November and this forecast we are doing t plus 1 for the month of December and this we
can see that the previous forecast and the previous demand if is known to us, we can

249
make the forecast for the next month. So, just to simplify we should not bogged down by
these equations. To simplify the things, we can just take an examples. That suppose we
want to make a forecast for the month of December, what is required? We require the
demand for the month of November and the forecast for the month of November.

So, if we know the forecast for November and demand for November, very easily we can
make a forecast for the month of December. Now for calculating the forecast or for the
month of November we require the demand for the month of October and the forecast for
the month of October. So, this equation then simplifies into Ft. Please focus on this
equation only this is the correct equation. If t is December, we can say we require the
demand for t minus 1. That is November and we require a forecast for t minus 1. That is
November.

So, as I have given the example if we want to forecast for the year 2018. We require the
demand for 2017 and the forecast for 2017. If we are doing based on monthly data
points, if we want to forecast for January, we require the demand for December and the
forecast for December. That much if you can remember, you can very easily use the
forecasting technique. That is exponential smoothing. Alpha value definitely has to be
assumed or there is method through which we can have you can say good estimate of the
value of alpha. We will try to understand this with the help of an example in our
subsequent slides. Thus the new forecast is weighted, sum of old forecast and the actual
demand.

250
(Refer Slide Time: 20:35)

So, actual demand basically we will only know when that period has passed.

So, if we are forecasting for December, we will require the forecast for November as
well as the actual demand for November. Only 2 values Dt we should say Dt-1 here and
Ft-1 are required compared with n for moving average. Here we require only 2 values as I
have already highlighted. Whereas in previous methods we require n values. n means
maybe last 3 years, last 5 years or last 10 years. n can be 3, 5, 10. We require lot of data,
but in exponential smoothing 2 values.

The previous year’s data demand data as well as a previous years forecast data, if we are
using a yearly calculation. If we are using a monthly calculation, we require previous
months’ demand and the previous month forecast and both these 2 data points can help
us to make a forecast using the exponential smoothing method. So, parameter alpha is
determined empirically. So, I have told you that empirically alpha can be determined.
Rule of thumb says that alpha value can be equal to or less than 0.5 and many times
alpha 0.2 or 0.3 is assumed for doing the exponential smoothing calculations.

So, forecast for k periods into future Ft+k is actually the forecast Ft. Now, let us try to a
take this example and I think it will clarify all the doubts that may have may be occurred
or that may have come to your mind over the period of today’s discussion.

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(Refer Slide Time: 22:32)

One of the 2 wheeler manufacturing company experience irregular, but usually

increasing demand for 3 products. The demand was found to be 420 bikes for June and
440 bikes for July.

So, you have the demand data available for the month of June and July, 420 and 440
respectively. They use a forecasting method which takes average of the past year to
forecast future demand. They are using simple average method. Also using the simple
average method demand forecast for the June is found to be 320 bikes. Now, you have 3
data points that are available with you. The demand forecast for June is 320 bikes. The
actual demand for June is 420 bikes and the actual demand for July is 440 bikes. Use a
smoothing coefficient of 0.7 to weigh the recent demand most heavily and find the
demand forecast for August.

Now, how we can do the calculation here? Very easily we can say that as per our
equation for the month of August if we want to forecast, what are the 2 important values
required as per equation? We require the forecast for July and we require the actual
demand for July. Now actual demand for July as you know is given 440 bikes; we
require the forecast for July and for forecast of July.

What are the 2 things required for forecast of July? We required the actual demand for
June and the forecast for June. Forecast for the month of June has been calculated using
the simple average method and the value given is 320. The actual demand for June is 420

252
bikes which is given in the problem. Therefore, for calculating the forecast for the month
of August, we need to first calculate the forecast for the month of July. Which is not
given here, but the data points required to calculate the forecast for July is given. We
have the demand for June and the forecast for June.

So, very easily we can first calculate the forecast for July and then using that forecast and
the actual demand that is already known for the month of July as 440 bikes. We can
easily calculate the forecast for August. So, you can see using the exponential smoothing
method and the exponential smoothing coefficient as 0.7. We can calculate Ft for the
August month.

(Refer Slide Time: 25:37)

The equation is exponential smoothing coefficient alpha into the demand of previous
month plus 1 minus alpha into the forecast of the previous month. So, Dt-1 is the actual
demand for the recent period. Ft-1 is a demand forecast for the recent period and Ft is the
forecast of the next period demand.

Ft = αDt-1 + (1-α) Ft-1

where α = Smoothing Coefficient
Dt-1 = Actual demand for recent period
Ft-1 = Demand forecast for Recent period
Ft = Forecast of next period demand

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For July, first we have to do the calculation smoothing coefficient is 0.7. 420 is the actual
demand for the month of June and 1 minus alpha into 320 which is the forecast for the
month of June based on the simple average method. This comes out as 390 as the
forecast for the month of July.

for July:
= 0.7(420) + (1-0.7)320
= 294 + 96
= 390 units

Similarly, once we have the forecast for July. Actual demand for July is already known
as 440. So, we can calculate using the same equation, we can calculate the forecast for
the month of august 0.7. That is a smoothing coefficient into the demand for the month
of July. That is 420 already known to us and forecast for the month of July we have
already calculated as 390. 425 is the forecast for the month of August. So, using a simple
equation Ft is equal to alpha into the demand of t minus 1 plus 1 minus alpha into the
forecast of the period t minus 1. We can calculate the forecast for the period t.

for August:
= 0.7(440) + (1-0.7)390
= 308 + 117
= 425 units

Now, many times we required to calculate the forecast error also or the accuracy of our
forecast. So, for that we usually make use of a term called MAD which is Mean Absolute
Deviation.

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(Refer Slide Time: 27:34)

Now, what is Mean Absolute Deviation? This is sum of the absolute value of forecast
error for all the periods divided by the number of periods. So, it is the summation of the
forecast errors for all the periods divided by the total number of periods. We can see the
forecast error can be calculated using the forecasted demand. As we have learnt in the
last 2-3 sessions, how we can make a forecast.

MAD =

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We have seen simple average, moving average, weighted moving average, exponential
smoothing method. Using any of the method we can forecast the demand. Then there
will be actual demand has experienced in the market. The difference between the
forecast and the actual demand will give us the forecast error.

Suppose we have the forecast error available with us for the last 5 years. So, we will add
up the forecast error for the last 5 years and then we will divide it by 5 and we will get a
mean absolute deviation value. Now, where this value can be useful? Or how we can
make use of this value? We can use this value for comparing 2 or 3 different methods of
forecasting.

Suppose for any given data, we make use of simple average method, weighted moving
average method and the exponential smoothing method. So, we will get 3 forecast for
every year and then we can calculate the forecast error using each method and then sum
up of all the errors and find out the mean absolute deviation. So, the method which gives
us more accurate forecast or maybe the less value of the mean absolute deviation, we can
select that method for making a forecast for that particular segment. So, with this we
come to the end of our discussion on forecasting. In forecasting we have covered 5
different sessions. Week 3 was focused on forecasting only and we have seen that how
we can make use of simple techniques for developing a forecast.

We have seen in the first session what is the need requirement and importance of
forecasting, how the forecasted demand can be used for making decisions forecast by the
managers of an organisation. Then we have seen the forecasting system, that how an
accurate forecast can be made or what are the various elements of the forecasting system.
Then we have seen the qualitative methods of forecasting. That is estimated surveys or
the Delphi method.

Finally, we have seen the quantitative methods of forecasting. In which we have covered
the simple average, the moving average, the weighted moving average and the
exponential smoothing method. Also, there is a time series forecasting model, in which
we take care of the 4 important elements. That is the trend component, the seasonal
component, the cyclic component and the random component. So, this time series model
is also very relevant and used widely for making the forecast. The only complication in

256
using this model is the calculation of the seasonal index and the cyclic index and random
you can say index.

We can calculate easily the trend component using the regression method, but there are
mathematical tools for calculating the seasonal and the cyclic components. Also
basically the forecast in time series model is made up of the 4 components, the trend
component, the seasonal component, the cyclic component and the random component.
The main issue is related to the calculation of the seasonal indices and the cyclic we can
say index.

Basically, we can use the time series models also for forecasting the demand, but as the
time is limited we have to cover the topic of forecasting in 2 and half hours only.
Because, our overall objective is to learn the basic aspects of operations management and
sales forecasting is one aspect of operations management.

We have tried to give due weightage to this topic in our discussion. And for further you
can say doubts and clarifications. You can always write on the discussion board and we
would be more than happy to give you the replies to the best of our abilities.

Thank you very much.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 16
Facility Planning

Namaskar Friends, welcome to session 16 of our course on Operations Management.

And we have already covered 3 weeks of discussion on this topic. And if you remember
in week 1, we have covered the fundamental aspects of operations management and we
have seen that what are the functions and scope of operations management, why do we
do the operations management in an organisation and why do we need to study this
course at all.

And then we have seen in week 2 the product design and development. We must know
that what the company must produce in order to be competitive in the market, when they
should make their product obsolete themselves, when they must take a decision
regarding coming up with a new product, when they must take a decision related to
pushing their product out of the market and coming up with the new and revised or
modified product.

So, we have seen product life cycle, we have seen the concept of value engineering
design for manufacturing, design for assembly, rapid prototyping, ergonomics all these
are the catch words in today’s product design and development. Although product design
and development cannot be covered in 2 and a half hours of discussion it requires a
complete course maybe of 30 hours when you have to address, when we want to study
the fundamental or the basic aspects of product development product design and
development rather I must say, but we have seen what are the latest tools and techniques
used in product design and development. In the third week we have seen that if we know
what we have to produce then our next decision is that how much in what quantity we
must produce. So, that the product is sold in the market. We do not over produce or we
are not found short of production.

So, both ways there is a challenge if we over produce we book our resources our
resources are not properly utilised, but we have made the product, but it is not selling in
the market on the contrary there is demand in the market people are asking for the

258
product, but we are not able to produce the product. So, the forecast is very very
important from operations management point of view.

So, we know what we have to produce and then we have to see that how much we have
to produce. So, the demand forecasting or sales forecasting we have covered in our week
3, we have covered that what do you mean by sales forecasting, what are the qualitative
methods at least 2 we have seen, what are the quantitative methods of forecasting we
have seen with the help of certain examples.

So, till now we know that we have understood that how to design a product maybe the
fundamental of product design, then we have seen how to calculate that, how much we
must produce. Now let us see suppose we have this this information or this data available
with us that this is the product this is the quantity in which we are going to sell this
product.

The third stage is now we have to produce this product, we have to decide that, where we
are going to produce this product, where we are going to manufacture this product where
our facility or the manufacturing facility factory enterprise will be located and for that
we have to do the facilities planning, we have to decide the plant location as well as it is
layout.

So, we have to first decide that if ours is a multinational company we have to take a
decision that whether we are going to place our manufacturing facility in India or we are
going to place it in some other country. We have to see that within India whether our
company is going to be located in the northern part of the country or the southern part of
the country or eastern part or the western part.

So, we have to take a very conscious decision that where the factory or the organisation
or the enterprise has to be located and that requires little bit of judicious decision, it
requires a very we can say intelligent decision, because it affects the overall productivity
the overall success of any organisation. If you locate your facility in a place where you
have certain adverse factors we will see in today’s presentation that what are the problem
areas or rather to sound little positive we will try to see what are the critical success
factors, if we consider these factor we will be able to be productive effective efficient in
our operations and our plant will be located at the best possible position, within the
country as well as within the state.

259
So, we will see that what are the factors that are that govern our decision related to plant
location. So, we will see what are the important parameters affecting facilities planning
and then may be in the subsequent session may be in the next session; we will cover
them in detail we will try to understand the nitty gritties of these factor, where by taking
certain examples.

So, let us start our discussion related to facilities planning and let us have a systematic
discussion on this topic. Before starting the definition may be one thing that I must make
clear is, that once we have to make a decision related to where we have to place or where
we have to establish our factory. Some of the decisions are very common or common
sense based decisions. If suppose I ask any engineer where our factory must be prompt
will come the reply near to the raw materials, near to the market, where we get some tax
benefits, where we get some relaxation in excise.

So, maybe we will see that some of the things are very common, very common sense
based, but we are not able to structure our thought that we are not able to pen down on a
piece of paper that which location is better from all other aspects also government
policies are there then legal procedures are there. So, there are a number of other factors
also which help us to take a decision that where our factory must be located if we want to
make use of the advantages that are offered maybe by state policies or maybe in terms of
labour or in terms of natural resources or in terms of the civil infrastructure.

So, there are number of parameters that add to our common sense which usually we use
while making a decision related to the plant location. So, some of you may be wondering
that it is easy to a take a decision I totally agree with all of you, that this is a common
sense base decision, but still if we have a structured opinion on this decision I think it
will add to it will not reduce or take away anything from our common sense, but you will
further reinforce that decision that we are going to take. So, let us try to understand in a
very systematic manner that what are the important maybe aspects related to the facilities
planning.

Now, you can see facilities planning encompasses two things; as I have given a very
maybe a long I must say introduction today. We already know that what we want to
produce we know in what quantity we have to produce. Now we have to take 2 more
decisions that in which part of the globe, which part of the world our location or our

260
plant must be located. And once we decide that which we have this much of square
hectare or maybe whatever units all of you may like to have we have this piece of land
available with us in this state and in this country within that land; however, location or;
however, facilities our infrastructure must be located strategically in order to ensure
productive efficient and effective production.

So, 2 important decisions are there one is where this piece of land must be that is country
state within state may be district and within district there will be a specific location. So,
may be from we can say global point of view first you have identify the country, then
you have identify the state, then you have identify the land where we are going to start
our production that is plant location second is plant layout that within that piece of land
again I am reiterating. So, that it becomes clear to all of you.

So, within that piece of land how our various facilities will be placed how our various
facility will be located for example, if we take an example of any IIT there can be
academic area at one place, where all the classes are engaged there can be a hostel area,
where all the hostels are there in the students stay there during their off hours and then
there can be a residential complex where the staff members stay there can be a sports
arena where the students and staff go and play. So, there are specific addresses, specific
locations within this piece of land where the various facilities are placed.

So, that basically is layout and if you enter an or organization or an educational institute
you will see that layout is shown, it can be a 3 dimensional modelled layout or it can be
or scale down model usually we call it a technical terms or it can be a 2 dimensions
depiction of the various facilities that we call as a layout of the organization.

261
(Refer Slide Time: 10:58)

So, we will study both of these our first focus is the plant location that how or what are
the critical factors which will help us to identify a piece of land, where we want to start
our production. Once we identify that land our next stage will be how to place our
facilities within that land. So, that optimal utilization of the floor area is ensured or
optimal utilization of the land is ensured.

So, let us now first try to understand plant location plant location as I was already
explained I am just reading it for you just to reinforce this concept in your thought
process, plant location refers to the location of an organisation or we can say it is the
address of an organisation.

262
(Refer Slide Time: 11:41)

It refers to the selection of specific site as I have been using the word specific location, it
refers to selection of a specific site for an establishment of the physical unit of
production processes. So, we usually call it in general terms as a factory that this is the
address of the factory we have to decide that where our factory is going to be located or
where our production process or production facility is going to be located. It is just
strategic decision of an organisation. So, I think all of you will agree with me that this is
a very important decision, because it influences the overall productivity of an
organisation.

Suppose we locate our facility at a place where we do not get skilled labour who can
work for us, we may not be able to produce effectively and efficiently. We locate our
facility or factory at a location where we are not able to get the raw material easily and
constantly, consistently, then also our productivity or our production will be affected.

So, we can take number of examples where the things have gone wrong, because of the
wrong selection of the plant facility. So, it is important that we give due weight age to
this decision that where the plant should be located and therefore, it is at the strategic
decision level that is usually we know that the highest level of decision making is the
strategic decision making followed by the corporate decision making, then followed by
the operational decision making. So, location of the plant is a most important decision
and therefore, it is taken at the highest level of the organization.

263
Now, need of plant location whatever examples I have taken from the point of view that
we are going to establish a new factory.

(Refer Slide Time: 13:52)

Then in case of an existing factory also sometimes we need to relocate to a new position
because of the government policies or maybe, because of certain benefits that we derive
out of changing our location from one place to another place. So, need of plant location
can be if we want to start from scratch a new factory has to be located or the relocation
of an already existing factory.

(Refer Slide Time: 14:23)

264
Now, why there is a need of plant location means for an existing facility now suppose we
already have an existing facilities, because in a last slide I think it was slightly may be
difficult to understand that already if we have established a factory. We must have taken
care of all these factors before establishing the factory and then why do we need to
change from an existing factory to a new factory.

So, these are the points those that explain that that for existing facility we can change
from one place to another because of the change in availability of resources. We may
have chosen the earlier location because of the proximity to the resources or specific
resources.

Now those resources may have dried up or the resources may have been completely
utilised. So, you need to take a decision regarding shifting of your plant location or the
shift of demand, we may have located a particular industry in a specific area because it
was close to the market, it was close to the demand, where the demand is generated, but
now the demand has diminished or it has stopped. So, you need to change or there is a
shift in demand there is more demand of our product in some other area.

So, we think that why not to shift our manufacturing based to that particular area only,
then to expand new target market. So, that is also very important that if we want to
develop a new product market we may have this facility here, but we may start or may
think of creating a new facility at a different place or extension of this facility at a
different place, where we want to develop our target market development of a new
technology may also lead to shift in the existing facility and the socio political and legal
change is which are beyond our control sometimes may force the organisation or the
administration of the organisation, to shift its base from one location to the other
location.

So, these are the may be factors or maybe say we can say the forcing factors, which may
influence an organisation to take a strategic decision of shifting the location from one
place to another place. Now these are the location decisions you can see the country
decision.

265
(Refer Slide Time: 16:54)

We have to first decide suppose I have already taken an example that ours is a suppose
multinational company. So, the multinational company can decide any country where
they can start their operations. So, first decision is the country decision that where in
which part of the globe the factory or the plant should be located. There are some critical
success factors which we must consider before we taking this strategic decision, first is
political risks government rules, attitudes and incentives as our focus as the focus of the
current government is make in India.

So, the point can be that we are inviting the global leaders in manufacturing to set up
their plant locations in India, how we are attracting them by maybe giving them certain
incentives certain amendment in the government policies and rules, which will help these
big foreign players, big market leaders to come and set up their locations or set up their
factories in India.

So, political risks government rules attitudes and incentives are important in this decision
of locating a plant in a specific country cultural and economic issues location of markets.
Now suppose maybe there is a beverage company and we have the biggest market in
India. So, they may take this decision or conscious decision that we must be close to our
market. So, if India is the biggest market for this multinational company they would
definitely like to set up its manufacturing facilities in India only.

266
So, because of the large segment of the market. So, location of markets labour
availability, attitudes of the labour and then the productivity of the labour the cost
involved, because wages and cost is an important criteria because each country may set
ups certain minimum wages, for it is workers. So, skilled workers may have different
minimum wages unskilled labour may have different minimum wages. So, with those
wages what would be the cost of the product that sometimes maybe is an important
parameter for the administrators or the organizers of the organisation to take a decision
that, where our location must be located, when they are taking a decision globally and
they want to decide or pin point their focus on a specific country.

So, labour availability attitude productivity cost these are parameters related to labour
then availability of supplies communications, energy that is also very important. Maybe
some of the countries maybe totally dependent on nuclear energy some of the countries
maybe totally dependent on coal somewhere it may be a petroleum based power
generation. So, may be different sources is a power generation are there. So, every
organisation or factory would require energy.

So, they will take a decision that wherever we are getting energy what is the cost of
energy that is also an important decision exchange rates and currency risks. So, maybe
there can be a country where the economy is not that stable the there is there are chances
that the currency fluctuates or the global level of the currency fluctuates too often. So,
they will take a decision that there is an issue we must not venture into this particular
country.

So, whenever decision has to be taken related to the country where the company wants to
set up their plant they will take into account all these parameters. To just to revise this
political risks government rules and regulation, cultural and cultural and economic
issues, location of markets, labour availability, attitudes, productivity of the labour costs
of labour, then availability of supplies, communication, energy, exchange rates and
currency risks. These are some of the parameters which will influence the decision of
any organisation to select a plant location in a specific country.

Similarly, if it is decided that we are going to focus on country x next will be that within
country x where in which particular state in which particular region our plant should be
located. So, next will be the region and the community decision.

267
(Refer Slide Time: 21:46)

First is the country decision we have seen certain parameters the next is the region or the
community decision here may be what are the important parameters the corporate desires
may be sometimes after the strategic decision is taken that it will be country x. Now
within x it maybe sometimes a corporate may feel that all over maybe competitors are
located in a specific region, why not to go to that region only because it will help us
leverage on the expertise or maybe the vendors that have been developed by these
existing corporate houses there.

So, maybe one is the corporate desire second is attractiveness of the region may be as I
have already told there can be different factors of defining the attractiveness, but one of
the reasons can be that already that is an established region for a specific industry. For
example, for IT and computer based industry there can be a particular region in a
particular country, which is well known for automakers or automobile industry there can
be a specific reason in a specific country which is well known. So, maybe a company
may take a decision that this region is known for maybe auto making. So, why not to
establish our plant or manufacturing facility, where it is well established, because maybe
we are taking the advantage of the work related to plant location which has been done by
our competitors or by of the people who are already in that market. They may have also
taken into account all these factors and therefore, only they must have established their
plant at that location it may be near to the ancillary units which are feeding them the sub-
assemblies which are being find the assembled into the into an automobile.

268
So, that is another decision that is attractiveness I have only highlighted one aspect there
can be another aspects of attractiveness it maybe climatically suitable in order to justify
its attractiveness it may be house to a skilled people those who have migrated to that
place although intelligent people corporate people are staying in that region. So, that can
also be a reason of finding attractiveness in that location there can be different
parameters of attractiveness. So, corporate desires attractiveness of the reason labour
availability the cost of labour attitude towards unions.

So, that is also very important related to the employee unions that what is the attitude of
the employee unions in the specific region, then cost and availability of the utilities,
utilities can include maybe electricity charges, environmental regulations are also
important may be different states may have different regulations related to the
environment or the usage of environmental resources, government incentives and fiscal
policies, proximity to raw materials and customers, which I have already highlighted
then land and construction cost. Maybe suppose you want to set up a plant may be in the
hilly terrain you will have to add the cost of construction there it is not that easy to
procure the land and do the construction activity in Hilly regions. So, therefore, the land
and construction cost will also add to the overall investment that the company is
planning to do in setting up a plant location.

So, by now we have seen that what are the critical success factors or critical factor that
must be considered, when we are selecting a specific country for setting up a for setting
up of our plant. Within the country then we have to decide the state and for selecting a
particular state again there are factors maybe some of them are similar in nature.

So, those factors again we will consider and we will decide on a particular state that
within country x my state will be x1. So, I have now finalized the state based on these
factors where the factory will be located then there are site decision.

269
(Refer Slide Time: 26:06)

Next is within that district or within that state where our site will be located. Now here
the critical success factors are site size and cost, air railway or maybe waterways systems
that are available for transportation zoning restrictions are there; nearness of services and
supplies needed environmental impact issues.

So, for the site when we have identified a particular site we will see that whether air
transport is available rail line nearness to rail line if waterways can be used for
transportation, then what is a land use policy of that region then we have to decide on the
environmental impact issues also maybe cutting of trees may not be allowed in a specific
region. So, we cannot select the site close by to that region because we made later on
think of expansion of the facility and if that is the policy that cutting of trees is not
allowed you cannot expand in x and y domain.

So, that can be one decision that we cannot select this site because tomorrow if we have
to expand we have hilly region around we have jungles around where we cannot cut the
trees. So, we will not select that site because of the policy that cutting of trees is not
allowed just I am trying to give an example. So, we are trying to see that once we have
identified the country we have to identify a state within the state we have to identify the
site where our location would be there or wherever plant location would be finalized.

Then coming onto the second part as I was already told that once we know that where
our location will be, the next is we have identified the site within this site where we are

270
going to put our maybe manufacturing plant where our employees will stay where will
be the recreation facilities for the employees all these decisions will be coming under the
broad umbrella of plant layout.

So, first thing is plant location country state region then the within that site we have to
identify the layout as given on your screen you can see there is administrative office
building, there is a pelletizer shredder process building this large building is the process
building.

(Refer Slide Time: 28:25)

Then there is a power plant is also inside the site where the power is being produced,
then there is a maintenance warehouse there is a agricultural dispatch. So, we have
different area year marked for different facilities within the site.

So, plant location has helped me to identify a site where I am going to place my
manufacturing facility. Once the site is finalized within the site where which facility will
be created will come under the plant layout. So, there are 2 definitions according to
Riggs.

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(Refer Slide Time: 29:13)

The definition given is very simple and very informative the overall objective of plant
layout is to design a physical arrangement that most economically meets the required
output in terms of quantity and quality.

So, basically we need to understand that our facility within the site must be. So, located
that we are able to achieve our main operations management objectives that is we must
be able to produce the desired quantity of material in desired quality and offer our
customers the best product that is available in the market.

According to Zundi Plant Layout ideally involves allocation of space and arrangement of
equipment in such a manner that overall operating cost are minimised. So, we have to
decide the location of the various facilities within the site. So, that our overall operating
costs are minimised. So, 2 definitions give different maybe objective first is right
quantity right quality we must be able to produce by locating our facilities judiciously
the second says; we must physically arrange our facilities in such a way that the overall
operating costs are minimised.

So, plant layout basically we will have one complete discussion maybe a week’s
discussion 5 sessions of half an hour each on plant layout.

272
(Refer Slide Time: 30:49)

In which we will discuss the objectives of plant layout factors influencing plant layout
what is an ideal layout, we will try to study the importance of plant layout as well as the
types of plant layout.

(Refer Slide Time: 31:02)

So, this is basically we are going to study and finally, we will see the material flow
pattern within the plant layout and tools and techniques that are adopted for designing a
good plant layout.

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So, 2 things are important from facilities location point of view the plant location and the
plant layout. So, plant location we will further discuss in this week today is the first
session that is session number 16 in week number 4 in our course on operations
management.

So, we have only highlighted the importance of plant location and plant layout. So, in
this week we will have 4 more sessions dedicated to plant location only and in the next
week our focus will be on plant layout.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 17
Factors Affecting Plant Location

Namaskar Friends, welcome to session 17 in our course on Operations Management as

you are where we have started the discussion in week 4 of our course. In the last 3 weeks
we have seen the fundamental aspects of operations management, we have seen product
design and development and we have seen sales and demand forecasting.

So, once we know what the company wants to make and we understand that in what
quantity or in how much quantity we are going to produce, we have to take a very
cautious call on where the facility or where this production has to be carried out and in
that aspect we have to understand the nitty gritties of plant location and the plant layout.

So, discussion in week 4 and 5 will focus on plant location and plant layout and if you
remember in the last session we have covered the basic of facilities location or basics of
facilities location in session 16. In 16 we have covered the decisions of the strategic
decisions related to the location of a factory, we have seen starting from a country, we
have to decide a region or a state and within the state we have to decide a site.

So, once the site is selected we have to see that how physically the facilities will be
located in that site in order to meet the overall objective of operations management, that
is to produce the right quantity of material at right time in right quality at reasonable
cost. So, 4 important catch words that I have been explaining once and may be number
of times that are we have to ensure the quality, quantity time and the cost.

So, here also our major objective of this decision making or strategic decision making
related to plant location and plant layout is to ensure that we meet the overall objectives
of the operations management.

So, in the last session that is session number 16 we have covered that what are the
critical success factors related to the selection of a country, what are the success factors
related to the selection of a state or region and what are the critical success factors

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related to the selection of a site and then we had a very brief overview of plant layout
and we have seen the definitions of plant layout.

Today our focus will be to slightly understand with the help of an example or a number
of examples that how or what are the factors that are responsible for plant location we
have already seen that once we have to decide a country, what factors we have to take
into account once we have to select a region what factors we have to take into account
sorry once we have to select a site what are the factors.

So, in general maybe there are space there are few factors which are common to each of
these decisions related to country region and site there are few factors, which are specific
to a when we have to select a country there are specific factors, which are related to the
decision regarding the selection of a region and there are specific factors which are
related to the decision regarding the selection of a site.

So, there are few factors which are common which we club them as the controllable and
uncontrollable factors. So, there are number of factors which we have already covered,
but we can further classify them as controllable factors and uncontrollable factors that we
are going to study today and then with the help of certain examples, we will try to
understand that how these factors help us to take a judicious decision regarding the plant
location. So, let us quickly maybe understand the controllable and the uncontrollable
factors.

(Refer Slide Time: 04:34)

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Now, what are the factors affecting plant location general locational factors include
controllable and uncontrollable factors for all types of organisations. So, basically there
are 2 types of factors controllable and uncontrollable. Otherwise we have seen if you
remember in the previous session that is session number 16 which was the first session of
week 4 we have covered specific factors when we have to decide a country.

Maybe for any multinational company decides India has it is plant location or India as a
country where they want to establish their factories or plants or manufacturing facilities
they will focus on certain factors. Within India suppose now they have to decide which
state can it be Himachal Pradesh or it can be Karnataka or it can be Bihar. So, they have
to focus on the state.

Then within the state maybe in Karnataka suppose they zero down that we are going to
set up a plant in Karnataka, ours is a consultancy company, ours is a software based
company, why not to decide on Karnataka where already certain companies are
functioning. So, they may focus on Bangalore within Bangalore they will focus on a
specific site that this is the area where we are going to start our company.

So, starting from country to sate to a city and then to a site all this comes under plant
location and for making this decision there is a complete list of parameters that are taken
care by the company. So, all these parameters or this list of parameters we can divide
into two, one can be controllable parameters others can be uncontrollable parameters. So,
maybe one example that I can share is the climatic conditions.

Now, maybe Patna may have specific climatic conditions a thermal or may be a
temperature cycle around that is beyond the control of the or maybe beyond the control
of the company people or the people who are managing the company. This is one
decision which is out of control weather of a particular location is beyond the control of
people working for the organisation so that you can be one of the uncontrollable factors.

Controllable factors can be that they can take a conscious call that maybe we will be able
to get more skilled people in this particular region of maybe a particular state. So, that
can be a conscious call controllable factor where they can take a decision that yes this is
the region based on the skill set of the people involved or required for the production
facility. So, we can say both controllable and uncontrollable factors can have different
examples.

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Even all the learners can think of may be case studies or can think of examples which fit
into these factors that we are going to cover today. So, maybe the list of factors may not
be that interesting for all of you, but if you focus on the examples of each and every
factor you will be able to understand the thought process that can be used for making this
decision.

So, basically memorizing the factors may not be that important, but the examples based
on these factors will definitely enrich your knowledge based and will definitely make
your thought process more aligned in this strategic decision related to the plant location.

So, the factors we are going to cover maybe in today’s session are the controllable and
the uncontrollable factors.

(Refer Slide Time: 08:44)

So, general location factors which are controllable are proximity to the markets. Now
there can be a market of a particular product in a particular part of the country. Now one
example is coming to my mind suppose there is a particular region in a country where
the temperature is always above 35 degree centigrade.

Suppose ours is an Ice Cream making organisation we are making ice creams it is always
advisable that the temperature is always above 35 degree centigrade. So, all round the
year there will be a demand of the ice cream so why not to set up our facility at that
location only. So, that since the demand is continuous we can produce continuously and

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we can make more profit instead of locating our facility in a region where you have
maybe half the year the temperature is just maybe around 0 to 5 degree centigrade.

And in the remaining 6 months the temperature may go highest maybe 12 to 15 degree
centigrade only. So, maybe the demand for the ice cream may not be that sharp in that
region. So, maybe that is one thing that is proximity to the market that we need to
understand that this is the market, why not to fix or why not to fix this location for
setting up our manufacturing plant. So, that is one example that is readily come into my
mind.

Then the supply of raw materials we can further try to take one example suppose we
want to set up a thermal power plant in which coke or coal is the important raw material.
So, you will see that most of thermal power plants will be located near the coal fields
only. So, that the transportation cost is saved. So, supply of raw materials will also
maybe influence our decision related to the location of the plant of the manufacturing
facility transportation facilities.

Now, suppose the raw material has to be transported by railway as the source of medium
or as the medium of transportation. We will try to locate our facility in such a way that it
is near to the railway line or near to the existing railway line. So, transportation facilities
are also important infrastructural facilities are important, now suppose maybe this can be
related to the civil infrastructure or the communities where people can live and work for
our organisation.

Availability of labour and wages the wages prevalent in a specific location may be
different from the average wages of another location. So, what is the availability and
how much do we need to pay to labour in order to make them work for our organization.
So, these are controllable factors why they are controllable, because all this data is
available with us, we know the availability of labour, we know how much is the
prevalent wages in the particular region, we know the infrastructural development of that
particular region, we know the transportation facility or transportation mediums or
sources available.

So, most of the things are known. So, we can control or these are controllable factors
which will help us in the decision making related to our manufacturing facility.

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(Refer Slide Time: 12:56)

Then there are uncontrollable factors on your screen you can see the government policy
as organizers or as company people or as corporate decision makers, it may be beyond
our control the government may have different thought process related to a specific
policy.

So, government policies are beyond our control climatic conditions as I have already
explained in the beginning of today’s session are beyond our control. So, that is one
thing that we have to live with which is maybe a particular temperature or temperature
profile all-round the year, that is what the is maybe the climate of that particular region
that we cannot control and if you see that most of the companies have come up in regions
which are climatically soothing for or may be climatically comfortable for the workers.

Then supporting industries and services maybe another parameter which is

uncontrollable, because we may wish that we will set up our plant here all the ancillary
units will be developed around our plant, but that is beyond our control that is supporting
industries and industries, industries and services is an important factor which is beyond
our control, community and labour attitudes we cannot control the labour attitudes of
specific region attitude may be different we have seen that cultural differences are there.
So, those are beyond our control.

Community infrastructure is also beyond our control. So, we can that there are a large list
or there is a large list of factors that we have seen in the previous session and most of

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these factors now we are trying to classify them as controllable factors and
uncontrollable factors.

So, as a decision maker what must be my focus my focus must be on those factors which
I can control and I should leave those factors which are beyond my control, because as a
corporate person I may not be able to influence the government policy. So, government
policy we have to live with whatever the government has decided. So, government is of
the people they will definitely take care of the business interests of the organisation.

So, that is beyond our control climatic conditions we cannot help it that is also beyond
our controls our focus must be on the controllable factors, whatever information is
available with us, whatever data is available with us we must focus on the data and
information and make a judicious choice about the location where we are going to
establish our factory.

Now, let us see the controllable factors as one by one and as have been listed in the
previous to previous slide.

(Refer Slide Time: 16:11)

First one is the location of facilities close to the market. So, one thing is very sure I have
taken an example also that we must decide on the plant location, which is near to the
market. How it will help us it will provide goods and services at time and at reasonable
price, because we are close to the market will be able to deliver the requirement posed by

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the customer quickly, reduce the transportation cost which is a common sense thing only
that if we are close by to the market we need not have may be lot of transportation cost it
can be easily controlled.

Now, location of facilities close to the market again maybe based on the product we can
have another advantage the delicate and susceptible to spoilage. If our product is very
delicate there are chances that it may break during transportation in that case also we
must decide on the location which is near to the market where the product is going to be
sold.

Similarly, if it is susceptible to spoilage over suppose we make a product and it has a

shelf life of 3 days only and the most of the customers are maybe in a particular state.
We must try to decide the location of our manufacturing facility within that state only,
because if the shelf life is 3 days and we make it at a 2000 kilometres to the 2,500
kilometres away and it has to be transported by railways, it may take may be 48 hours to
travel this 2,500 kilometres distance.

Therefore, it may get spoiled as a shelf life is very low. So, why not to locate the facility
where the demand actually is. So, if the product is delicate if it is susceptible to damage
services are promptly required very often shelf life of the product is low. So, from
product point of view also we have to look that where the location must be. So,
proximity to the market is most of the time an advantage when we decide to locate our
facility.

So, if we are able to locate our plant near to the market in 99 percent cases we are going
to be at an advantage only. Supply of raw material I have already given one example that
our location must be near the raw material or near the source of raw material.

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(Refer Slide Time: 19:02)

So, as a raw material what do we require we require it in right quality and at right time in
order to have an uninterrupted production.

So, maybe thermal power production or thermal power plant I have told it requires
regular supply of the raw material, which can be taken as one example of the supply of
raw material or the factor supply of raw material and how it influences our decision
related to the location of the manufacturing facility. Availability of raw materials nearer
to the plant location decreases the transportation cost.

So, once our location is closed to the market as well as it is close to the raw material. So,
our transportation costs on both sides of the supply chain are saved. So, we are getting
the raw material from a nearby location only we are selling our finish product in the
nearby location only. So, the complete supply chain raw material transported to
manufacturing facility converted into a tangible product moved to the market and sold to
the customer. So, this complete supply chain if it is the total distance is shortened it will
save lot of transportation cost from the raw material source to the manufacturing facility
from the manufacturing facility to the customer. So, that is very important from the point
of view of selection of a location for setting up of our plant facility.

Examples of such industries where the distance between the raw material and the
manufacturing plant must be as low or as little as possible is the sugar industry, cement
industry, jute and cotton industry. So, maybe the examples maybe such that if you have

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to travel or if these raw materials have to travel a long distance there are chances that
they may get spoiled. So, an example of some industry which raw material availability
must be near to the plant as is given in the last slide is sugar.

In sugar industry what is the raw material the raw material can be sugarcane. Now you
cannot make the sugarcane may to move from the field to the sugar industry may be over
a period of 24 hours or maybe 36 hours it would be advisable that the sugar cane even
after it is cut it must be used as a raw material in the sugar industry as soon as possible.
So, that is one example of an industry where the distance between the factory and the
source of raw material must be as minimum as possible as has been highlighted for jute
and cotton industry also.

(Refer Slide Time: 22:08)

Transport facility maybe another important point waterways railways airways roadways
the different mediums of transportation. So, when we are deciding that where our plant
will be located we have to focus on all these 4 aspects.

This is not only related to may be let us take the discussion on a slightly other side this is
not only related to the decisions related to manufacturing facilities, where the raw
material is getting converted into the final product. Let us take an example of an
educational institute and the location of this institute has to be decided pan country, pan
country means across the country we have to decide where this particular institute must

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be located the institute is very important institute establish by the government how we
will decide?

The country already is known to us. So, we will decide first the state within the state then
the district within the district then the location and when the location is being finalized it
is always important to focus on the transport facility. Because it is an educational
institute the students will have to travel to that institute from all across the country the
faculty has to travel to that institute from all across, the country the recruiters the
companies have to travel to that educational institute for making the recruitments.

Even may be a conference is organised the international experts have to travel to that
institute in order to attend the conference. So, therefore, the transportation facility is also
very important when we have to decide that where the location has to be and, similarly
when you are making a product out of a raw material we need to transport the raw
material from the source to the factory and from the factory we need to transport our
finished goods to the market.

So, the availability of transportation facilities is very important. So, transportation

facilities are very important for bringing raw materials to the factory transport facilities
are also important to transport the finished goods to the market. So, a place which is well
connected by rail, road, air and water is suitable for setting up of a plant.

(Refer Slide Time: 24:52)

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Then the infrastructure the basic infrastructure facilities are power water and waste
disposal. So, whenever we are setting up a plant we need to see that whatever by
products or whatever waste is being generated by the factory how we are going to
manage that waste the government policies are very stringent these days and the waste
disposal is an important point based on which the location has to be identified. So, the
basic infrastructure includes the power available the water available and the waste
disposal.

Certain types of industries are strongly power dependent for example, aluminium and
steel. So, source of power of the rate at which we are able to get the power is also equally
important. Process industries like paper chemical cement require continuous supply of
water in large amount and in good quality. So, infrastructure means that whether we are
able to get whatever is the important requirement for the manufacturing activity for
example, in making of aluminium and steel we require lot of power.

So, whether power surplus state is there. So, if there is it is a power surplus states we will
get the required amount of power for converting our raw materials into the final product
that is also important decision, then a waste disposal facility for process industries is an
important factor which influences the plant location. So, the infrastructure is again plays
an important role in our decision related to the plant location just to revise from
infrastructure point of view, we need to study the power availability of power the
availability of water the may be the possible means and mechanisms of waste disposal
maybe sometimes water may be required in good quantity and quality.

So, these are important parameters or infrastructural support that is required for making a
product and for that we need to decide on a location where we are able to have a good
infrastructural support, which will help us in our objective of making our products which
are cost effective.

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(Refer Slide Time: 27:23)

Availability of labour and wages also we need to understand adequate number of labour
and with specific skills, whether they are available or not cheap manpower need training
programs which need extra funding. So, that also we have to see that whether the
manpower is available can we train them in order to make them skilled. So, that they can
work or help us in achieving our overall objective that is important.

Now-a-days influence of skilled labour on plant has lost because of mobility. So, maybe
these days it is also possible that you may hire the people from other regions also who
can travel to a specific location and work for the organisation. So, this particular point
availability of labour may have lost most of it is significance, but the wages is an
important point because minimum wages are set and these wages have to be met by the
organisation.

Then the prevailing wage pattern of the salary structure to be more specific cost of living
in that particular area industrial relations and bargaining power of the employees union
also plays an important role. So, all these points can be explained in much more detail,
but maybe just to tinker your thoughts related to the factors or the multiplicity of the
factors that are required of that are important, while making a decision that that is the
basic objective of these sessions that we are able to just tinker your thoughts and maybe
open up the thought process in such a way that you focus on a plethora of factors and
make a judicious choice related to the selection of a plant.

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Or selection of a location for a plants you can see that cost of living is also an important
parameter you may be getting more salary as compared to location B, but the cost of
living at location X, location A is much more as compared to the cost of living in
location B. So, may be the cost of living will also influence your decision related to the
location of the plant.

(Refer Slide Time: 29:42)

Then the government policies are equally important the policies of the state governments
and the local bodies concerning the labour laws, building codes, safety are the factors
that demand attention. There may be certain safety standards of a particular state which
must be adhered to by the organisation. So, we have to ensure that we comply with all
the safety standard all the government policies all the government rules and regulations
in order to set up our plant in a specific state.

So, that is important from the point of view as we can see the building codes are also
different from state to state. How much high rise building you can make, how much feet
you can go in the wide domain what are the numbers of stories that you can make in a
particular state may be different from state to state. So, that is also going to influence our
decision related to the location of our plant facility. So, the incentive package given by
the governments to entrepreneurs is in a particular location.

So, in order to give a boost to the industry many states usually give certain incentives to
the entrepreneurs or the businessman who in order to attract them to their state. So, these

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can be the type of benefits can be exemption from sales tax and excise duties they can
give them soft loans from the government approved financial institutions subsidy can be
given in electrical charges or they may give them investment subsidy. So, government
can support the industry in a may be positive manner by a may be incubating the industry
in the state by giving them certain advantages.

So, different states may have different policies related to the establishment of the
industry maybe one point, which is not mentioned here is the single window clearance in
which all clearances can be given from a single window only from a single source only,
because in certain states entrepreneur or a businessman may have to run from one office
to another office in order to get the clearances, but may be a particular state may give
single window clearance only.

And therefore, an entrepreneur may be interested to set up a location there. So, generally
a trade-off is done there can be no place where you have all the factors which are going
to help you in the positive manner only. All the factors may not be satisfied or may not
be culminating into positivity at single location. So, you have to do a trade off if you list
10 factors that are important to you we will focus on may be 7 or 8 factor these 7 are best
at this location and the other 3 are not the best, but are not the worst also they are
average. So, let us decide on this location.

So, the first point is listing out the factors and we have tried to list these factors in the
last 2 sessions. In session 11 we saw the critical factors related to the decision regarding
plant location from country point of view from region or state point of view from site
point of you, today we have divided these factors into 2 broad factors the controllable
factors and the uncontrollable factor. We are focusing on the controllable factors only
and try to understand that how these factors govern our decision related to plant location
and each and every factor we have try to understand with the help of certain example.

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(Refer Slide Time: 33:47)

So, last factor is there on your screen that is supporting industries and services. So, now-
a-days manufacturing organisation will not make all the components are or parts by
them. So, the depend on the ancillary units who will make certain parts for them and
these parts are finally, assembled by the company in order to make their product. So, the
source of supply of component parts will be one of the factor that influences the location
the various services like communication banking services professional consultancy
services and other civil amenities will play a vital role in selection of a location.

So, maybe there is an automaker or a big automobile company large scale automobile
company wants to set up a plant. So, they will see that where the ancillary units will be
located who will be working for them for making the parts and component. So, that is
also an important parameter which will influence their decision regarding the location of
a plant.

So, I think with this we come to the end of today’s session and we will carry forward this
discussion in the subsequent sessions also we are left with 3 sessions in this week in
which we will be covering the other entry cases involved in plant location. Then we will
focus in the next week on plant layout types of plant layout. And then we will see with
the help of certain example that what are the advantages and limitations of different
types of layouts.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 18
Plant Location: Case Study on Uttarakhand

Namaskar friends, welcome to session 18 in our course on operations management. As

you are aware that we have already finished discussion of 3 weeks and currently, we are
discussing the fourth week and our topic is plant location. In plant location, today is the
third session that we are discussing and earlier, we have already discussed the basic
aspects of operations managements scope objectives fundamental nature of operations
management.

We have studied product design and development. We have also studied sales
forecasting or demand forecasting and now we are seeing that if a company has decided
that what they want to produce where the plant must be located and in plant location, we
have already discussed the facilities planning, what are the basic thoughts that must go
while we select a plant for or select a location for our plant; what are the thoughts that
we that must come to our mind when we are taking a decision related to the location of
our facility or the location of our factory or the location of our enterprise.

We have seen, what are the factors governing this decision and we have seen that there
are internal factors external factors, then there are controllable factors non controllable
factors, there are government policies there are rules and regulations and guidelines that
have to be followed when we take this most important strategic decisions of deciding
where we are going manufacture the product that we have developed during product
design and development and that is the basic thing that we are studying currently in this
week.

In next week, we will see that once, we have decided that how the plant is going to look
like inside the plant how and where which facilities will be located. Once, we have
decided the region where we are going to put our facility or the factory within the factory
which facility will be at which location; for example, the residential quarters the
manufacturing plant the air conditioning unit the grounds and the effluent treatment plant

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which facility is look going to be located at which particular section that is going to be
discussed in next week and will fall under plant layout.

So, currently we are discussing plant location that how we can decide that where we
want to produce and today’s session is focused on case study of Uttarakhand as IIT
Roorkee is established in Uttarakhand. So, we have decided that we will try to see that
why lot of companies are coming and setting up their facilities in Uttarakhand will try to
highlight maybe in another 15-20 minutes the maybe attractiveness of Uttarakhand as an
industrial hub that why Uttarakhand is being chosen as a choice as a maybe attractive
place for setting up of manufacturing facilities, we will see; what are the incentives given
by the government of Uttarakhand for promoting the development of industry in the
state.

So, we will try to see that similar policies may be existing in other states also and we
want to understand that it is the government policies, it is the industrial climate that is
prevailing in the state that motivates the industrialist to set up there plant in that
particular state there are number of such examples where a company wanted to set up a
facility in a particular state, but then had to shift because of maybe public unrest or
because of the government apathy or maybe because they were not able to convince their
employees to go and work in a particular states.

There are number of problems associated when you have to decide that which is going to
be the most optimal location for setting up of the plant and Uttarakhand as a state is
promoting the industry in order to give more and more employment to the people of
Uttarakhand and what are these facilities specially for MSME industries that we are
going to see today in today’s session.

So, let us see first the case study of Uttarakhand. So, policies of Uttarakhand government
directly, we are starting from the policies the MSME.

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(Refer Slide Time: 04:56)

The full form as I have just use the word of the notation MSME in the introductory part
of today’s session, MSME stands for micro small medium enterprise. So, we can say
micro small and medium enterprises. So, we have developed at Uttarakhand MSME
policy that the government is going to support the industry focused on micro small and
medium sector enterprises, then there a special integrated industrial incentive policy
which is commonly called as the hill policy.

So, that is another policy which has been framed by the government of Uttarakhand in
order to improve the facilities or the industry in the hill regions, then central capital
investment subsidy scheme. So, central capital investment subsidy scheme is another
policy, then related to ladies you can see there is a Mahila Udyami Vishesh Protsahan
Yojana.

So, Mahila Udyami means for female entrepreneurs there is a special package or special
policy which is supporting them to maybe start earning their livelihood start small scale
business at the village or at the town level and become self sufficient self reliant as well
as empowered. So, Mahila Udyami Vishesh Prasaran Yojana is another Yojana by the
government of Uttarakhand Chief Minister Swarojgar Yojana, there is also maybe self
employment scheme also started by the government of Uttarakhand.

So, we can see that there is a broad spectrum of schemes focused on improving the
industrial health of the state in order to develop an industrial climate in the state more

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and more people within the state can contribute to the industrial growth of the state with
the help of these schemes as well as people from other states can come and take
advantage of these schemes which have been launched by the government of
Uttarakhand and can lead to maybe more profit making enterprises because we will see
in today’s session there other schemes also which are promoting the industrialist and
entrepreneurs from all across the country for setting up their plants in the state of
Uttarakhand.

So, this gives the broader policies which are framed by the government of Uttarakhand in
order to improve the industries in the state then there is another list of policies of the
Uttarakhand government.

(Refer Slide Time: 07:41)

Freight subsidy scheme gadget mega industrial and investment policy start up policy
there is another policy government of India has also focused on startup maybe startup
India; standup India, there is a policy by state government, central government also. So,
there is a startup policy by the state purchase preference policy mega textile park policy.

Textile park has been initiated. So, that is basically to improve the textile industry of the
state. So, we can see that startup policy purchase preference policy as the words are self
explanatory purchase preferences. For purchasing preference will be given to the
products produced in the state at least that is what I understand from this policy. So, the
we our target is to understand not the nitty gritties of each and every policy, but we are

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studying plant location and in that one important factor is the thrust of the government
towards improving the industry and we can see that there is a long list of policies
established by the government for improving the industrial health of the state.

So, we may not be going into the each and every policy because each and every policy
will have a policy document which may run into number of pages who is eligible who is
not eligible what are the prerequisites how you have to apply. So, we are not to going go
into the nitty gritty of each policy, but we will definitely like to understand that what are
the general policies which decide the location of a plant in a particular state or in a
particular region. So, here we have seen two important maybe lists of policies
specifically framed by the government of Uttarakhand, then coming on one policy let us
take an example that is the MSME policy.

(Refer Slide Time: 09:43)

So, the government of Uttarakhand has sanctioned the MSME policy or maybe the
framed the MSME policy 2015 for promoting investment in MSME sector MSME full
form we have already seen in the beginning micro small and medium enterprises. So, in
micro small and medium enterprise is the government is giving lot of thrust for setting up
of these type of enterprises in the state how they are doing it through investment
promotion as well as to incentivize the MSME.

So, government is giving lot of incentives to entrepreneurs, to industrialist, to

businessman who are setting up the plants as per the MSME policy of the state. So, the

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policy aims at utilizing the local resources is as Uttarakhand is a hill state. There is lot of
maybe flora and fauna as well as the forest cover in the state. So, there can be a lot of
forest waste that is developed in the state.

So, the policy aims at utilizing the local resources. So, resources may not be the material
only the resources can be the human resource also the resources can be the infrastructural
resource also to the policy aims at utilizing the local resources and to generate
employment opportunities and promoting self-employment skill development in the
youth. So, the policy is focused on empowering the youth empowering the youth by skill
development by making them learn new and new skills.

So, that they can become self reliant self employed because Uttarakhand has history of
young people moving to other states for employment. So, the government has given a
thrust on developing for coming up with employment opportunities for the state youth or
the youth of the state where they can and work within the state only now in order to
develop since our topic is plant location.

So, from location point of view the state has been divided into 4 categories.

(Refer Slide Time: 12:09)

So, we will see the categorization of the state and since the different locations, there are
few areas in Uttarakhand which are hilly in nature there are other areas which are plane
or relatively plane in nature. So, the whole state has been divided into 4 categories there

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is categories A, B, C and D and the details of each category are given here category A
includes the districts of Pithoragarh, Uttarkashi, Chamoli, Champawat, Rudraprayag and
Bageshwar.

Category B includes districts of Pauri, Garhwal, Tehri, Garhwal, Almora and all hilly
development blocks of district Dehradun other than Vikas Nagar which is relatively
plane, Doiwala is plain, Sahespur is plane and Rajpur all hilly development blocks
district Nainital other then Haldwani and Ramnagar which are relatively plane.

So, basically the state is divided into 4 zones. Now from plant location point of view,
whenever industrialist would like to set up a facility or setup of factory, he can take a
decision that which particular category or which particular district is most suitable for his
kind of manufacturing activity for his kind of service industry for which he wants to set
up his enterprise.

So, 4 categories are there and each category may involve different types of incentives
and even may categorize the industry also for example, in category A only these type of
industries can be set up or they will be incentivitaise or they will be given incentivize for
other category of areas or district some other type of industry may be the focus and only
that type of industry will get the incentives. So, A and B is given, similarly C and D
categories are also there.

(Refer Slide Time: 14:06)

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So, maybe one of the criteria for categorization is the reasons located above 650 meters
from the sea level. So, here we can see there is another categorization that is C.
Similarly, category D. So, the whole state is divided into 4 categories and now categories
specific industry has also been outlined that we will see.

(Refer Slide Time: 14:33)

So, category A and B; they are eligible for fiscal incentives are financial incentives what
type of industries can be setup in category A and B. So, if you remember, A and B; we
have outlined; few districts are in category A few districts are in category B. Now A and
B are together here so, A and B; you can have non polluting manufacturing enterprises of
green and orange category.

So, there is a categorization of the enterprises. So, we have here we have seen two. So,
we are not going into the categorization of the enterprise or the color coding of the
enterprises, but we can see that non-polluting manufacturing enterprise are focus area in
category A and B. Thrust sector industries as notified under special industrial package.
So, there is a special industrial package which notifies that this is the thrust area this type
of industries we must develop in a particular area of the state. For example, it can be
herbal or a pharmaceutical industry which can be developed in a particular zone.

So, the zoning has been done and if you want to setup your plant, in a particular state
today’s case studies Uttarakhand and yours is a pharmaceutical industries, you cannot set
up a pharmaceutical industry anywhere, you feel like because the state has already

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categorized the complete area into 4 zones and within the zones also as per the special
industrial package pharmaceutical I am taking an example may be given a particular area
that pharmaceutical industry will be developed in category this only and is as in our case
we say category A and B.

So, you have to set up the plant there only I am not saying that pharmaceutical is
specifically for category A and B I just taken an example that a particular area may be
earmarked for one type of industry only activities which have been granted status of
industry by the state government they can be set up in category A and B district
biotechnology can be in category A and B areas protected agriculture and horticulture
cold storage activities can be in category A and B.

So, it is making the life of the entrepreneur or the industrialist easy because suppose he
wants to set up a cold storage facility it is very well known to him before he starts
searching for the plant location that cold storage activities are being promoted in
category A and category B areas of the state of Uttarakhand. So, he can only focus on
those areas and try to locate a site where the godown or the cold storage facility can be
developed.

So, in a way the government is helping the entrepreneurs or the industrialist in the in
their process of plant location or finding out the exact location or optimal location where
they can set up their facility. Similarly, petrol diesel pumping station gas godowns are
also maybe in category A and B areas only or category A and B regions only
manufacturing activities shall be eligible in category C and D.

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(Refer Slide Time: 17:58)

So, we can see that biotechnology focus is in category A and B regions. Manufacturing
activities are eligible for category C and D regions riverbed material based industries
including stone crushers will not be eligible in entire state for any incentives.

So, they have categorically mentioned that a specific type of industry will not get any
incentives capital in investment made on transport vehicle exclusively for the purpose of
transportation marketing of raw material and finished good product shall be eligible for
capital investment subsidy. So, there are different types this is one example which is on
transport vehicles, but there are number of such examples where the capital investment
subsidy is being promoted by the state of Uttarakhand.

So, investment made on necessary additional construction expansion renovation or

building whether you have you own that building or you have lease that building for a
long period of time for conduct of enterprise will also be eligible for subsidy on capital
investment. So, you get subsidized if you are doing some renovation or you are
expanding the already in existing the facility. So, the government is supporting this type
of activities in order to improve the industrial base within the state there are number of
fiscal incentives and concessions.

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(Refer Slide Time: 19:32)

We have seen 2-3 types of things we have seen that how the state is promoting the
industry they have different types of policies within the policies we are focused on
MSME sector only within MSME we have seen the whole state is divided into four A, B,
C and D regions and each reason has been earmarked for a specific set of industry. So,
apart from that we have seen that they are giving capital subsidies also.

So, fiscal incentives and concessions are other promotional maybe schemes of the
government in order to improve industry some of the schemes are listed here. There is a
investment promotion assistance that is capital subsidy is given by the government
interest subsidy is given reimbursement of VAT which is very important these days GST
has been implemented.

So, the government has to relook and see that how they can implement or they can
incentivize the industry through maybe some re-election in GST, I have no idea about
that I am not an economist, but maybe some re looking at the GST regime can be done
then concession on stamp duty is another a good incentive for the industry,
reimbursement of electricity bills special state transport subsidy as we have seen that
there is a capital subsidy on the transport of raw material as well as the finished good of
wood from the industries within the situated or located within the state of Uttarakhand.

So, special state transport subsidy is available then coming on to the infrastructural
support.

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(Refer Slide Time: 21:15)

We can see that there is an establishment of a land bank then infrastructural development
fund has been created for MSME is in special industrial estate for a MSME has been
created and establishment of new industrial estates is maybe offering for the people who
want to come and set up their industry in the state of Uttarakhand. So, again I am reading
it for you for better maybe at least few things can be there in our thinking process
whenever we talk of plant location the special industrial estate maybe sometimes we
develop special areas for MSME clusters only for MSME type of industries only where
you have only micro medium and small scale industry.

Similarly, industrial estate maybe as we have seen a textile park has been created
similarly new industrial estates can be identified and created maybe the government is
promoting this type of activities where industries can set up if you if you remember I
have discussed this thing in the earlier session also that whenever a big manufacturing
unit is established they may not be manufacturing each and every part that goes into their
product for example, a car is being manufactured. So, the company may not be making
each and every part, sub-component or equipment that goes into the car they will be
maybe majorly involved in assembling the car.

The ancillary units will be developing the parts or the components for the car similarly
whenever you have an industrial estate there can be industries which are supplementing
each other which are complementing each other. So, there can be a there can be product

302
made by company A and there can be another product made by company B, at A and B
can combine and make a product C which is may be a final or end product which can go
into the market.

So, you have a industrial estate where different types of companies can be there or
maybe same type of companies can be developed as a park maybe for example, of
software park where you have different software companies working together in different
areas or different zones then establishment of multistoried estate upgradation of existing
industrial estates. So, they are both the things are possible we can the government is
developing new industrial estates as well as the government is also focusing on
expansion or renovation of the old or existing industrial estates also, then establishment
of vendor and ancillary parks as I have already told if we have a very big or maybe large
scale manufacturing unit coming up in the state then the government is promoting the
development of the ancillary units in the vicinity.

So, that the transportation cost from the ancillary unit to the main plant can be minimized
or can be optimized. So, the establishment of vendors and ancillary parks we are coming
or government is promoting that type of setup then interventions under the cluster
development scheme now in cluster development scheme government is focusing on the
development of clusters. For example; Roorkee at one time was famous for the surveying
equipment. So, coming up with the international challenge maybe the manufacturers are
not able to match up with the products that are coming with the open maybe market from
the other countries also.

So, maybe a cluster can be developed where a central facility can be created where we
can have all the latest machines and equipment which can maybe help the industry to
come up with the quality that is matching the quality been provided by the international
players. So, that kind of cluster development approach is being promoted by there for the
MSME sector by the government of Uttarakhand. So, that a cluster is able to match up
the quality of the product being produced by the international competitors.

So, the state is coming up with number of schemes already there a number of schemes as
we have seen in the first and the second slide where they are trying to promote the
industry to come they want the industry must set up their plants in Uttarakhand. It is
going to help the economic health of the state it is going to provide employment to the

303
youth of Uttarakhand it is only going to lead to the skill development of the youth of
Uttarakhand.

So, the government is giving lot of focus for the industrial development of the state and it
is not only the state of Uttarakhand, there are other states also which are focusing on the
development of industry since we are located at Uttarakhand. So, we have seen that plant
location is an important of topic we have also seen in facilities location we focus on plant
location and the plant layout within plant location we have seen that there are number of
factors that influence our decision related to a selection of a plant location and in today’s
class we have seen or in today’s session.

We have covered the case study of Uttarakhand and what are the policies the government
is following in order to improve the industrial maybe belt of Uttarakhand with this we
conclude the today’s session and in next session, we will focus on the theoretical aspects
behind the plant location.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 19
Location Evaluation Methods I

Namaskar friends, welcome to session 19 in our course on operations management. So,

just to have a brief review of what we are covering in the last maybe 2 or 3 weeks. So,
we have covered the fundamental aspects of operations management, then we have
covered the product design and development, then we have covered sales forecasting or
demand forecasting and currently our focus is on the selection of a location where we
want to start our operations or our enterprise or our factory. By now we have the answers
to few questions that are very important in operations management, that is what a
company must produce and the answer comes from product design and development.

Then how much the company must produce? The answer comes from design forecast,
demand forecasting or sales forecasting and then where the company must produce? We
are trying to find out the answer in our discussion on layout or facilities, planning and
layout. We have covered that, we have to take a decision that in the globe in which
country we have to set up our location, within the country we have to design decide the
region, within the region we have to decide that which particular location and this
depends upon a large number of parameters and if you remember we have seen 3
sessions in plant location only and we have covered different types or factors that are
important while deciding that where the facility must be created, where the factory must
be put up, where the enterprise must be situated.

To we have to try to find out highlight the factors that are responsible or that are
important for our consideration in deciding or selecting the plant location and if you
remember in the last session, we have covered a case study of state of Uttarakhand and I
have given a list of facilities or may be list of facilitation activities that the government
of Uttarakhand has planned for industry and why industrialist, why entrepreneurs are
more interested to put up their facilities in the state of Uttarakhand or to set up their
factories in the state of Uttarakhand. Today, we are going to find out that what are the

305
location evaluation methods mathematically also, logically also, scientifically we can
find out that where we must locate our facility.

So, basically there can be two types of decision making one decision making can be
based on the different factors, different policies, the political situation and the other
social cultural, so many parameters we consider, so many factors we take into account,
when we have to decide on the location of our factories. All these can be clubbed under
the qualitative parameters are qualitative method or the factors which cannot be
quantified too much into mathematics or in to numbers.

So, we take a decision based on these factors, which are qualitative helps us in taking a
decision. Then, there can be method, which are quantitative in nature, where we have
some data, we have some information, we have some number, a mathematical equation,
we can have a mathematical table, which can help us to take a judicious decision that
where we must set up our plant. So, maybe I have revised in totality what we have
covered in operations management, I have tried to revise that what we have covered in
plant location and in the next week maybe we will focus our attention on plant layout.

So, currently we are deciding where to put up the factory, we are trying to find out the
answer to this questions that where our factory must be located, where our organisation
must be located and to find out that answer we have two types of techniques or maybe
methods one can be based on the factors we can make a judicious decision without
involving much calculations and the other method as I have just highlighted are the
mathematical tools that help us to make this decision. In the last 2 sessions, we will be
focusing on this location evaluation method only and we will try to find out that how
mathematically we can calculate that where our position must be, where our factory must
be located.

So, let us start the discussion for today, about the location evaluation methods.

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(Refer Slide Time: 05:00)

So, on your screen you can see, there are four different methods that are listed, 1 is cost
volume analysis, factor rating method, center of gravity method and transportation
models which are usually taught as a course or as a topic in operations research. So, we
are trying to look at these methods try to solve a problem or 2 based on these methods
and try to see that how these methods operate? What is the data that is required for using
this method? What is the type of output that we derive out of using this method? And,
how these methods will help us to identify a location where we want to set up our plant?
So, let us go one by one, in today’s session we will cover the first 2 methods, that is the
cost volume analysis methods and the factor rating method and in the last session of this
week we will cover the centre of gravity method and the transportation model for finding
out the best location.

So, we have divided our overall discussion of the week into 5 sessions and just to have a
brief review of these 5 sessions, in the very first session we discussed about plant
location and layout and facility location and layout whatever you want to call it, so it was
basic fundamental lecture only. In the second lecture we focused on the factors
governing our decisions regarding the selection of a location, in third session we focused
on a case study of Uttarakhand, that why companies are focusing on states where they
get certain benefits, financial benefits, technical benefits as well as there are schemes that
helps these companies which in their pursuit of excellence.

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So, 3 lectures or 3 sessions we have already taken, related to the location, identification
and now we will be focusing on quantitative methods of finding out a solution to this
problem of location of a factory or plant or an enterprise. As I have already told, 4
methods are there on your screen, it is really important to fix or to locate that what we
are studying, we need to relate that particular topic to the overall picture that we are
creating.

So, the overall picture is operations management and within that we are trying to find out
where our operations must be done? Where our factory must be located? And in that also
we have covered all the factors now we are focusing on the quantitative method. So, I
think I have given a very long introduction today. Let us quickly go to the cost volume
analysis.

(Refer Slide Time: 07:49)

Now, in cost volume analysis we require the fixed and the variable costs associated with
that particular location, we have to plot the total cost, all of us know that the total cost is
the summation of the fix cost and variable cost little bit of economics is involved here.
Then, we have to determine that which particular location is offering us the lowest
overall cost. So, overall cost is the total cost.

So, basically what we need to do. Suppose, we have to compare 4 or 5 different

locations, for each location we will see that what will be the fixed cost of setting up a
plant there? What will be the variable cost maybe a monthly cost that is associated with a

308
particular location? So, for example, we have 4 locations A B C and D. So, for location
A, what is the variable cost? What is the fixed cost? Similarly, for location B and
location C and based on that we calculate the total cost for that location and then we try
to have as you see in the title it is cost volume analysis. So, we have to see the volume
also, that how much volume we are producing because as the volume will change the
variable cost will change and as the variable cost will change the total cost will also
change. So, we have to do a cost volume analysis to figure out that which is the most
optimal lowest cost location for setting up of our plant.

We will try to understand this with the help of an example and I think after the example
everything will be absolutely clear to all of you. This is much similar to decision making,
using the break even analysis and I think most of the engineers are most of the managers
usually have a basic understanding of the break even analysis.

There also we plot the total revenue and the total cost and try to figure out that when the
break even is going to happen and here also we are plotting the total cost and we are
trying to figure out that which alternative is going to give us the lowest total cost, so that
we can fix up our plant at that particular location. So, what can be the inputs required
here for making this decision that out of the 4 alternative locations, where we must fix up
our plant. So, the location can be it can be New Delhi, it can be Mumbai, it can be
Chennai, it can be Kolkata, so we have 4 different locations.

Now, we have to find out that where we have to put up our plant? So, what is the basic
information or data required for this type of decision making? The data required is the
variable cost associated with that location and the total cost associated with that location
plus we require how much volume we are producing at a particular location and then we
can calculate the total cost and compare based on the total cost. Now, let us quickly take
an example before going to the problem let us try to see what are the assumptions
involved in the cost volume analysis.

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(Refer Slide Time: 11:09)

Now, the assumptions involved are the fixed costs are assumed to be constant, the
variable costs are assumed to be linear. So, there is a linear variation not the quadratic or
a polynomial variation in the variable cost, the output can be closely estimated and only
one product is involved. So, the product mix is not involved. So, we are doing this
calculation for a single product only.

(Refer Slide Time: 11:36)

Now, let us take an example the cost volume analysis example. So, fixed and variable
cost for 4 potential locations are given on your screen. So, you can see the locations we

310
are identifying as A B C and D and the fixed costs are given in dollars. So, we have
250000 dollars for location A. So, the fixed cost for location D is 200000 dollars.

Similarly, the variable cost for location A is dollar 11 and the variable cost for location C
is dollar 20, so this way we have a table, we have the information available. Now, what
is missing here, for making a decision you see the name of the, or the title of the slide
that is cost volume analysis. So, we have fixed cost, we have variable cost, now what is
missing? The missing part is the demand or the volume, so the volume is missing. So, we
will do the total cost calculation based on a fixed volume only.

(Refer Slide Time: 12:43)

So, here you can see the fixed cost is dollar 250000 for location A, variable cost as was
given in the previous table was dollar 11, but we are assuming for comparison purpose
the demand as 10000 or the volume of production as 10000. So, this is a volume of
production or volume 10000, 10000, 10000 and 10000 and we are calculating the total
cost. So, here we can see that location C is giving us the overall minimum cost.

So, we can say that if we have to produce 10000 products, therefore, that the location C
is most advisable, why? Because the overall cost or the total cost for location C is
minimum, but there is a condition that 10000 products have to be produced. So, we can
see that when the volume will change, the costs will also change because it is being
multiplied with the variable cost and if the cost will change our decisions may change.

311
So, we have a plotted the variation of the cost with the variation of the volume. So, we
have taken volume on x axis and the total cost on the y axis.

So, we are not plotting the fixed and the variable cost, but we are plotting the total cost
on the y axis and on x axis we are taking the volume and then we are trying to see that
what is the maybe break even volume beyond which may our location may change, may
be up to a particular volume may be as in this case 10000. So, if 10000 volume location
C is giving us the best total cost or the minimum total cost, but if we change the volume
the location may also change or let us try to see the effect of location.

(Refer Slide Time: 14:49)

So, on your screen you can see the annual output or the volume of production is given in
thousands. So, this is 10000, so we have seen in 10000 approximately that pink colour
line you see, pink colour line is representing C. So, the pink colour line representing C at
10000 is giving us the minimum total cost. So, on y axis we have the total cost and on x
axis we have the volume.

So, cost volume analysis if we do, so for C we are getting the minimum cost, as you can
see in the table also and A is also near about the same only it was 350000 if I am correct.
So, it is 350000 and A is 360000, so we can see A and C are very close if we are
producing 10000 products. So, the annual output is 10000. So, prior to that, if it is less
than 10000 C is superior, but less than maybe 5000 products we can say B is superior.

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So, if we do this cost volume analysis and we can forecast from where do we get this
number because we have to take a decision that where we must locate our facility and
that is not dependent upon the volume or the products that we are going to produce. So,
from where we will get this number that how much will be the sales? We have already
covered that, we have seen the qualitative methods and the quantitative methods of
demand forecasting.

So, we can make a forecast we can calculate that what is going to be the output and
based on that output then using that number we can do our calculation, but sometimes
the forecast also may not be accurate and therefore, a combination has to be used we
have to see the other factors affecting the plant location also that we already covered in
lecture or session 2, as a session 2 of this week I am talking about and in session 3 of this
week where we have see why, what are the facilities being offered by the government of
Uttarakhand, for setting up a facilities and setting up factories in the state of
Uttarakhand. So, we have to make a combined decision based on the factors as well as
the calculations and then we have to take a final decision that where our facility must be
created.

I think cost volume analysis is clear to all the learners that we need 3 input data sets. So,
this 3 input data sets are, the first data is the total the fixed cost for a particular location,
the variable cost for a particular location and the volume that we are trying to produce in
that particular location. So, if we have these 3 quantities we can plot the total cost curve
as it varies with the volume of production or the annual output and based on that we can
take a decision that which location is more suitable for making or setting up our plant or
setting up of our factory.

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(Refer Slide Time: 18:18)

Now, the second method as we can say is a factor rating method. Here, we identify the
factors that are going to governor decision and then we assign weights to these factors
and then we give may be numbers to a particular factor and then multiply the weight and
the number or the assigned number to the or the assigned rating must say because factor
rating method the terminology is very, very clear.

There will be few factors and the factors will be weighed as per their relative
significance and then a rating will be given for example, maybe suppose you are
travelling by train you have to rate the quality of your travel many times, when I travel
on train I get a call from the call centre and they ask me to rate the quality of food served
and the quality of timing of the train on a scale of 1 to 5.

Similarly, we do the rating sometimes we feel certain scales from 0 to 10 or 0 to 100 or 0

to 5. So, that is basically the rating that we give and the factors, are the factors that we
identify based on which we are going to make our decision. So, factor rating method two
words I think I have tried to explain what is factor and what is rating?

Now, in this method how we are going to use this method for selecting a location let us
quickly go through that. So, most widely used location technique, useful for service and
industrial location is just a background, rates locations using factors, now decisions
based quantitative and qualitative inputs both type of inputs can be incorporated,
intangible is qualitative factor for example, education quality, labour skills, the labour

314
skills we can rate we in the questionnaires that from 0 to 5, how do you rate the labours
skills available in our particular location?

I may do my calculation may be on my judgement, I may feel that yes this is a place
where there are so many number of school, so many number of colleges, so people
would be more or less literate, that their basic education level will be up to this level. So,
based on that I will give a rating; the skill set maybe between 3 and 4, if I am asked to
rate between 0 and 5.

So, there is a qualitative education quality or labour skills can be a quality can be a
qualitative parameter, but it can be rated I can give a rating based on my own judgement
and then there can be quantitative parameters for example, short term and long term cost.
So, cost we can quantify that what is expected expenditure in 3 months’ time? What is
the expected expenditure in 3 years term? So, that is short term long term cost can be
quantified very easily.

So, this method is based on the weighted average, so that we will try to understand with
the help of an example. So, primarily there are 2 words here, there will be a list of factors
which are influenced, which are going to influence our decision and then we have to
provide a rating to these factors and then this rating will be multiplied by the weight
assigned to a factor and we will do the summation for each location and figure out that
which location is going to give us the best location for setting up of our facility.

Let us, try to understand this, because speaking so many things qualitatively may not be
understood in that well manner, but if we see the data and the mathematics involved it is
easy to understand. So, let us now see how we do this method, first of all we have to list
the relevant factors.

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(Refer Slide Time: 22:07)

Now, relevant factors can be the nearness to the source or the nearness to the raw
material or the nearness to the market, so that can be 1 factor, then the cost involved in
transportation can be another factor. So, these are first we have to list the relevant factors
based on which we are going to make our decision, then assign importance weight to
each factor. So, that can lie between 0 to 1 and then make some of weights as unity.

Now, suppose I am taking 3 factors and I feel that this is the most significant factor. So, I
can assign a 50 percent weight to that factor, so I will assign a value of 0.50 to that
factor, then little less significant factor I can assign a weight of 0.3 and then the
remaining 0.2 to the 3rd factor. So, 0.5 plus 0.3 plus 0.2 will come out to be 1.0, that I
have to ensure.

Set a scale for scoring each factor that is the rating that we have to give. The scale can be
from 1 to 10 or 0 to 10 or it can be from 0 to 100 or 1 to 100 maybe 1 to 50, that we have
to decide set a scale, score each location using the factor scale. Now, for each location
we have to give some values based on that, for example, nearness to market, so if there is
a location which is very near to the market. So, we can give that nearness to market this
particular factor location D is the most suitable. So, on a rating scale from 0 to 10 I will
give a value of 9 to this particular location, then there can be another location on the
contrary is too far from the market. So, instead of given a value of 9, I may give a value
of 2 to that or a rating of 2 to that particular location.

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So, we have to give ratings to each and every location. Multiply score by weights for
each factor and add, so we have given we know the weights as I have already told
suppose there are 3 factors each factor we have to assign the weight, then for each
location we have to give the values on the scale of 0 to 10 or 0 to 100 and finally, we
have to multiply the weight and the rating and then add this for a particular location.
Now, select the location with maximum total score. So, let us try to see this with the help
of an example, you can see the factor rating method 3 locations there are A, B and C.

(Refer Slide Time: 24:55)

There are 3 locations, the factors have been identified as the cost, proximity to the
source, taxes and labour. Maximum weightage is given to labour that is 0.4 or 40
percent, then minimum weightage is given to the taxes that is 0.1.

So, first we have to do assigned weights to each factor, but prior to that we have to list
the factors that we are going to consider. So, we have considered 4 factors here and then
we have assigned weights to these factors based on our judgement, based on the brain
storming, based on the company policy, based on the state policy, their weights are
assigned.

Now, score each location on each factor. We have to set up a scale, now scale can be
from 0 to 10 it can be from 1 to 100. So, based on that scale, values will be given. For
example, for location A what is the score for cost? For location B what is the score for

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taxes? So that, particular values we have to fill and then multiply the weight and the
score and sum for each location. So, let us know see.

(Refer Slide Time: 26:07)

Now, here the rating is given on a scale of 1 to 10. So, we can see the weight assigned is
0.3, 0.2, 0.1 and 0.4 and the factors have been rated as 10, 9 and 7 on the basis of cost.
So, from the cost point of view location A is giving a score of 10. So, which means that
it can be a cost effective when we are selecting the maximum values, the maximum
value is coming out to be 7.5.

So, which means when we are maximizing the thing, so from cost point of view we can
say it is cost effective, from proximity to source it is close to the source and then from
taxes point of view also we are saying that less taxes low cost production, so maximum
profit, similarly the labour also. So, we can see this is just an example, from labour point
of view labour cost can be a different factor and labour skills can be a different factor,
this is just to explain that how do we do the calculations.

So, we list down the factors, we assign weights to the factors, then we see how many
locations we want to compare location A B C here we are comparing 3 only, then we set
a scale based on that scale we give the values like here for taxes the maximum score is
given to location C and for proximity to score maximum score is again given to location
C, but from cost point of view maximum score is given to location A. Then, we multiply

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this like how the value 7.5 is arrived, 10 into 0.3 plus 7 into 0.2 plus 7 into 0.1 plus 6 into
0.4. So, we get this value of 7.5. So, if we compare these 3, the maximum value is for A.

So, the scale that we have set is 10 is the best and 1 is the worst. So, from 10 is the best
score we have done this calculation and based on that location A is the best location and
B or C are similar only. So, once we have to take a decision, based on the factor rating
method we will say that location A scores may be better as compared to B and C, but it
does not mean that we will select location A only based on this mathematics, we will
definitely look at the other factors that we have already considered in our previous
sessions and then finally, take a call that which location is going to be selected for setting
up of the plant location.

So, with this we come to the conclusion of today’s session, in next session we will try to
figure out another method for finding out the best location for setting up of the plant
facility.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 20
Location Evaluation Methods II

Namaskar Friends, welcome to session 20 in our course on Operations Management.

And currently we are in week 4 of our discussion on the course. And we have already
finished our discussion for the first 3 weeks in week one we have covered the basic
aspects of operations management scopes and functions of operations management, in
week 2 we covered the product design and development in which we have covered the
basic concepts of design for manufacturing design for assembly, we have covered value
engineering, we have covered rapid prototyping, we have covered the basic aspects of
ergonomics. In week 3, we have covered sales forecasting in which, we have covered the
qualitative and quantitative methods of sales forecasting and now we are in week 4, we
are discussing the plant location and how to decide that where we have to set up our
plant.

This is a brief summary of the course till today and in this particular week we are now
into the end of our discussion on plant location and this is a fifth session in week 4. And
in fourth week we have covered the basics of plant location and layout in session 1, in
session 2 we covered the factors governing the plant, facility location or the location and
then we have seen the case study of the state of Uttarakhand that how Uttarakhand is
promoting the industries. And in the fourth session we have covered the quantitative
method that is location evaluation methods 1 and now today we are going to cover the
location evaluation methods 1.

In location evaluation method one we have covered 2 methods the first one was the cost
volume analysis in which 3 inputs were required the fixed cost was required for a
particular location, the variable cost for a particular location and then we require the
volume of output or the production expected from that particular location. Based on that
we plotted a curve or we plotted the data on x y plot x axis was showing the volume of
production or the output annual output and on y axis we have plotted the total cost and

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from there, we try to figure out that which location can give us the best results in terms
of minimising the overall cost or the total cost of production.

And the second method that we have seen in the previous session was the factor rating
method in which we have seen that first we have to identify the full stop factors that are
going to governor our decision related to the selection of location and then we give
certain ratings to these factors on a scale of 0 to 10 or 0 to 100 and finally, we multiply
the weights assigned to these factors with the values or the rating that is assigned to the
factors, for each particular location and then we multiply the weights and the scores and
add up the scores for each location and then we compare the scores and try to select the
best location for setting up of our plant.

This is what we have covered in week 4 related to plant location and today we will try to
wind up will try to finish our discussion on plant location with 2 more methods that will
help us to decide that where we have to set up our plant or facility. In next week our
discussion will start on plant layout and once we know that where the location of our
plant is going to be then within that location where which facility must be created for
example, like IIT Roorkee we have specific areas for specific facilities maybe there is a
specific location for hospital, specific location for hostels, specific academic area. So,
within this location we have a layout of the various facilities.

So, from plant location and layout we try to understand that when we are trying to
manufacturer something we have to identify where our factory is going to be located. So,
from starting from the country to the state to the district to the town we have to zero
down on a location where the facility has to be created. And for that these are the tools
and techniques that we are discussing in this week, which help us to make a judicious
decision regarding the setting up of this facility.

And we have already covered 2 methods or 2 quantitative methods in session 4 and today
we will cover 2 more methods which will help us to make this decision, but as I have
told in the previous session also it is not only the mathematical values that will be used
for making a decision, we will definitely take into account the other factors which we
have already considered in our session 1 and session 2. And a combination of these to the
qualitative and the quantitative information will be use for finalising the location, but
currently today our focus has to be on the location evaluation methods and today we are

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going to understand 2 more methods, which will mathematically help us to calculate the
scores for different locations and this course in the meanwhile will be helping us to take
an informed decision about the location of a facility. The third method that we are going
to cover in quantitative methods for identifying of locations or plant location is the centre
of gravity method.

(Refer Slide Time: 06:24)

Now, here the decision is based on the minimum distribution costs. So, if you remember
the previous 2 methods that we have seen we have in the first method that was cost
volume analysis method what was our input our input was fixed cost variable cost
volume of production.

So, that method was based on the fixed and variable cost or in nut shall we must say the
total cost and the volume of production. Then the second method that we covered was
the factor rating method that was based on the weights assigned to each factor and the
rating given to each location based on those factors. And the third method that we are
covering is a centre of gravity methods it is based on the minimum distribution cost. So,
we will try to reduce the cost of distribution first. So, what we are trying to what is the
objective of this method we are trying to find out a location of a single facility serving
several destinations.

So, basically we are trying to figure out one particular central manufacturing facility
which can cater to a number of demand centres. So, we can have 8 to 10 demand centers,

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but we have only one manufacturing facility from where we have to satisfy all these
demand centers.

So, this is used for services and distribution centers as you are well aware that while
distributing or while identifying the logistics for managing the supply chain usually, the
companies try to locate a central warehouse at a position from where they are able to
serve a number of maybe Regional Centers or a number of State Center.

So, basically that location of that warehouse for distributing the product to various
demand centers is very critical and it is based on minimization of the distribution cost,
now how to figure out that where this warehouse aware this manufacturing facility may
be created that is going to be found out using the center of gravity method. Now it
requires now what are the inputs for each and every method we are trying to find out that
what is the input required, now input here required is the location of the existing
destinations.

So, we need to find out that what are the demand centers and the demand centers here we
are calling as the markets or the retailers. So, why we need to find out that, what are the
demands centers that we are trying to serve that this facility is going to serve or this
manufacturing facility is going to cater two.

So, that is one thing we require their location second is the volume or the quantity to be
shipped is another input requirement finally, the shipping distance or maybe some cases
the cost is very important. So, we require the destinations, we require the volume to be
shipped to each destination and finally, we required the shipping cost or distance.

So, maybe sometimes we may try to optimise or minimise the distance that maybe the
material or the product has to travel from the source to the destination. Now the center of
gravity method is based on finding out the x and y coordinates for all the destination or
for the final destination of our facility.

So, our main objective is to find out the x y coordinates of the facility that we want to
create, but for that as we have already seen it is prerequisite that we know the x and y
coordinates of all the destinations that are going to be served by this facility that we are
creating centrally.

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(Refer Slide Time: 10:33)

So, can use an arbitrary coordinate grid calculate center of gravity location for facility as
weighted average of x and y coordinates that we will try to understand with the help of
an example that, how we calculate, how we give maybe final coordinates of the up
location. It minimises the transportation cost approximately; approximately means the
solution is an approximate solution it may not exactly be fitting into an exact solution,
but the solution that we get because it may. So, happen that mathematically we are
calculating x y coordinate, but the x y coordinate that we are getting may not be feasible
form other stand point that it may be located in the hills or may be a reason which is a in
habited. So, we cannot maybe which is inhabitable maybe.

So, we can say that no we that facility cannot be created there. So, we have to look for
some other location nearby where we can we locate this facility or locate this
manufacturing facility. So, the actual ideal solution means pointing out at a particular x y
coordinate, but we are not able to acquire or set up the facility.

So, we are setting up at a nearby or in a best possible location nearby to the ideal x y
coordinate therefore, we have tried toward approximately. Now location is not
necessarily optimal, but it is usually close to the ideal scenario. So, let us try to take an
example centre of gravity method we will do the calculations based on these two
formulas as given here.

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(Refer Slide Time: 12:26)

So, x coordinates for our facility will be calculated as C x and y coordinates, Cy the Cx
how we will calculate as we know what are the two inputs required here, that two inputs
required here are the x and y coordinates of the destination. So, the dix here is the x
coordinate of location i and Wi is the volume of goods moved to or from location I, this
is the first thing in the numerator we require the x coordinate of location i.

x-coordinate

d W ix i
Cx  i

W i
i

y-coordinate

d W iy i
Cy  i

W i
i

Where

dix = x coordinate of location i

Wi = Volume of goods moved to or from location i

diy = y coordinate of location i

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Now, we can say we can have 5 or 6 or 7 or 8 different locations. So, I can go from 1 to
maybe 8. So, this is the x coordinate of location i. Similarly, Wi is the volume shift that
we have already seen let me go to the previous slide again and maybe this slide. So, what
are the requirements here you can see the requirements we required the location of
existing destination. Now existing destinations locations means we need their x and y
coordinates and we require the volume to be shipped now here Wi is the volume of the
quantity to be shipped and σWi is the total quantity that we are shipping from over
manufacturing facility.

So, this data will give us the x coordinate for our final destination or final objective. So,
first we require the x coordinate for each location, which is to be served by this
manufacturing facility we require the volume to be shipped to that particular destination
that is destination i suppose we call our manufacturing facility as m. So, how much
volume we need to shift from m to i that is location one that volume is known to us then
how much volume of product we want to shift from m to location j that must also be
known how much volume we want to shift from m to location z that also must be known
to us.

So, from this central location where we want to set up our facility how much volume we
are shipping or we are sending to different locations that must be known to us. As well as
we must know x y coordinates of location i x y coordinates of location, z x y coordinates
of location x. So, all that must be known to us. So, here we can see once we know this
data we can very easily calculate the x coordinate of our objective the objective is to
locate a facility where we want to establish our warehouse or where we want to establish
our manufacturing plant.

So, x coordinate can be calculated using this equation similarly y coordinate can also be
calculated only thing that will change is y coordinate is that we have to use the y
coordinate of our destinations. As I have taken an example of 3 different destinations we
need to have the y coordinate of all the 3 different destinations. And then we can based
on that we can calculate the y coordinate of our manufacturing facility. The volume as I
have already told as in calculation of x coordinate we require the volume of products to
be shipped to the various destinations from this facility that we are trying to create.

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Now, I think some of the learners maybe little bit confused what I have explained till
now I although I have tried to be very very simple in giving my explanation, but I think
that things will become crystal clear if we see this example.

(Refer Slide Time: 16:25)

If we are attentive and if we focus on this example the things will become absolutely
clear. Now you can see we have taken an example where 4 cities there are 4 cities maybe
in US, Chicago, Pittsburgh, New York and Atlanta. So, 4 cities with the volume of
demand and x y coordinates are given. The volume of demand you can see here is given
Chicago has a volume 200 requirement Pittsburgh 100, New York 100, Atlanta 2000.
And on x y scale all the 4 coordinates are given the blue circles or ovals that we have on
the screen are representing the locations.

So, we can see Chicago x is 30 x coordinate is thirty and y coordinate is 120 similarly
Pittsburgh x coordinate is ninety and the y coordinate is 100 and 10. So, we have the x
and y coordinates for all the 4 locations. Now find the location for a warehouse
minimising the total distance to supply these cities. So, we have to minimise the total
distance here we are not focusing on the cost involved here. So, we are seeing that we are
of objective is to minimise the total distance and find out the optimal location which will
minimise this total distance in order to supply to these 4 cities so now, how we will
calculate.

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So, what is our final answer going to be the final answer going to be is the x and y
coordinates of that location, which will minimise the total distance to be travelled for
serving these 4 different destinations?

(Refer Slide Time: 18:23)

Now how we will do the calculation we can see x coordinate for Chicago is 30 y
coordinate is 120 here we can see Chicago x coordinate 30 y coordinates 120. Similarly,
Pittsburgh, New York and Atlanta x and y coordinates are known to us volume also is
given to us.

So, x coordinate of the warehouse or the manufacturing facility can be very easily
calculated in the equation as we have seen that we have to multiply the x coordinate with
the volume. Similarly, and this has to be a summation has to be done for all the 4
locations here we can see again that i is the location here and summation i. So, in our
case we have 4 locations. So, we go we say i goes from one to 4 and here also we will
add the demand for all the 4 locations.

So, here 200 is the demand and it is multiplied by the x coordinate plus then x coordinate
for Pittsburgh is 90 the demand is 100 then the x coordinate for New York is 130
demand is 100. Similarly, 60 and 200 and then it is divided by the overall demands
overall demand is 200 plus 100 plus 100 plus 200 comes out to be 600. So, then we get
the x coordinate of our warehouse or the manufacturing plant.

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Similarly, we can calculate the y coordinate here the y coordinate will be multiplied by
the volumes of 120 into 200, 120 into 200, 110 into 200, 10 into 100 and then summation
divided by the overall demand. So, the overall demand is again the same and we get the y
coordinate. So, we can plot this x and y coordinate on x y scale and try to find out that
whether this is going to give us the minimum distance that is our objective. So, here you
can see when we plot this 67.7 and 93.3 this is the location.

X coordinate of warehouse:

Cx= (200 x 30 + 100 x 90 + 100 x 130 + 200 x 60)/(200+100+100+200) = 66.7

Y coordinate of warehouse:

Cy= (200 x 120 + 100 x 110 + 100 x 130 + 200 x 40)/(200+100+100+200) = 93.3

(Refer Slide Time: 20:27)

So, this is the location which will optimize minimise the distance travelled from one
place to another.

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(Refer Slide Time: 20:38)

Now the next method that we are going to use is the transportation model. So, we are not
going to solve any problem using the transportation model, but we are going to find out
that what are the different methods that can be used to serve this type of a problem, if
you remember in the previous method that we have seen it was one source only, we have
located one warehouse or one manufacturing plant from where we are serving 4 different
demand centre or 4 different destinations. So, 1 source 4 destinations the problem was
solved for minimising the distance to be covered by finding out the x and y coordinates
of our warehouse.

But in many situations in many multinational companies we may have a different

problem. we may have 3 or 4 sources 5 or 6 destinations and then we have to find out the
optimal location of this sources that they are able to serve the destination with minimum
possible cost. So, here we can see on your screen there are 3 supply centers or 3
manufacturing facilities S, S and S and there are 4 demand centre this is one demand
centre another demand centre third and fourth.

So, there we try to use the transportation model that is usually taught in the course on
operations research as I have already highlighted this point maybe in today’s session or
in the beginning of the previous session. So, basically we try to figure out that what can
be the most optimal solution to this transportation problem for minimising the overall

330
cost. So, we can see that what are the inputs required for solving the problem using
transportation model.

(Refer Slide Time: 22:48)

The requirements here are list of origins and each once capacity. Now origins are the
sources or the manufacturing plants, which are producing the product, we must know
that what are the locations? From where we are going to serve the various demand
centers.

So, we need to identify their locations maybe again x and y coordinates are required.
Similarly, we must know what is the capacity what is the production maybe capability?
Capability of a particular source that is one input that is required for solving a problem.

Second input is the list of destinations we must know that; what are the various demand
points that have to be served by these sources or this manufacturing plants. So, we need
to identify the manufacturing plants we need to identify the markets or the demands
centres and location of each one of these as x and y coordinates must be known to us
then we must know that what is the demand of each destination.

So, that we must know the capability and the demand otherwise what can happen there
can be a mismatch. So, we need to know; what is the total availability of products at the
various sources. What is the overall demand at the various demand centers? So, these are

331
the 2 things that are required to solve this transportation problem and then the third thing
that we must know is the unit cost of shipping and which has to remain constant.

So, if we are changing the unit cost of shipping for each and each demand and each
destination sorry each demand and each source. That from source A to destination B the
shipping cost is suppose one and from source B to destinations supposed D the cost is 2
or maybe is the cost is changing that the problem becomes very complicated. Usually it
is advisable that when we are solving a problem using transportation model the cost must
remain constant between the various sources and the destination, because that is basic
objective of our decision making the solution is found out which minimises the total cost
of this problem.

So, as I have already told the transportation model is based on certain assumptions as one
of the assumptions, I have already highlighted that is the shipping cost for unit is the
same that we have to ensure.

(Refer Slide Time: 25:38)

Secondly, the items to be shipped are homogeneous similar type of items and only one
root is available between the origin and the destination. So, we cannot have multiple
routes between one origin and one destination only one route is there between the origin
and the destination.

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Now, the transportation model is based on this is a generic transportation model that we
are trying to understand today, we can have a specific transportation model also like here
in generic model we have m number of sources m number of factories I can say, n
number of destination maybe n number of warehouses from where the warehouse is
where the product is going after being manufactured in the manufacturing facilities or
manufacturing plants.

(Refer Slide Time: 26:19)

So, we have m number of manufacturing plants, we have a number of warehouses we

have ai as the supply at source I, then bj is the demand at destination j. So, now, bj is the
demand that destination j. Now suppose j can go from 1 to 5 so, we can have 5
destinations and supply at source I means that we can have 4 sources.

So, it can go from I goes from 1 to 4 j can go from one to 5. So, we have 5 destinations 4
sources as a specific transportation problem then we have cij cost of transportation per
unit from source I to destination j. So, we require the cost data for each transportation
from source I to source j and Xij is the number of units to be transported from the source
I to destination j.

Now, you can see that with this generic problem we can convert to a specific problem
and then we can solve it using the various methods that have been used by various
researchers and scientists in as well as engineers in solving this type of problems. Now
transportation problem maybe summarised in a way that we require that how many

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sources are there or how many factories are there, how many demands centers or
warehouses are there, then we need to understand that what is the demand at each
warehouse or demand centre, what is the capability of each source, what is the unit cost
of shipping from each source to each destination. So, all these data can be clubbed and
put into a tabular from like this.

(Refer Slide Time: 28:29)

So, we can have sources as we can have generic 1-2 m sources then we can have number
of destinations from 1-2 n then we have supply a i as we have seen that what is the
capability of each source and b1 is the demand at each destination.

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(Refer Slide Time: 28:53)

So, we can fill these values and finally, the problem can be solved using number of
different techniques. To name some of them row minima method is 1 column minima
method is another technique least cost method Vogel’s approximation method is there
then nor northwest corner method is there.

So, there are number of methods because of the paucity of time we are not covering in
detail, because we had 5 sessions of half an hour each for this maybe topic of plant
location and today we are winding up this week’s discussion. So, I will advise each one
of you each of the learners to at least learn one method of out of these 4 or 5 method and
try to solve a problem using the transportation model for finding out the best location for
our manufacturing facility.

So, with this I conclude today’s session as well as the discussion for this week on plant
location. In next week our discussion will be on the plant layout and we try to we will try
to see that what are the different types of plant layout, what are the different types of
sequence or the flow diagrams and how or what type of layout can be used for which
type of manufacturing activity.

Thank you.

335
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 21
Facility Layout and Planning-I

Namaskar Friends; welcome to session 21, in our course on Operations Management. So,
today, we are going to start the discussion related to the plant layout. Basically, we have
already discussed in week 4, the theory as well as the topics related to selection of a
location for setting up our plant or our factory.

So, today, we are going to start our discussion with the theory and practice related to the
selection of a layout. So, week 4 was related to plant location, factors influencing plant
location as well as the theory behind plant location and the selection of a plant location.
So, basically these two weeks 4 and 5 will help us to select a location as well as to select
a type of layout that we are going to follow in our pursuit of launching a new product in
the market.

So, we have already decided that what is going to be the product? or how much is going
to be the quantity that we are going to produce? Then, in week 4, we have seen that
where we are going to produce or what is going to be the location where we are going to
set up our plant? And now on we will see; what will be there inside the plant or how the
plant layout will be designed? So, our focus now on will be on plant layout and if you
remember in week 1, we have seen that what are the overall objectives of operations
management?

We have also seen that what are the scopes and functions of operations management? So,
basically we were able to understand that Operations Management is related to complete
conversion or we can say that complete management of the operations related to
procurement of the raw material to the final dispatch of the product into the market. So,
we have discussed the fundamental aspects in week 1 and thereafter we discussed carry
forward this discussion in week 2, 3 and 4.

We have then, discussed in the 2nd week, the product design and development in which
we have seen the basic aspects of product design, we have seen product lifecycle, we

336
have seen the concept of value engineering, we have seen the concept of design for x that
is designed for manufacturing and assembly, we have seen ergonomics the concept of
ergonomics and how it helps us to design a good product and finally, we have seen how
to prototype the product quickly or what do we understand where rapid prototyping or
what is the concept of rapid prototyping?

So, we have seen what is operations management? Product plan is one of the important
aspects of Operations Management that we have seen in the very first week and then we
focused our attention on developing a product or designing a product. Thereafter, once
we know that what is the product that we want to make we as a company as an
organization, what is our product line going to be or what type of products we are going
to launch maybe in the next 5 years or 10 years? So, once we know what has to be
produced, we need to find out that how much is the quantity or how much is the volume
of production that is required?

We have decided that a particular product we are going to make; now, in what quantity
we must make? Because there can be 2 extreme cases. We may make it in bulk; we may
follow mass manufacturing system or mass production system or a continuous
production system. But there is no market in the or there is no demand in the market. On
the contrary, we are very conservative; we make very few products only, but there is a
huge demand in the market. So, the two extremes are there in both cases we are going to
lose; in one cases, we have blocked all our financial resources and we have used those
resources for making the product which is now not selling in the market.

On the contrary, we on the other side, if we see that we have the technology, we have the
product technology available, but we are not producing it and there is a huge demand in
the market. So, in both cases, if we are making less products, demand more; we are at
loss. We are making large number of products, blocking our financial and another
resources; there is no demand in the market then also loss. So, therefore, it is important
to understand the need of demand forecast. We need to make a demand forecast that
what is going to be the sales? What are the expected sales? What is the expected demand
in the market?

Once, we know that demand; we can use different methods for making this forecast.
Once we know the demand; now, we have to plan our operations, now we have to

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manufacture the product. One of the important points, when we are starting to produce a
new product is the type of the factory that we are going to use, the layout that we are
going to follow; every particular building or a complex has got a layout. You enter the
premises of any organization, you will see a layout.

So, basically what do you mean by a layout? On the relative location of the various
facilities in the premises. So, that is the basic concept of a layout or we can say it is a
Birds-eye view of the organization that where which facility is located; where is the
maybe carpentry shop, where is the foundry, where is the machining shop or if we talk of
a hospital, it will again have a layout. So, for a hospital, where is the, we can say ICU,
where is the X-RAY lab, where is the doctor’s chambers.

So, all these are we can say location of these facilities within the boundary, is what we
call as the layout. So, once we know that what is the product we want to make; we are
also decided we have calculated using the qualitative and quantitative methods of
forecasting that what is the quantity we are going to produce?

Then, the next stage is the layout or the industry that we are going to use to make that
product of facilities that we are going to use to make that product and there is a good
presentation if you search the internet, you will find a number of very good presentations
on this topic and fortunately, we were able to find one such presentation by Sanket
Bhambal which is given the source or the link is given the website is slide share dot net.

So, we could get this very good presentation by this gentleman and this presentation we
are going to follow maybe, many slides of this presentation we will follow in order to
understand the aspect of layout. Different books you will find, different types of
examples related to the factory layout. So, the title for us today is to understand that we
know what we want to produce, we know how much we want to produce; then, we have
to decide how to produce.

To how to produce we have to manage the operations there also. So, we will see that
what is the facility layout? What do we mean by facility layout? What are the different
types of layout? And some of you may be wondering that facility layout and planning
one is given. So, we will discuss the complete aspect of facility layout and planning in 2
sessions. Session 1, we will see the introduction, the definition, the factors influencing
the factory layout and few types of factory layouts which are generally used in the

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industry. Then, we will focus our attention on the other types of layout, for the latest type
of layout that are being followed in the industry.

So, with this background that is the, what is the importance of week 4 in our discussion.
We are now focusing on actually producing the product, we have already decided what
to produce in product design and development we have decided how much to produce in
sales forecasting. Now we are focusing on how to produce it.

And how to produce it, we are going to understand what is going to be the layout of the
company, what are going to be the material management plans and policies? What are
going to be the aggregate production plan for manufacturing? How we are going to
manage the materials like materials requirement planning? All this means that is actual
actionable output that is actual production of the products or the parts or the components
or equipment that is what is now, now onward our focus going to be.

So, let us start the discussion and try to understand that what do we mean by Facility
Layout?

(Refer Slide Time: 09:31)

So, just a very simple definition you can see, Arrangement of -Machines, Equipment and
Other facilities -for achieving quick production at least cost. So, you see 2 criteria are
already outlined here. What is the meaning arrangement of? That is the location of

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various machines equipments and facilities within the organization. What is the target?
The target is 2 important criteria that is quick production.

So, quick is the catch word here, quick means we have to make efficient and effective
use of our time because the lead times have to be less; we need to produce our product or
parts as quickly as possible without compromising the quality and performance of the
product. So, quick production is one objective, we have to ensure that.

Second is at least cost. So, the cost should also be manageable or competitive we must be
able to compete with the customers based on the cost of the product. So, two things we
have to ensure. So, the layout must be such that it is it will ensure quick production as
well as a cost effective production. So, two factors for an ideal layout can be very easily
specified from this slide that is time and cost. So, we have to focus on the time required
for production and the cost involved in production.

So, we must ensure the location of our facilities within the organization in such a way
that we are able to save time and we are able to save cost, their other factors also. These
are not the only 2 factors which are going to be important. There are other factors which
we are going to take into account that we will discuss maybe in the subsequent slides.
Now, what are the objectives of a good layout?

(Refer Slide Time: 11:39)

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You can see 2 arrows here. Now the top arrow is pointing downwards which means that
these 4 factors we need to reduce, when we are designing a layout or a good layout
should focus on minimizing these 4 factors that are given here.

It must minimize the material handling costs. So, it is important that the handling cost
should be less. So, that a layout can be such that the travel of the materials can be
minimized; the material handling cost may be if you are using manual method of
material handling it may be a costly affair, but if you change it with the automatic
handling system, you may save some money.

Although, the initial cost will be high, but the lifetime cost may be cheaper as compared
to the manual handling system. So, first thing that an ideal layout or a good layout must
address is the material handling cost and try to reduce the material handling cost and
second is it should minimize the movement of material and people, minimum movement
of materials and people must be ensured.

If we can ensure that it will automatically reduce the risk of hazards to the personnel
working in the organization and which will subsequently lead to reduction in the number
of accidents happening in the organization. So, 4 things we need to minimize by
designing a good layout. Now, what are these 4 things? The material handling costs, the
movement of people and material hazards as well as the accidents, but a good layout
must increase something.

Now, what it must increase? It must improve the production capability or the production
capacity. It should improve the labour efficiency, if the labour is working in a safe
environment. They have to move maybe to the minimum, they will definitely become
efficient; unnecessary redundant movements can be reduced by the ideal design of a
layout. Then, employee morale will be high, space utilization will be better and ease of
supervision and maintenance will be ensured.

So, when we design a layout we should design it with certain objectives and the
objectives are clearly mentioned in this slide that what should be our focus? What should
be our objective, when we are designing a layout for a specific organization? There are
other factors also which we will see, but these are the objectives. We must ensure safe
working environment; we must ensure a cheap or maybe a cost effective layout. We must

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ensure accident free layout. We must ensure a layout which is highly productive, which
is highly efficient, which is highly effective.

We must ensure the proper utilization of the space, we must ensure that the layout is such
that the working professionals or the working personnel feel happy while, working in
that environment. Their morale is high. They feel satisfied by working in the particular
type of a layout because if we give a worker a very cramped space and he has to stand in
a very cramped corner and do his work; he may after some time start losing focus and
start losing interest in the job that he is doing.

So, we have to ensure an ideal layout where the machines are properly placed, the space
is properly utilized. People feel happy and comfortable working in that arrangement of
machines and equipment and the overall system productivity is enhanced.

So, we have to ensure, we have to reduce certain things as objective and we have to
improve other things in order to design a good layout. Now, what are the factors that will
affect a good layout? We can see what type of material we are handling.

(Refer Slide Time: 16:00)

What type of product, we are producing? What is the manpower requirement? How
many of them are skilled, how many of them are unskilled? So, that may also help us to
decide on our layout.

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Sometimes, you will see in a specific layout the works manager will be sitting on the first
floor and from there through the glass windows he or she can observe the workers
working on the ground floor. So, at from a height the works manager can always keep a
control, always keep a probing eye on the work being conducted on the shop floor.

So, that is also one we can say additional criteria for deciding the type of a layout, the
type of people involved, the manpower involved; then, the equipment involved. If heavy
gantry planes or heavy gantry robots or heavy gantry cranes are being used; accordingly,
we have to see that how the layout should be, what will be the movement of the cranes?

Whether we should have certain machines below these heavy cranes or not? So, that will
also. So, equipment, machine, manpower, the type of product we are producing. If we
are manufacturing an aircraft, we will have a completely different type of layout. If we
are manufacturing suppose, an automobile that is a motorcycle, we will have a different
type of layout. Location also is very important type of industry is important.

For example, if we are talking of a hydroelectric power project where, water is being
used for creating or generating the power, we will have a different type of layout.
Whereas, in case of coal fired or coal based hydro sorry coal based power generation
units we will have a different type of layout. So, type of industry if it is a continuously
producing product; then, different type of layout. If it job shop type maybe once in
awhile a company is getting the order of a specific design, if it will have different type of
layout.

So, type of industry, machines, manpower, product material, managerial policies and
location will definitely dictate or will definitely be a backbone based on which the layout
of a company will be decided. Once again, I am reading you this is important that what
are the factors that are considered while designing a layout.

So, we have to decide on the type of material handling, the type of product we are
producing that number and skill set of people involved in manufacturing activity;
machines, the types of machines used. Type of industry location and managerial policy.
So, all these and these are not the all, all the factors that we have covered. There can be
some other factors beyond these factors which will also govern the process of selecting a
particular type of layout for a particular type of industry.

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So, but these are the general parameters or factors which affect the type of a layout being
followed in an industry. Now, what are the principles of ideal layout? So, objectives and
principles we can say are may be complimentary.

(Refer Slide Time: 19:29)

So, principles for ideal layout are that we have to decide on the Sequence of operations.
We have to decide on the Uses and Flexibility of the space as well as the equipment.
Then, Safety and Satisfaction of the employees, compactness and Minimum investment.
So, in ideal layout, we have to focus on these 5 important points. We have to focus on
travel that there as we have seen in the objectives that we have to minimize the travel of
men and equipment as well as machines.

So, minimize the travel, we have to optimize the sequence of operations being conducted
for converting the raw material into the final product. We have to ensure proper usage
and flexibility of the machines, so that we can adopt to their design changes very
quickly. Then, safety and satisfaction of the employees on the behavioral part, we have
to ensure that as well as on the technological part also because safety is directly related
to technology and then, we have to ensure compactness and the minimum investment

So, ideal layout, we will try to achieve the ideal layout if we are able to optimize all
these important parameters, the working environment is very safe. There is no danger to
the working equipment as well as the working personnel. They are satisfied; then, the
usage is optimal, maximum utilization of the space we are doing both in the x y and z

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coordinates; all the space is properly utilized. The machines equipment the all other
production line is flexible. The sequence of operations have been optimized.

So, if we are able to optimize all these parameters or all these factors as depicted in the
slide; we can very easily say that the layout that we are following is the ideal or the best
layout for this particular type of industry.

(Refer Slide Time: 21:32)

Now, importance that is really important we have seen we have to cover. So, many
factors in for making ideal layout; these are the important things that must be satisfied.

Why? Why should we focus so much on the layout? We can put all the machines may be
in a single line and start manufacturing. What can be the problem? There can be certain
problems. Therefore, it is important that we give a piece of our mind to the design of a
layout also because the optimal layout or optimal design of a layout will not only help us
in minimizing the travel or minimizing the effort on part of the workers.

But it will save certain accidents which may prove to be costly for the organization as
well as it will help us in improving the morale of the workers. It will help us to minimize
the cost of our product, it will help us to be more productive in our operations; it will
help us to be more efficient and effective in our operations.

So, basically a good layout is what is desired by each and every organization and
therefore, it is really important. Now, if we are able to design a good layout then it will

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help us, the importance will help us to economize or it will help us to achieve the
economies in handling.

It will help us in the effective use of our available area. It will help us in minimizing the
production delays; it will help us to exercise our quality control on the product that we
are producing. It will help us to avoid the bottlenecks.

(Refer Slide Time: 23:15)

Better production control. As I have already given an example the works manager is
sitting on a first floor in a glass chamber and he can directly observe the workers
working on the shop floor. So, better supervision it will ensure improved utilization of
labour, improved employee morale and avoidance of unnecessary and costly changes.

So, there are. So, many points that have been listed here, but in nutshell we can say that
if we are able to design a good layout; it will help us in improving the overall
productivity of our operations or overall productivity of our organizations which can be
related to labour productivity. It can be related to the productivity of our machines. It can
be related to the productive or the economic productivity or cash flow productivity that
whatever is the amount of investment, we are making; it will be converted into useful
output or the profits will sour for the companies or profits will increase for the company.

So, overall we can say a sense of well being prevail if we are using a good layout. So,
again I am not going to run through these points that are listed here because by now,

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every learner must have understood the importance of facility layout or an importance of
a good, this factory layout.

(Refer Slide Time: 24:52)

Now, there are different types of layouts that are usually used in the organization. So,
one is the first one on your screen, you can see it is a Product Layout. Then, there is
Fixed Position Layout, Service Facility Layout, Process Layout, Cellular Manufacturing
Layout or Combined Layout. So, depending upon the factors that we have already
covered, depending upon the importance that the layout has in ensuring the success of
the organization, we can choose from a wide variety of standardized layouts which are
usually followed by industry.

We have seen that the layout is definitely going to help us in achieving our overall
objectives of operations that is to ensure, what are the overall objectives? If you
remember in the very 1st week, we have covered the objectives of Operations
Management.

So, 4 keywords we must always remember; quality, quantity, time and cost. So, our good
layout will help us to achieve these 4 objectives of operations management because we
will be able to produce a good quality product as we have seen in the previous 2 slides
that a good layout will help us to exercise our supervision effectively. It will help us in
better production control, it will help us in better inspection and quality control. So, a

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good layout will help us to ensure good quality. It will help us to produce the product in
a most effective manner that is the quantity can also be ensured.

So, quality is ensured quality, quantity is ensured. Then, we have seen in the very first
definition today that what is the definition of factory layout in that we have seen, it will
ensure quick production. So, it will ensure a timely delivery as well as the time that is
required for manufacturing can be optimized or minimized and finally, we have seen it
has to be cost effective also. So, layout will help us to achieve a cost effective
manufacturing. So, a good layout will focus on good quality manufacturing ensuring the
quantity ensuring timely deliveries at competitive prices.

So, a good layout is always desirable. Now, we have to see, what are the different types
of layouts that are mentioned? We will cover each one of these and try to understand the
salient characteristics of each type of layout. So, the first one on your screen is a Product
type of Layout. Now, what do we understand by product layout. Now product layout is a
line type of layout; in line type of layout we have the proper sequence of machines raised
in a line. It may not be a linear line maybe straight line it can be S type the line means
that the sequence of operations will be one after the other or thus, one subsequent to the
other.

So, we will see what is a product layout? It is a straight line or layout for serialized
manufacture, serialized means the sequence of operations is predefined that what is
going to be or which is going to be the first operation and which is going to be the last
operation and what is going to be the sequence.

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(Refer Slide Time: 28:21)

So, it will be a serialized manufacturing of the product. Arrangement of machines is in

ONE LINE depending upon the sequence of operations. As I have already highlighted.
Materials are fed in the first machine and the finished products comes out from the last
machine. For example, sugarcane mill and paper mill and to that extent the
manufacturing of automobiles also uses the line type or a product type of layout. The
assembly starts from one end and that complete product comes out from the other end.
So, the automobile industry also most of the times in they follow the assembly line and
falls under the product type of layout.

So, we can remember from this slide that it will follow a line it can be U type of layout
also. We are entering the raw material from one end of the U; then, it follows the
sequence of operations in the U and comes out from the same side only. But it follows a
specific sequence of operation. It can be S type of layout also, raw material enters from
one side; undergoes the sequence of operations in a series and finally, the final product
comes out from the other end of the S type of line.

So, it is not a linear line only, but it can be for a straight line only; it can be S type, it can
be U type or any other type that can come to your mind. So, but the sequence of
operations is the key word here which will remain same.

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(Refer Slide Time: 29:57)

Now, this is an example of a product type of layout, you can see. The raw materials, this
is raw materials, being received here; raw materials store. So, Fabrication of part A, it is
coming to WC 1 and then, this is Fabrication of part B, again WC 2; Fabrication of part
C coming here and all these 3 assembly line of the product which is coming here and
finally, after testing it is going to packaging and shipping and finished goods store.

So, we can see a particular sequence or a line is follow WC 1, WC 2, WC 3 testing and

finally, it is going through the Packaging as well as Shipping. And the additional
materials are stored in the Finished Goods Store. So, you can see the sequence is
followed WC 1, WC 2, WC 3 and the assembly line for product X, WC as you can see
here it is clearly mentioned, it is a work center. So, all the 3 work centers are arranged in
a single line or in a linear fashion one after the other. So, all the 3 parts part A, part B
and part C come to the assembly line and they are assembled together to form product X
and finally, after testing the product is sent for shipment.

So, this is a product type of layout sequence of operations are followed. Then, the second
is Fixed Position Layout.

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(Refer Slide Time: 31:20)

You can see here; this is a manufacturing of our Aircraft. We see the product here is not
moving in case of product type of layout or line type of layout, you can see there is a line
and the product is moving. Part A is coming to Work Center 1 and here, it is moving
forward and getting assembled with part B at Work Center 2 and then this sub assembly
moves further and at Work Centers 3. It is getting a sub assembly of A and B is getting
assembled with part C and the assembly of A plus B plus C is finally, going for testing.

So, the product is moving on the assembly line. Whereas, in case of Fixed Position
Layout, the product is fixed at a single point; you can see here the product is fixed here,
fixed position layout, so the movement of men and machines to the product. So, the
product will not move from its location; it will be fixed at 1 point only. And men and
machines or equipment that has to operate on that product will move to the product and
do their operation and the example is given Aircraft, one of the characteristics is that this
type of layout is used for a large or bulky product and for example, Aircraft assembling
or building or fabrication of ships.

So, with this, we come to the end of today’s session. I am again, thankful to the
researchers, to the engineers, to the academic fraternity who post their valuable lectures
and videos and presentations on the website. And this particular presentation again, the
source is given you can follow the complete presentation at www.slideshare.net/
sanketbhambal/facility-layout. The link is given, you can follow this link and may also

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try to look for other beautiful presentations, other well meaning presentations, other easy
to understand presentations by the same author.

Thank you very much.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 22
Facility Layout & Planning-II

Namaskar friends. We are currently discussing the topic of Plant Layout or Facilities
Layout. We are in week 5 of our discussion on the course on Operations Management
and session wise today; we are having 22 sessions of our course. Just to have a brief
overview of what we have covered already. We have already discussed for last 4 weeks,
different aspects related to Operations Management. In week 1, we have discussed the
objectives, scopes, functions of Operations Management.

Then, we have seen the Product Design and Development in week 2. In week 3, we have
discussed the concept of Sales Forecasting and the different techniques used for making
a forecast such as Quantitative Methods of forecasting like Averaging and Weighted
Moving Average and exponential smoothing as well as Qualitative Methods of
forecasting like Delphi method and estimates and survey technique.

In week 4, we have seen that what are the factors influencing our decision regarding the
selection of a location for our manufacturing plant or facility? We have seen that how we
can decide or what are the factors governing our decision related to the selection of
location? Now location can be, we can say it can be globally; we can say it can be at
selection of a particular country, within the country. It can be a selection of a particular
state; within the state, it can be a selection of a particular district; within the district, it
can be a selection of a particular tehsil.

So, location will or the factors that affect our decision related to the location of the
manufacturing facility. We have covered in week 4 and in week 5, currently we are
focusing on the layout that once we have decided the location; for example, we decide
that our company is going to be based out of Uttarakhand or may be in the state of
Uttarakhand at Haridwar.

So, once we have decided that our factory will be in Haridwar, we know that we have to
procure a particular piece of land, where the factory will be or the facility will be created.

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Now within the facility, how we are going to place, how we are going to we can say
locate our various facilities or sub facilities that is what basically the layout is and if you
remember, if where you have already seen session 21; you might have seen that there are
factors influencing this decision also that what type of layout we must follow; that
depends upon the type of industry; that depends upon the type of personnel, we are
using; that depends upon the type of materials we are using; that depends upon the space
that we are having; that depends upon the utilization of the space that we want to foresee.

So, basically there are number of factors which will affect our decision related to the
selection of a type of a layout. So, we have seen in the previous session, there are
different types of layout. We have seen there is a product type of layout in which the
manufacturing or the processing will follow a particular sequence of operations. One
operation will definitely follow the other operation means the sequence is predefined the
product will enter from the one end of the organization and the not the product sorry, the
raw material will enter from one end of the product and the final product will be coming
out from the other side.

So, basically the raw material will enter from one side into industry or the factory and it
will come from the other side, I think I have said product. So, may be if you are attentive
you will be able to identify this type of mistakes in the lectures delivery. So, again I am
repeating that in line type of a product type of layouts, the raw material will enter from
one end of the factory and the final product will come out from the other side; that we
have seen in the previous session. We have seen that there is Work Centre 1, Work
Centre 2, Work Centre 3.

So, the parts A, B and C are being manufactured independently by taking the raw
material from the stores and all 3 are coming down on the assembly lines are getting
assembled to get our product x which is then, going to the storage from where it is being
dispatched to the market. So, we have seen in line or product type of layout we follow a
particular sequence of operation. So, we will see in our subsequent sessions, what are the
material flow patterns it can be U type, S type; I think I have explained in the previous
session also.

Coming on to the other types of layout that we have to cover; in the last session 2 types
of layouts were covered one was the product and the line type of the layout and the

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second one was I think all of you must remember, what was the other type was? Other
type was a very huge product an Aircraft or a Ship.

And the layout is called as the, I think all of you just can remember the type of layout
that we have discussed that was the Fixed Position Layout in which the product remains
stationary at one place only because of the nature because of the size of the product; it is
a huge product. So, we cannot move the product from one workstation or work centre to
the another work centre.

So, what will happen? The product remains at one place only, but the machines and
people or equipment will travel to that product and the processing will be done there.
Now, what type of machines and equipment are required portability of the machines and
equipment becomes a very important parameter in deciding on the type of machines that
can be used for a fixed position type of a layout.

But the product remains at one place only; where as in case of a Line or Product type of
layout, the product will move on the assembly line and I think I have given an example
earlier also that manufacturing of automobiles usually follow a assembly line and the
product or line type of layout. So, I think I have revised what we have already covered in
the previous session.

And today, we will carry forward our discussion in week 5 on the types of layout; we
have already seen 2 types of layout. We will carry forward and see that what are the
other types of layout and with some examples, we will try to understand that what are the
parameters that affect the selection of a layout and what are the characteristics of some
certain special type of layouts?

So, basically when we have to plan our manufacturing facility, the first decision that is
related to the location of the facilities is the layouts and there we need to understand that
what are the various types of layout? Also from examination point of view, this is an
important question which I have seen in most competitive examinations related to the
layout. Sometimes, there may be a question related to a characteristic of a particular type
of a layout or the comparative table between the different types of layouts or the factors
influencing the different types of layout or the objectives of a good layout or what is a
ideal layout.

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So, layout is an important topic in operations management and therefore, we must
address it properly and we must all of the learners must know that what are the various
types of layouts that are followed in industry. And now, we will take forward our
discussions related to the other types of layouts that are usually followed in industry. So,
2 types of layouts already you know the first type is the product or the line type of layout
and the second one is the fixed position type of layout. Today, we will cover the process
type or functional type of layout and the cellular type of layout and the service type of
layout.

(Refer Slide Time: 08:34)

So, let us start our discussion with the Process type of layout. Before we understand the
process type of layout, I must question that what are the limitations of a product type of
layout or a line type of layout? The advantages all of us know; because there is a
particular sequence or not much planning is required.

You know that the raw material will come from one end; it will be processed in a
sequence of operations one after the other and the final product will come out from the
other side. So raw material is entering, final product is coming out from the line type of
layout; not much planning problems are there.

But the problem comes when one of the machines or the work centers fails or breaks
down. The whole line will stop its operation. So, one big challenge. The complete
breakdown of the assembly line will lead to huge losses for the organization. So, that is

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one limitation of the line type of layout. Moreover, the slowest machine will decide the
speed of the layout or the speed of the line.

There may be machines which are very quick, very efficient, very fast. But the slowest
machine will define the output that is that we can expect from that assembly line. So, the
machine of the slowest speed is an indicator of the speed of the line. So, these are the 2
major limitations; breakdown of a single machine will lead to the overall breakdown of
the line as well as the slowest speed will dictate the overall output of the line.

These 2 limitations are over come in process type of layout. In process type of layout, we
see that it is a functional type of layout and job lot manufacturer, batch production type
of layout. The previous type of layout is what type of production we can envisage there
or we can foresee there when we have a line type of layout?

We know the types of production systems already we have covered in our course on
operations management only. If you remember we have intermittent type of production
systems and we have continuous type or mass type of production systems. So, line type
of layout will be followed in mass or continuous type of production systems; because we
require continuous output from the line and therefore, we will use a line type of
production system in case of our continuous production or we will use a line type of
layout in place where we want a continuous production to take place.

Whereas, if we have a job shop type or a batch type of production system, we will follow
the process type of layout. So, you can remember to things by now, line type of layout
line or product type of layout used interchangeably; Line or product type of layout
continuous production or mass production; Process type of layout or functional type of
layout job shop or batch type of production.

So, we can correlate the 2 things; we can equate the 2 things that in case of continuous
production we are going to use line or product type of layout. In case of job shop or
batch type of production, we are going to use process or functional type of layout.

So, these 2 things all the learners must remember and it is specifically mentioned here
also that for job lot manufacture or batch manufacture batch manufacturing we are going
to use process type of layout. What is this type of layout? We know that for job shop or
batch we are going to use process; for line type of layout we are going to use mass

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manufacturing and for mass manufacturing we are going to use product or line type of
layout.

All of us know by now, what is line type of layout, but what is process type of layout. It
is clearly explained in point 2 that it involves grouping of like machines in 1 department.
It involves grouping of similar machines in 1 department. We will see with the help of a
diagram. Now suppose, the workshops in your colleges wherever we have studied
engineering, most of the workshops follow the process type of layout.

All of you will see that there will be carpentry shop 3 or 4 or 5 depending upon the
strength of student. There will be a carpentry shop there will be some number of
machines there. There will be a foundry shop where all operations related to foundry and
casting will be displayed or experiments will be conducted. There will be a machine shop
where you will have all the lathe machines, drilling machines, milling machines, planers,
shapers, CNC cutting machines.

So, machine shop will have all operations related to machining or all machines related to
the machining operation. Carpentry will have all machines related to wood working or
carpentry. So, specific functional areas are identified. So, that is an example of process
type of layout. Now here you can see it has an advantage. The major advantage is that
suppose, there is a breakdown of a particular machine in the carpentry shop. It will not
affect the over or output of the layout, why? Because the other machines can perform
their function and that machine can be stopped over for a period of time and the work
can be shifted to some other machine or it can be outsourced.

So, basically a breakdown of a specific machine will not stop the overall production
process in process type of layout and that is one of the advantages of this type of layout.
And second advantage is that here also the slowest machine may not affect the overall
productivity of the organization.

Because we may have number of series or series of such machines available which can
take care of the demand or the require or the production requirement. Because there will
be a group of machines in every section or every functional group or every functional
area. So, drilling section may have number of drilling machines; lathe section may have
number of lathe machines and therefore, the work can be over all managed properly.

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Because we have number of duplicates of these machines available in a particular section
or a department. So, it overcomes the limitations of the line or product type of layout; but
this type of layout will also have its own limitations. What can be the limitations? We
see, we have seen that not much planning acumen, not much planning mind is required in
case of line type of layout because the raw material is entering from one end and it is
getting converted into the product at the other end. But here we have to do our
production planning and control properly. We have to see that which batch is moving
from which department to which department. So, all that planning has to be done
properly.

So, the task of production planning and control becomes more rigorous and more
involving as compared to the product or line type of layout, one additional aspect that I
missed here is that we have to have general purpose machines here. A product or line
type of layout, the product design will be more or less consistent more or less constant.
For example, a company is producing a car. So, the design of the car is not going to
change may be in a year or 1 and half year or 2 years’ time.

So, once a line or a product line is dedicated for assembly of a particular brand of car or
a particular model of a car; the all the machines in that line may not be very versatile.
They may be dedicated machines for a specific set of operations only. But here in case of
process type of layout, frequent design changes. Because batches of products will come
and the designs of these products made be different. So, since the product design will
keep on changing and there will be a wide variety of products that are produced.

So, the machines need to be general purpose machines in case of process type of layout
and these general purpose machines will be able to adapt to the design changes in the
most efficient or time efficient manner and will help in improving the overall
productivity of an organization.

So, 3 important characteristics we can remember related to process type of layout. First
one being that it is used for job shopper batch type of production systems. Specific sets
or specific departments are based on specific type of machines. So, it involves grouping
of similar types of machines in specific department. And finally, it makes use of general
purpose machines as the product design change is regular or the product design changes
on a regular basis.

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(Refer Slide Time: 18:03)

Now, let us see an example of a process type of layout on your screen. So, here we see
that we have a Turning Shop; where all the Lathe machines are there. We have a Drilling
Shops; where all the Drilling machines are there. We have all the Milling Machines here.
We have Planners here. We have Automatic machines here. There is a Central Inspection
Area. There is a Design cell. There is a Heat Treatment Shop; there are Grinders. So, you
see specific machines are grouped together into specific areas or into specific
departments. And then, one batch of material, one movement of material is depicted here
with dotted lines you can see.

So, this is a raw material section. This is a Truck unloading dock. It is an outside from
outside, we are getting the raw material. Trucks will bring the material; it is getting
unloaded here. This is the Inward Goods Store where, maybe some quality inspection
may be done of incoming raw material. This is the Raw Material Holding Stores where,
we are keeping our raw materials. Then it the first operation is on Lathe machine turning
shop; then, there is hole drilling or hole making operation. Then milling operation; then,
finally, finishing or grinding operation. Finally, it comes for inspection and then, to the
design and finished goods store.

So, design may be the overall may be checking up of the product or may be the quality
control department. So, this is showing the path of flow of materials for part A and this is
a Truck loading. This is the packaging and the shipping. So, the raw material is coming;

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it is traveling to the various sections within the organization or within the factory and it
is being dispatched; after being converted into the final product. So, here, we see that it is
not following a straight line or a sequence. Another product may be such that it may
require electro plating operation after milling.

So, this path line would then, instead of moving to grinding; it will first move to
electroplating shop and then, maybe going to the heat treatment shop. So, sequence will
be dependent upon the requirements of the product and there are specific dedicated areas
for similar types of machines in process type of layout. So, one single line of operations
or may be continuous operations one after the other is not the case, in case of process
type of layout.

Some of you may wonder that here also one line we are having, but that line is not
consistent not constant for all types of product that are manufactured in a process type of
layout. Suppose the company has a product mix of 7 different products; each product
may have a different lines and depending upon the design changes, this line of operations
or sequence of operations make keep on changing in process type of layout. But one
thing we must keep in mind that in product or line type of layout, the sequence of
operations is fixed and it remains fixed for a specific product and that line is dedicated
for that product only.

So, that is the basic difference between the product and the process type of layout. Then,
there is a specific type of layout that we call as cellular type of layout and the
manufacturing based on this cells is the usually called as Cellular manufacturing.

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(Refer Slide Time: 21:34)

Now, in cellular type of layout, we have machines which are grouped into cells. So, we
will try to understand this with the help of a diagram and each cell is formed to produce a
few parts with common characteristics. Before explaining the concept of cellular
manufacturing, I would like to invoke another word that is group technology; because
here we are producing few parts with common characteristics.

So, the word group comes into picture; we try to group the parts the company is
producing into a part family and that family has some or certain common characteristics.
For example, all the ax symmetric parts of a specific length can be grouped into one-part
family and that part family can be processed in one cell. Now some of you may be
wondering, why? What is the requirement of making these families? When we have a
process type of layout, we can make batches of these components and maybe a one path
can be identified and they can just be processed into the different departments and
finally, into the final product.

We need to take advantage of the similarities of the product that we are producing and
another important point, why this type of layout has been developed is the time taken to
set up a machine for a particular operation.

Usually, it is observed; all of you may have done experiments on lathe machine
maximum time goes in setting up the job in the chuck than the centering of the tool. So,
if you have done the job with your own hands; you will remember, the actual machining

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time is just a fraction of the overall cycle time. The overall cycle time involves setting up
the machine, fixing the job, setting the tool, fixing the tool, bringing the tool and work
piece together setting or centering the job and the tools. And finally, performing the
operation the actual operation is very very less time taking or is very very quick, but the
overall cycle time is high.

So, if we have similar products, similar shaped products, similar sized products; we need
not spend too much of time in setting up the machine for performing a particular task.
So, a cellular type of layout saves a lot of time which is usually spent in setting up the
machines for different product. Because here we have a group of product or we have a
part family which will go to a specific cell and that cell will have a dedicated machine
for this type of products only and may not require or I must not say may not require, will
definitely will not require high or larger time or maybe more time for setting up in order
to perform the operation.

So, in order to reduce the setup times, we group the products in to part families and we
put the machines in specific cells which are dedicated to a particular part family. And
this part family will go to that particular section or that particular cell and will get
processed here. Now must I address some of you may be wondering that then, what is
the difference between a process and a cellular type of layout? Here also we are having
cells which will have machines.

So, in process type of layout the sections of departments are based on similar type of
machines; for example, in turning we may have all lathe machines, in drilling we will
have all drilling machines, in milling we will have all milling machines, in carpentry we
will have all woodworking machines. But in case of a cellular type of layout each cell
may have a lathe machine also; it may have a drilling machine also; it may have a
grinder also, but this type of machines will be such that a particular part family will get
all operations done within that cell only and the final product will come out from that
cell.

So, I think I have tried to explain the concept of group technology that why do we group
the parts together in order to reduce the setup times and what is the criteria for grouping
the products in two parts. So, we can classify or we can group the parts together based on

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the shape of the product, based on the size of the product, based on the similarity in the
operations required on that product.

For example, there is a part family which may require only turning and drilling operation
only. So, we will make a part family of the parts which only required these 2 operations
and in that cell, we will have only turning machines as well as the drilling machines. So,
that this part family goes there into that cell sequence of operations is followed and then,
it goes to the next may be if it is a final product it may go into the dispatch.

(Refer Slide Time: 27:08)

Here we see, for your reference. This is cell 1, the solid line shows the production or
material flow.

So, we see the material enters, it goes to machine 1, 2, 3, 4, 5 and then, it goes out.
Similarly, this is may be for part A, it goes to machine 1, 2 and part B comes dotted line
goes to 4 and then, maybe they go to 3 and then, maybe this is a Cell; this is 1 particular
Cell. Cell 4; this is Cell 3; this is 2; this is Cell 1. So, Cell 2 is dedicated for Part D only,
you can see Part D comes here. 1, 2 and 3 are the operations. So, 3 operations are done
maybe these may be different operations, it may involve turning drilling and grinding.

So, you have done turning; then, drilling; then, grinding and all these parts go out. So,
Part D similarly part X and Y are here both of them come and they get assembled and
then finally, they come out from here. So, basically we can see that there are dedicated

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cells 4 cells here. Cell 1, Cell 2, Cell 3 and Cell 4 for specific type of parts. So, part A
and B are being processed in Cell 4; part X and Y are being processed in Cell 3. Part D is
being processed in Cell 2. So, this is way, this is the way that different part families are
processed in different cells. So, this type of layout usually we call as a Cellular type of
layout.

(Refer Slide Time: 28:37)

Then, we have service facility type of layout also and this is can be followed in case of
banks or hospitals.

So, here we can see, this is the layout of a Hospital. Hospital Wards; this is again, Wards,
Wards and Wards. So, there we have all the Wards in 1 section of the hospital. Then, the
Surgery and Radiology and Intensive Care and Technical Services.

This is the area, this is the Parking, the Cafeteria, Doctors Lounges, Business Offices,
Casualty and Inpatient Department, Entrance and Exit. So, you can see for any hospital
or a bank we have a specific type of layout. Let us try to see few examples now. Since,
there can be a layout which we are already following; many times we may need to revise
the layout also. Why do we need a revision?

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(Refer Slide Time: 29:30)

A revision of an existing layout can be done. Minor changes to complete dismantling of

the existing layout is also possible and why do we do that? We do that to increase the
operating efficiency of the plant. If you remember in our previous session, that is session
number 21, in week 5, we have covered that what is the ideal layout or what are the goals
or objectives of a good layout or what are the goals and objectives of a layout?

So, there we have seen, we need to improve the production efficiency; we need to make
the things easier for the work people, for the work personal who are performing the task.
So, basically revision of layout is also possible and most of the companies keep on
revising the layouts in order to improve their production efficiency.

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(Refer Slide Time: 30:22)

Now, why revision is required? As I have already explained in the previous slide,
sometimes the companies may need to expand or they need to put in or bring in more
machine. So, they need better utilization of the space existing with the company or there
can be technological advancements it may. So, happen that the task of 4 machines may
now be able to be done or because of the technological advancement we can do it on
single machine also.

So, we will try to revise our layout remove those 4 machines or maybe we can sell off
those machines and put a single machine in place of those 4 machines; again, we need to
revise our layout and then, we can have a sole purpose of improvement of the layout. We
feel that the space is not been utilized properly. We need to improve the space utilization
and therefore, we need to revise a change our layout. Now just layout planning is another
term which is used.

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(Refer Slide Time: 31:19)

And we can see here, this is Retail Layout Patterns. This is an example where,
Rectangular with parallel aisles. These are the rectangular facilities, Grid type of layout
this is more Formal. Controls the traffic flow. Uses selling space efficiently. So, this can
be a retail, if we see if we go to a shopping mall there is a retail store there. So, this is
usually a layout because there what is the target? The target is the customer must be able
to see the display of the retail items or the retail goods.

So, we have to ensure that the movement is such that the customer moves around in an
open space and the displays are such they are parallel. So, that the customer can see, just
pick up the thing and put in his basket. So, we have to manage layout in such a way that
the traffic flow is constant or it is a we can say uniform as well as smooth for the
customer’s formal uses the selling space efficiently. So, the displays of the various retail
goods are arranged in such a way that the customer is easily able to see them and select
them in the shortest possible time.

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(Refer Slide Time: 32:48)

So, this is just a layout, a general layout of a retail outlet. Then, Free-Form also
sometimes, this many these companies these days many startups use a Free-Form type of
layout where, it is Free-flowing; there is no standard pattern and it is usually informal
type of layout.

Moreover, it creates a friendly environment and it is Flexible, sometimes you may not
use rigid structures there you may use flexible structure. So, that every now and then,
you can keep on changing the layout; maybe we can take an example of a hostel room
you have a bed, a table and a chair. It is the flexible type of layout, you can orient your
table, chair maybe every month you can change the reorient or you can change the
orientation of your furniture in the room.

So, you are changing the layout and you have a feeling of change that is necessary in our
monotonous life. So, this Free-Form type of layout is usually informal and is more
flexible. So, that you can change it or revise it. We have seen, what are the different
types of layouts and why do we need to revise the layout? So, once we have a flexible
type of layout, we can very easily revise it. There is one small case study.

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(Refer Slide Time: 33:58)

This is another example of a Boutique; where, we can see where are the, where what are
the facilities in within a boutique, there is a dressing room here, there is a pant section
here; this is cashier; this is seating area, accessories, sale items, out of season sale scenes;
these are shirts, suits, latest items.

So, we can see once this, once we customer enters the showroom; latest items are usually
displayed in the beginning. You can experience this whenever you go to a particular
apparel store, you can see the latest items will be at the beginning only. So, the latest
item and the items which are out of fashion maybe towards the end. So, these are out of
season sale items here. This is a cashier a general format for of boutique unique shopping
environment divide store into series of individual shopping areas each with its own
theme.

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(Refer Slide Time: 34:57)

Now, we can see a case study of a McDonald. This is just Kitchen layout for a
McDonalds Kitchen. So, we can see we have a French Fries Machine here. There is a
Refrigerator for storing the raw materials. There is a Heater for Ham, sausages and egg.
There is a Sink for washing the utensil. There is a processing and packaging platforms.

This is the, these are the Cashier Counters; where, the customers can come and place
their order and then, this is the area where we have written McDonalds Kitchen where,
the customers can take their food and sit and enjoy the food. So, this is a typical layout of
a Kitchen. So, with this I think, I have already exhausted my 30 minutes’ time for this
session and we have already jumped the time window of 30 minutes.

So, I will end the session here today, but we have tried to understand the different types
of layouts and in the very brief session, I have tried to compare the different types of
layouts also. So, I request all of you to remember the 4 types of layout; the product or
line type of layout; the process type of layout; the cellular type of layout and the fixed
position type of layout.

Because these are the 4 major types of layouts that are used in industry and we have seen
specific examples of a McDonalds Kitchen, A Hospital, A Boutique and A Retail Outlet.
So that you can relate, what we have studied theoretically with the practical experiences
that all of us have, when we venture out of our houses.

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So, with this we close today’s session.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 23
Factors Influencing Plant Layout

Namaskar friends, welcome to session 23, in our course on Operations Management. We

are currently in the 5th week of our discussion on this course on operations and we have
discussed the basic aspects of the course, on Operation Management till date. If you
remember, just to have a brief revision of what we have covered till today; we have
covered the scopes objectives functions of operations management in week 1. Then, in
week 2, we have covered product design and development. In week 3, we have covered
the sales forecasting aspects. In week 4, we have covered the plant location aspect and in
week 5, we are covering the plant layout.

So, if you see we are trying to develop an operation or an industry in which we are going
to produce something tangible. So, starting from the fundamental aspects of operations
management; we have moved towards what we must produce, although we have limited
time to discuss product design and development. It can be studied as a full-fledged
course of 40 lectures. But we try to cover that we need to focus on developing a new
product, why? And what are the basic nuances related to product design and
development? That we have covered in one session. Then, we focused on how much
products we must make in our session or in our week on sales forecasting. Then, we
thought that yes; we have an idea, what we want to produce? We know how much we
need to produce?

We focused our attention on where we must produce and produce and you know that we
have already covered in week 4, the factors affecting the location of the plant and where
like in which state, in which district, in which part of the country, we must set up our
operations. So, that we have already studied in our week 4. Now we are in week 5, in
which we are covering that once we have decided where we are going to produce our
product, where we are going to operate; we are trying to set up our plant in the most
effective manner.

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We are trying to understand that, what are the strategic types of layouts or what are the
basic type of layout which are being followed by industry? If you see, I think all of us
travel and go to different hotels and stay in different hotels, most of the good hotels you
will see that a layout of the room is more or less consistent. Now, why most of the hotels
have similar kind of layout of the bed and the television as well as a table, chair, the
washroom, the dressing room; while a specific type of layout is there.

Because the things have been or the parameters have been optimized over a period of
years and the optimized results have now become standard. Similarly, the layouts that are
followed in industry are more or less standardized, why? Because all optimization related
to movement of material, movement of men, inspections, supervision all these things
have been optimized that which type of layout is good for which type of industry. We
have seen in our course, in this week only we have covered in the very first session the
fundamental aspects of layout and what are the important factors governing layout?

And, we have seen that the type of industry, the type of product we are producing, the
volume of production all these aspects are very important related to the selection of a
layout. Now, we are trying to understand that what are the various types of layouts?
What are the important factors related to the layout? And I have highlighted I have
emphasized. Again, I am emphasizing today that layouts of an industry are an important
aspect and they are important from the examination point of view; in most of the
question papers related to the industrial engineering or operations management, you will
definitely find a question related to the layouts or the type of layout.

So, that is important even from the examination point of view. So, we are trying to
understand that what are the various types of layouts being followed by the industry and
today’s session we will try to emphasize; we have already seen briefly that what are the
factors influencing the plant layout. Today we will slightly carry forward our discussion
and try to highlight each and every point which affects the selection or a type of layout.
So factors influencing the plant layout is the topic of our discussion today and we will be
winding up the discussion on week 5 emphasizing on all the aspects related to plant
layout or factory layout.

So, let us start the discussion for today and today, we will try to cover that what are the
important factors related to plant layout? Now one of the most important factor which we

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have already covered in our discussion during week 2, is Product related to which we are
doing the manufacturing or the Product for which we are doing the manufacturing
activity. Now the type of product will also influence the type of layout that we are going
to follow; examples are given on your screen.

(Refer Slide Time: 05:57)

So, the Type of product whether it is heavy or light product, big or small product, liquid
or solid in nature will affect the type of layout that we are going to select. First example
is, for uniform type of products, product layout is suitable. Now, I think it must have
been clear to all of you that what is the product type of layout? We also call it as a line
type of layout in which the product that is being produced or manufactured follow a
specific sequence of operations.

So, product type of layout is usually followed for uniform type of products. Example, I
think if it would have been a regular class I would have been more than happy to ask
questions from the students that give me at least 3 examples, where this type of products
are being produced or where product type of layout is being used. But here I am trying to
answer the question that we can use this type of for layout in automobile industry; where,
the assembly of car or motorcycle is taking place.

So, that can be one example; where, uniform type of product, all cars produced are of
same type. They are of same color or they can be of different color also, but the type of
car that is being produced will remain same or uniform. Similarly, we can take an

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example of a line type of layout in FMCG goods also. Suppose, biscuits are being
produced and 1 dedicated line is for a specific type of biscuit. So, there will be sequence
that will be followed and a complete sequence will give you a final product. So, that can
be another example of a product type of layout where, same product is being produced.

Then, the next example is for customized product. Customized product means that it is
the product is customized to the needs requirements, specifications of the customer
which means that as the customer is changing, your product design is getting modified
and for a variety of product designs, our uniform or may be a line type of layout may not
be suitable. Therefore, we will go for a process or a functional type of layout where, you
remember that there are different departments different sections.

For example, we have seen there can be a drilling section; there can be a milling section;
there can be a grinding section having grinding machines may be 8 to 10 type of grinding
machines, within grinding also there can be different types of grinders like bench
grinder, there can be a cylindrical grinding machine, there can be center less grinding
machine; different types of grinding machines can be there. But that will be within the
grinding section only. So, that type of layout can be used, where you have a frequent
design changes in the product or the customized products are being produced.

For very bulky products, we can go for fixed position type of layout. As we have seen in
an example, where an Aircraft was being manufactured. So, when you want to
manufacture a bulky big aircraft or a very big ship, in that case we will use a fixed
position type of layout. Where, the product will remain at its position, but the machine
and men will move to that product to perform the specific operations in order to ensure
the complete assembly of the product.

So, these are the important topics related to the product or important factors related to the
product that will influence the selection of our layout. Similarly, the sales and demand
also influence the plant layout. Moreover, the volume and quality of product are
important factors to how that suppose, the quality criteria; quality is an important criteria.
We have to see that whether we are going to go for an online quality control or we are
going to do the quality control after the product has been produced or we are going to
check the quality during the line at 3 specific locations.

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So, depending upon the quality that we want to ensure or the quality control policy that
the company wants to frame; they will decide that what type of layout should be used by
the industry. Because these qualities control personnel, quality control equipment also
has to be integrated within the layout only. Some companies may have a policy that first
they will make the product and then, the product will go to a specific quality control
section; where, the quality personnel will ensure that whether the product being
manufactured is meeting the specifications or not. So, that can have a different; maybe
thought related to the layout because you have a separate section of quality control.

But in some cases the quality personnel may be deputed on the line itself in order to
ensure the intermittent or inter level maybe during the line. They will be checking
whether the product is meeting the specifications or not and depending on that the layout
will be influenced. The volume of production also; in case of an aircraft, the volume of
production may not be that much. Because the product will be produced as per order and
the delivery dates will be negotiated and decided dependent upon or depending upon the
production facility of the company.

So, the production may not be too large in number. So, therefore, we may easily go for
fixed position type of layout; whereas, in case of cars or motorcycle that demand may be
large. So, volume of production required is also large and line type of layout where every
minute every 5 minutes we are producing one vehicle that type of layout will be more
suitable; because it is mass or continuous type of manufacturing that is desirable in case
of automobile industry; where, the demand is large. And therefore, the layout which can
sustain, which can produce that kind of products to satisfy that demand will be more
suitable in an automobile industry. So, the volume, the quality, the sales, the demand all
these parameters and all these parameters are related to the product.

So, product that we are producing is the first influencing factor, influencing our decision
regarding the selection of a particular type of layout. So, first thing you should remember
regarding the plant layout is plant layout starts with p and product also starts with p.

So, p and p we should remember that for plant layout product is one of the foremost
parameters that must be considered and related to the product, volume of production,
demand in the market, quality of the product that we want to ensure size of the product
whether it is large, medium; variety of products that we are producing all these are other

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parameters may be secondary parameters product overall may be primary and then
related parameters are secondary. All these parameters will affect our decision related to
the selection of the layout. But this is not the only parameter; there will be a series of
parameters or factors which will influence our decision.

(Refer Slide Time: 13:59)

So, let us take the other parameters also. The other factor is Materials. The types of Raw
Material whether it is solid, liquid, gas, heavy, small or large. So, depending upon the
type of material, we are handling; we have to select our layout. For example, that we are
having large sheets of metal that we have to handle. So, definitely we will require a
layout where, we can have a place to handle all these big sheets. We may require to cut
them using may be a plasma arc welding process.

Or plasma our cutting process. So, there we require that this machine wherever we are
locating this machine, there should be an appropriate place where we can keep these big
sheets. So, the size, the shape, the form may be whether it is solid liquid or gas. So, all
these will influence the selection of our layout. Need for storage of different types of
materials.

As I have already told big materials may require different types of storage space; small
materials, very small materials may also require different types of storage space. There
may be materials as I know; we have done a course on processing of polymers and
polymer composites also. There are prepregs which have to be specifically stored at

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minus 18 or minus 20 or minus 30 degree centigrade. Now the place where they are
stored and the place where they are being used; there should be minimum distance
between these 2 places and this will also affect the selection of our layout that what type
of layout we must follow.

Because as soon as we take this material out of that temperature where we are
maintaining it, it will start the process of polymerization and we want to use it as quickly
as possible. And we have to place it on our mold. So, that is one specific requirement and
one example I am sharing with you that the need for storage of the different types of
material will also influence our decision related to the layout.

The movement and placement of different types of materials during processing; so,
maybe that is also important the working process and the other parameters related to the
movement of the materials will also influence the selection of our layout movement and
placement of different types of materials during processing. For example, let us take an
extreme case, there is no movement of the material as in case of very bulky and large
sized product.

So, definitely we will say this is large size product movement is difficult. So, let us go
for a fixed position type of layout only. And in line type of layout the movement is
linear, sequential operations are being performed; we will say the movement is in one
direction only. The raw material is entering the company or the factory from one end and
the product is coming out from the other end. So, there is a sequential operation. So, let
us have a line or a product type of layout.

So, the movement of material is also very important. Then, maybe the tertiary parameters
like manpower.

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(Refer Slide Time: 17:23).

The Availability of the workforce, Skills and Experience of the workforce Position of an
employee whether the employee is stationery or the employees moving, Employee
safety. So, all these are also parameters which will help us to take our decision related to
the selection of the layout. Then the factory building; the building that we are going to
erect or that we are going to construct for manufacturing facility is going to influence the
type of our layout. The nature and size of the building determines the floor space
available for the layout.

(Refer Slide Time: 18:00)

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So, depending upon the floor space available, we will try to ensure the maximum
utilization of space. So, that we are able to effectively and efficiently convert the raw
materials into the final product. So, in building whatever space is available, the type of
building we have whether let us take an example that we have a single floor building
only; maybe it is a ground floor only. So, we have to see that where which facility must
be located? What type of layout we must follow? Whether we should go for a
compartmentalized or section wise type of layout or let us bring the raw material and let
us have a sequence of operations and let us push out the final product from the other end.

So, depending upon the building and the space required or the space available sorry, we
will select our layout. Suppose, we have double storey, triple storey building we will try
to use the elevation also, the floors also and we will see that what we can do on the
ground floor; may be the heavy equipment can be placed on the ground floor and the
office space can be on the first floor or the quality control department can be on the first
floor and the offices can be on the second floor.

Now depending upon the type of building, we will see that we will decide that what type
of layout we are going to use. And we will see in our subsequent session on flow of
material or material flow lines and there we will see that we can have a flow on the may
be ground floor only and we can have vertical flow also; maybe we can classify it as
horizontal flow lines; may be on one floor only.

The material is moving and getting converted into final product and moving out and we
can a vertical flow also where the material is moving across different floors of the
building. And then it is finally, getting converted into the final product and going out. So,
the type of building will also influence our decision related to the type of layout that are
going to follow.

So, while designing the factory building, following requirements must be kept in mind
like the air conditioning, dust control, humidity control and these are may be very textual
or theoretical type of guidelines. In the current scenario people are focusing on or the
scientists, engineers are focusing on green buildings, natural ventilation, use of solar
energy, use of the draft of air, making windmills, using windmills, using natural energy.
So when you are trying to develop a factory building or trying to develop a building for
creating a manufacturing facility, these are not the only parameters in the current

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scenario in 2017 we have to focus on. So, many other things like the catchword can be
green buildings using the energy.

Then, there can be the utilization of the waste water that we are doing can be recycled,
recycling of waste water, recycling of the solid waste generated, recycling or the proper
waste disposal are important parameters that have to be considered when we are
developing a factory building. So, that is maybe a additional information not available in
the textbooks, but as engineers we must be very very sensitive towards our planet and the
technology that we develop, we need to keep a focus on the planet that how it is going to
affect the environment.

Because we have to leave this planet for our children, for our grandchildren. So that, they
can have a happy life, whenever we are talking of doing some developing some location,
developing some factory location or some factory layout or a factory building; we must
also consider that how this is going to affect the environment. Whether it is going to have
a positive impact on the environment or whether it is going to have a negative impact on
the environment. So, that type of analysis; there are experts who carry this type of
analysis and rate the buildings accordingly.

So, whenever we are talking of a factory building, a factory layout; we must also
consider its influence on the environment. That is also important to all of us to
understand. Then the Location is also important; Topography, because sometimes you
may not have a flat land space available with you there may be a topological change. So,
we need to see that how the layout should be designed that that topology is well taken
care of and taken advantage of, for example, you may have a specific topology where
gravity can be made use of for material handling that can be taken advantage of shape
and size of the plant will also influence Climatic conditions.

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(Refer Slide Time: 23:16)

For example, we are setting up a plant in the hills where you need not have any
requirement of air conditioning.

So, there also we need not have an air conditioning plant and it will affect the type of
layout that we are using for manufacturing type of a product or a particular product.
Availability of water, raw material, power will also influence our decision related to the
location within the premises and Waste disposal facility is also very very important.
Suppose, we need to have a ESP for cooling or for purifying the air, to reduce the air
pollution. So, that is one thing; we may have an effluent treatment plant.

Suppose, we want to put alongside our factory that will influence our layout that we need
to push out the used water in a direction where, we have our effluent treatment plant. So,
similarly, we have to plan our layout in such a way there are the effluents are treated
properly before being disposed into the; maybe a river or a drain whatever is being used
by the industry for its effluent treatment. Because once it is treated you can just relieve it
because there are guidelines that what type of effluent you can leave in that drain or into
a river. So, there are guidelines if you are able to treat your effluent to that level, you can
release it in the drain.

How it will influence? As I have already explained wherever you set your treatment
plant your inside layout will have to be modified accordingly. So, that the output goes or
the waste goes towards the plant. So, definitely it will influence the layout in a specific

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or a particular manner. So, waste disposal facility, availability of water, air, raw material
and power that will also and influence your decision that how the layout has to be
planned.

Now some of you may be wondering that there are so many parameters, how we will be
able to incorporate each and every parameter in the selection of a layout? I understand
that yes, it is a challenging task; but in the very beginning of today’s session if you have
tried to read between the lines, I have emphasized that researchers, scientist
industrialists, businessmen, business wizards have already standardized few types of
layout. They have optimized the types of layouts based on all these factors that we are
considering today. So, now, what we have to do we have to choose from among these 4
or 5 specific types of layout which have already been optimized and see that minor
tweaking required in these layouts which will specifically customize these layouts to our
requirement.

I think, I have been able to make myself absolutely clear that we have a standard types of
layouts which are available in the textbook. We have these factors which must be taken
into account while selecting a layout. Then, out of these 4 or 5 based on these
parameters, we can select 1 or 2 which can be best suited to our requirement. And then as
per our requirement, we can do the final customization of these standard layouts. So,
location is also an important parameter policies of management is also important.

(Refer Slide Time: 26:50)

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So, the policies of management related to Volume of production, Size of the plant.
Company maybe a medium or small scale industry. So, they know that, what is our
capability? What is our strength? What type of production we are doing? So, that will
decide on the size of the plant. Sales and marketing policies, purchasing policies;
Facilities to the employees, they want to create. Future targets, future expansion. So, all
these parameters related to the decisions or strategic policies of the management will also
influence the type of layout. For example, the last point I want to emphasize that is the
future targets.

Now the company feels that they are into a niche market and maybe in the next 10 years,
their volume of production is going to be 3-fold or 4-fold. Definitely they will require
expansion. So, they need to see that what type of layout they must follow; whether they
should keep some space in the same plant for future expansion or they should expand
maybe in other areas or other zones of the country. So, all these policies of the
management will influence the type of layout that we are going to have. Similarly, the
facilities they want to create for their employees.

Suppose, they want to have a residential campus only; all employees have to stay in the
premises on the of the organization. Then, specifically they have to create the living
facility, the buildings for insuring the flats and houses for the employees, the recreational
facilities for the employees. So, once that is decided by the organization. They have to
decide the layout of the organization in that manner only; that yes, within the layout
facilities for residences also have to be created. So, every parameter has to be taken into
account if we want to create a good layout a good working condition as well as a good
living condition for the employees of the organization so.

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(Refer Slide Time: 29:09)

So lastly, we can see that the Nature of manufacturing process will also affect selection
of the layout. Very quickly, we can classify the manufacturing processes; I am a
mechanical engineer at least we have 2, 3, 4 classifications possible for the
manufacturing processes. But today, we will try to classify the manufacturing processes
based on the type of layout that can be used for processing.

For example, the first one, Synthetic process- Under this process two or more materials
are mixed to get a product. Example is also given-cement manufacturing. Analytical
process- Under these method different products are extracted from one material for
example, extraction of oil from crude. So, we have Synthetic process, we have Analytical
process; we have Conditioning process.

Under this process, the original raw material is given the shape of different products and
nothing is added to it. For example, jute is an important example. So, we are not adding
anything, we are not maybe removing much from the jute, but we are giving or we doing
something with the jute and making it into a tangible or a useable product. Similarly,
Extractive process; this method involves the extraction of a product from the original
material by application of heat or pressure.

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(Refer Slide Time: 30:31)

So, you can see synthetic process in the previous slide; Analytical process; then,
Conditioning process; then, extractive process. So, all these 4 types of processes, will
maybe focus on a specific type of layout only.

So, they will also influence that which type of layout is suitable for a specific type of
process. Finally, we come to an important point which we have already covered if you
remember; we have seen the type of production systems in our very first week, in our
fundamental week related to Operations Management; in our introductory week related
to the Operations Management. So, in very first week, we have seen the type of
production system actually every week is interrelated, interweaved with the other week.

So, the complete course will give you a thought process that suppose we want to produce
something, what are the different things that should be covered that we should keep in
mind. So, that we are able to bring good name to the organization as well as good profit
for the organization. These 3 things we have already covered. Plant layout is generally
determined by taking into consideration; the quantum of products to be produced and this
we have already related very quickly within a minute or 2; I will try to relate the 2 things.

In job shop type of production all of you know it is intermittent type of production,
design changes are very frequent. So, we would like to go for a process or functional
type of layout. In batch production also we would like to go for process or batch type of

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process or functional type of layout. In mass production we would like to go for a
product or a line type of layout.

So, the type of production that’s we are following or the type of product production
system that we are following will also influence the plant layout or the selection of the
plant layout. In job shop and batch type of production, the product changes the
customized products are produced; when the product change is frequent we would like to
make it in different sections and the there can be a material flow line which we will
cover in the next session.

So, depending upon the requirement or the operations to be done on the product it will go
to the specific departments and final product will be produced. But in mass production,
we will have a product or a line type of layout in which the raw material will enter from
one end of the organization. All operations will be performed in a sequence and the final
product will come out either from the same direction or from the opposite direction
depending upon the material flow lines or the material flow system that we are
following. So, we can see that the volume of production is also an important aspect
related to the selection of a layout.

So, with this we come to the end of today’s session and we have seen today that what are
the various factors governing the factory layout or the plant layout and how these factors
influence our decision related to the selection of the layout. Also you will appreciate that
there are a number of parameters which influence our selection and we have to
judiciously take into account these parameters for selecting a layout which will give us
improved productivity as well as efficient and effective manufacturing. So, in this week,
we have today finished 3rd session of our course. In the first 2 sessions, we have seen the
introductory aspects of the factory layout or the plant layout.

We have seen the different types of layouts and today, I think we have been able to
properly appreciate the factors that are used for selection of a layout. Also we have tried
to emphasize with examples that these parameters are really important in our decision
related to the selection of a layout for a particular manufacturing facility.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 24
Material flow patterns

Namaskar friends. Welcome to session 24 in our course on Operations Management and

currently we are due in the 5th week of our discussion on the course. And in every
session, I usually revise what we have covered in the previous sessions. And today also I
will not deviate from the, we can say tradition; I will again try to revise what we have
already covered, but very briefly. We have seen the fundamental aspect that is the
scopes, objectives, functions, types of production systems in our week 1; in which we
have covered the introduction to Operations management.

In week 2, we have covered product design and development; in week 3, we have

covered sales forecasting; in week 4, we have covered plant location and in week 5, we
are covering plant layout or factory layout. Now, we have entered into the factory, we
are trying to do a locational analysis or trying to design and develop a layout of our
factory. We are trying to see that where which facility must be created, must be raised
must be erected so that we are able to meet our overall objective of 4 keywords.

What are these 4 keywords? These 4 keywords are that we must be able to produce the
product with desired quality, desired quantity, at appropriate time, at a competitive cost.
So, these are the 4 parameters; quality, quantity, time and cost. So, we are trying to
layout our factory in such a way that our 4 targets are achieved that we are able to
produce a good quality product in right quantity with reasonable cost, competitive cost
and at the time, it is required in the market.

So, the layout also affects the overall productivity of the organization; within our
discussion during this week, we have seen if you remember that why the layout is
important? How do we define a layout? What are the different types of layout? Then, we
have seen in the previous session, what are the most important factors which govern the
type of layout? And we have already now maybe physically moved inside the premises
and we are trying to see that how we can make an optimal layout which will help us to
achieve our objectives of operations management.

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We have seen that there are factors which will govern our decisions related to the
selection of a particular type of layout. Today, we are going to cover the material flow
patterns within the layout; how the raw material will enter into the organization or the
factory or the industry and how it will traverse path? And then, how it will come out?
How it is going to influence our layout? Then, we will see what are the advantages of
following a material flow pattern or following a particular type of material flow pattern
and what are the things which will be affected by the improper or maybe a non judicious
or maybe a faulty selection of a material flow patterns.

So, all these things, we will try to cover in today’s session. We may have a horizontal
flow pattern or a horizontal material flow pattern and we may have a vertical material
flow pattern. So, we will take examples of both and try to understand that once we are
inside the factory, we have to see that how the material will move inside the factory or
the plant. So that our overall objective is met and we can ensure a proper flow of the
materials proper sequence of operations on the materials. And finally, we get our desired
good quality output and our good quality output is our product that we are producing.

So, let us quickly have a brief introduction of material Flow Pattern.

(Refer Slide Time: 04:54)

So, first of all, we need to understand the what do we mean by Flow Pattern? So, as I
have already told our focus is on Material Flow Pattern. So, material all of you know,
how do we define flow pattern let us read it. “Flow Pattern” means the system to be

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adopted, for the movement of raw materials, from beginning and up to the end of
manufacturing. So, what is the end of manufacturing that is the final product has been
produced.

So, the flow pattern means the system to be adopted for the movement of raw materials
from the entry to the exit, from the maybe beginning to the ending. So, it is the flow of
raw materials within the organization, within the factory, within the plant. The overall-
objective of the ‘Flow Pattern’ is to plan for the economical movement of the raw
materials throughout the plant. So, the word economical is coming into pictures. So, we
have to ensure that there is no unnecessary movement of the material inside the plant.

We need to minimize the movement of material; we need to economize the movement of

material inside the plant. Many a time you will see that you go to a plant and you will if
you stay there for some time and observe the movement of material; even, using
common sense you will try to find out that yes, when the plant was set up. This may have
been the most optimal design or the layout of the machines.

But with passage of time we have seen that revision of layout is also done and in the
revised layout, you will see that there is unnecessary movement of materials sometime
which needs to be checked, which needs to be economized, which needs to be optimized
in order to achieve our overall objective of high quality cost effective manufacturing. So,
basically material flow pattern is the pattern or the flow that is being followed during the
manufacturing process specifically for the material. So, we will see that how the raw
material enters into the factory? What sequences of operations are done on the material?
And, how it goes out from the factory? So, that is the basic meaning of the layout of the
material flow pattern.

Now, why it is important? Because it affects the overall productivity of the organization;
it affects the material handling cost; it affects the amount of work in process.

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(Refer Slide Time: 07:39)

Now, work-in-process or WIP is a new term that has come in our course on operations
management. We are using this for the first time. So, work-in-process is nothing but the
materials, the sub assemblies, the subparts, components that are in the process of
production.

For example, if you remember in our line type of layout, we have seen that there are
work centers; work centre 1, work centre 2, work centre 3 and there are 3 components A,
B and C that are being manufactured at different locations or different points and are
coming to these 3 work centers are getting assembled to make a product X. Now these 3
parts will constitute the work-in-process. And finally, they are getting assembled and are
being a part of the final product.

So, the amount of work-in-process is definitely influenced by the type of flow line or
flow pattern that we have chosen within our organization or within our plant layout. Also
the flow pattern will influence the capital and the space tied up by the work-in-process;
surely, it is going to influence the capital and the space tied up. Because sometimes it
may so happen that our work-in-process is getting piled up and we require space to keep
that work-in-process at a particular location and it will definitely affect our flow line and
the flow pattern will also affect means they will affect vice-versa.

For example, we are having huge work-in-process piled up at a particular location; we

would like to bypass that location and try to follow a different flow pattern. On the

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contrary suppose, we have selected a particular flow pattern and there is a very slow
machine in between what will happen the work-in-process will pile up at that location.
So, the selection of a flow pattern will also influence the work-in-process or piling of the
work-in-process. On the contrary, if the work-in-process is piled up because of one
reason or the other, it may influence our dynamic change towards the new flow pattern in
order to overcome that situation.

So, they are affecting each other. Length of the total production line is also influenced;
we will see that. We have I type of material flow; we will have U type; we will have S
type of material flow that we will try to understand with the help of diagram, but the
flow pattern will certainly influence the length of our total production line. Now, the
flow pattern affects the following. The rate of the performance and coordination of
operations. It also influences the Amount of physical and mental strain on the operators
as well as Supervision and control mechanisms.

So, all points can be explained with the help of certain examples; because suppose, we
say supervision and control mechanism. So, if we have I type of flow pattern, the raw
material is entering from one end and it is getting converted in a linear fashion and at the
other end the product is going out. So the supervisory control maybe not very affective.
Because maybe we may require the length is large; we were required may be 2 or 3
supervisors to keep a check on may by 8 to 10 operations each. But suppose, we have a
U type of pattern, we can have a centrally located supervisor who can control both the
ends of U.

So, the type of flow pattern that we choose, it will affect the type of supervision and
control that we can manage within our organization. Similarly, the amount of physical
and mental strain also is affected by the flow pattern. So, the flow pattern will not only
affect the materials; it will affect the people also, it will affect the procedures also. So,
we have to understand the importance of flow patterns. So, we can see that the rate of
performance and coordination of operation is also affected by the flow pattern.

So with these points, the overall objective of discussing these point is that we must
know, we must be able to highlight; we must be able to understand the importance of the
material flow pattern as; otherwise, usually as students we feel that what how this is
going to affect? It is a simple thing that the raw material is coming; it is following a

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particular sequence of operations and it is the material is getting converted into a final
product and it is going out. No, it has got certain importance and the importance lies in
the overall productivity of the organization.

Suppose, it is whatever examples we have taken, we have tried to display or portray a

positive picture; we have tried to take positive examples only. So, let us take if you select
of wrong flow pattern, what can happen? Your supervision is not proper. The quality of
work that we are producing is not proper; your work in process has piled up. So, we can
see that there can be so many issues and challenges if we choose a wrong type of flow
pattern.

So, it is also important and one thing that is also covered in earlier discussion also is the
effective and efficient use of the space. Suppose, we have some area or some floor space
available with us; we have to see that how we should locate our machines? What should
be the flow pattern of the material; material flow inside that floor or inside the
organization, in that floor space. So, that the optimal utilization of the space is taking
place. Many a time we will see that a lot of space is being wasted and not utilized
properly.

So, the flow patterns, if we address this point in a emphatic manner; we will definitely be
able to save a lot of space or a floor area for our organization. So, just I want to again
reiterate the importance of flow lines and I will read these points again for you. So, the
flow patterns will definitely affect the material handling cost, amount of work-in-
process, capital and space tied up by the work-in-process, length of the total production
line.

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(Refer Slide Time: 14:40)

The rate of the performance and coordination of operations, amount of physical and
mental strain on the operators, supervision and the control mechanisms. So, all these
factors, all these we can say points that has been written on these 2 slides are being
affected directly or indirectly by the selection of the flow pattern.

(Refer Slide Time: 15:06)

Now, what are the factors that govern the flow pattern that we are going to choose? One
can be External transport facilities. Now one example can be a thermal power plant. In
thermal power plant, we require coal as the raw material; coal will burn and then, it will

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be used as a fuel for the boiler. Then will produce steam and then, will produce power
from that steam.

So, basically we have a raw material that has to reach the plant. Many times you will see
in thermal power plant, there will be a dedicated railway line which will bring the coal in
the wagons. So we have to see that where we have that facility where the wagons can
come, the material can be unloaded from those wagons and then, this can be brought to
the place where it has to be used. So, that distance has to be optimized or minimized and
from there, we see that the raw material is reaching at this point. What can be the
material flow line in order to optimize the overall operations?

For example, there is a very big sheets of material or very bulky raw material which is
which is coming to the organization; where it will be unloaded? Once it is unloaded, how
to ensure that from there it travels the minimum possible path inside the factory. So, that
the overall objective of converting that raw material into the product is achieved, but the
movement of the material is minimized.

So, the external transport facilities will definitely affect we will see with the help of
diagrams also that where the material is getting off loaded is important and will help us
to select our flow pattern accordingly. Then, the number of products to be handled is also
important. If you see specifically in case of assembly type of lines or assembly
operations, we will have a straight line or I type of a line or the flow patterns; because
the number of products to be produced is large. So, we will see that the raw material
should come from one end and the final product should go out from the other end.

Suppose, some of you may be wondering that when the operations have to be done in
one line only, why can’t we use a U type of layout there? Because the sequence remains
the same; absolutely true, but the explanation that comes to my mind is that when we are
doing a large scale production, our raw material will also be huge and the final product
that we are making will also be in huge numbers.

So, if we start from one end and follow a particular sequence of operations and the
product also comes out as in the case of U type of flow pattern that we will see that in the
diagram the U type of flow pattern. So, the final product is coming out at the same end
only. Suppose again I am saying this is the U. So, the raw material enters from one side

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and it is following a particular sequence of operations and it comes out from the same
side in a horizontal U can be like this.

So, it is entering from a raw material; 1 operation, 2 operation, 3 operation, 5 operation.

Then, sequence of operations and finally, final product. So, here we have huge pile up of
the raw material because the process is continuous, we require to feed the material
continuously and our final product is also coming out continuously.

So, suppose both are in this location or space requirement will be huge. So, we can do
one thing that we can input the raw material from one end and the product can come out
from the other end. So, on both ends we can have the space; on one end, we can have
space for raw material; on the other end, we can have a space for the finished product.
So, may be depending upon the number of products to be handled, we have to choose a
type of flow pattern or the material flow pattern, number of operations on each product is
also important that on each product what is the number total number of operations that
we are performing.

Number of units to be processed, I think number of products and units I think this is one
and same thing; number of sub assemblies made up head of assembly line.

So, that is also very important. The number of sub assemblies as we have seen in our
example of a line type of a layout in this week only. That there are work station 1, work
station 2, work station 3. Then, there are 3 sub assemblies may be A B and C which are
coming to these work stations in a line. The work stations are arranged in a line and these
sub assemblies are getting assembled with a final product or getting assembled into a
final product which is moving out from the factory layout.

So, how many such sub assemblies are there? What is the size of the sub assemblies?
How many parts are there in these sub assemblies? All these factors will influence our
selection of a material flow pattern.

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(Refer Slide Time: 20:25)

So, we will see that what are the number of sub assemblies? Made up ahead of the
assembly line. So, our material flow pattern we are only talking about final the assembly
lines only. So, we have to see that how many sub-assembly lines coming into the main
assembly line.

For example, we may take example of a river. So, our large river is or our main river is
our material flow pattern. There can be number of tributaries that are coming at different
points and are getting merged with the main river. Similarly, our flow pattern is
analogous to the main rivers and their tributaries are analogous to the sub assemblies
which are coming and getting merged with the main assembly line. So, size and shape of
the available land; this is the most important parameters that is coming to my mind
because space is the major limitation for setting up any factory.

So, we have always we are hard pressed we are constrained with space. So, we have to
ensure the optimal utilization of space. So, if we have specific area available with us we
will see that which is the most possible or which is the most optimal type of flow pattern
that we must follow, necessary flow between the work areas that also will affect the flow
pattern that we whatever is the necessary flow. Necessary there may be times when we
try to figure out that where is what is unnecessary movement what is necessary moments.

So, once we classify these 2 things we can very easily ensure that we have to plan only
for the necessary flow between the different work areas. So, we have seen that how the

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flow pattern is going to affect our overall manufacturing or overall production and how
the, what are the factors that governs the flow patterns. So, these may be theoretical.
From practical point of view, let us see what are the different types of flow pattern? we
have a Horizontal Flow line and we have a Vertical Flow line.

(Refer Slide Time: 22:31)

So, we will try to make examples of each one of them these and try to understand that
where which type of flow pattern more successful or more applicable.

(Refer Slide Time: 22:49)

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Horizontal flow lines, you can see there are so many examples. We can have a I-flow or
Line flow. We can have a L-flow, U-flow, S-flow, O-flow.

So, we can see that different types of space available with us, will force us to choose any
one of these flow lines or any one of these flow pattern. So, let us see what are the maybe
salient characteristics. Majorly, we will see in flow line the raw material will enter into
the flow line and then, it will follow a particular sequence and then, it will come out as a
final product. So, overall may be the picture will remain same, but the physical location
of the facilities or machines or equipment will be in this particular format only or in this
particular shape only.

So, I means all of us know what is I? So, ‘I’ maybe 1 straight line. So, the location of
various machines will be in a straight line and the material will move in this line and
during this movement, it will get converted into the final product. So, we may have I-
type of arrangement of machines. We can have a L-shape of arrangement of machines.
We can have a U-shape of arrangement of machines and other facilities. So, this is
basically I, L, U, O are the shapes in which or may be the location in which the various
facilities are arranged within the layout.

In previous session, we have seen different types of layout. For example, in line type of
layout, we have to follow a particular sequence of operations. So, that can be may be one
particular layout which is specially, we can say focused for this type of flow lines
because all machines are arranged in a particular sequence and in a particular shape and
the product moves and undergoes the various operations and finally, comes out as the
final or the raw material goes into the different operation and comes out as a final
product. So, we will see how these flow lines look like.

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(Refer Slide Time: 25:05)

So, I-Flow, very simple example on your screen straight line. It is the simplest form of
flow line. In this the materials are fed at one end and components leave the line at the
other end. I-Flow is preferred for building automobiles in Industries or for developing
automobile industries. As I have already taken an example that I flow line is most
suitable for assembly lines.

(Refer Slide Time: 25:33)

Then, we can have a U-Flow on your screen. In this both feeding; feeding means the
input of raw materials and output that is the final products. So, in this both feeding or

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raw materials and output take place at the same end. Here we can see a U type and there
is an arrow which points out at the movement of the raw materials and this arrow points
out at the final product that has been made or manufactured.

So, in comparison to I. This method is easier for supervision because in between we can
have this is the arrangement of machines. So, we can have supervision in between and
we one person can keep a check on both sides. So, that can be ease of supervision and
control mechanism and this type can be adopted in electric motors, manufacturing of
electric motor.

(Refer Slide Time: 26:24)

This is S-Flow and combination of S-Flows here. So, if the production line is so long that
zigzagging on the plant floor is necessary, then S-Flow is adopted.

Now, this types provides efficient utilization of space and is compact enough to allow the
effective supervision. So, we will see wherever we are cramped for a space, we will try
to go for a S type of layout. But with a condition that we have to ensure proper
circulation space also, the workers or the working personnel who are working may not
feel too cramped in cramped for space.

So, all those parameters have also to be taken into account and then, we arrange our
machines and equipment in S pattern. So, that the material moves in S pattern and

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finally, gets converted into the final product. So, we have seen I-type, we have seen U-
type, we have seen S-type combination of S also can be used.

(Refer Slide Time: 27:29)

Then, O-Flow is another type of flow pattern. This type is used where processes or
operations are performed on a rotary table or a rotary handling system. So, this can be
may be 1 example where again, we want to emphasize on effective utilization of space,
better supervision and control.

So, we can also go for the type of land or the type of floor space available with us; we
can even go for O-type of arrangement of machines. When the component leaves the O-
line, a complete set of process or operations have already been performed. O-Flow can
be adopted by industries manufacturing electrical bulbs or it is not a specific for electric
bulbs only. It can be used for different types or different variety of products, but the
arrangement of the facilities will be in the shape of a O.

Then, may be all these flow lines that we have covered starting from I; then, U and then,
we have seen S; then, we have seen O are coming under the horizontal movement of the
materials only; that we have one floor and on that floor the sequence of machines is
arranged either in the shape of ‘I’ or in the shape of ‘S’ or in the shape of ‘U’, but then I
has, as I have already told you that land is the most precious commodity. Instead of using
x and y coordinates many companies usually go for the z coordinate also. They do not

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use only the floor space; they also try to raise the different floors and make use of the z
coordinate also.

So, we can have a vertical flow lines also and different types of vertical flow lines are
there. I will read it for you.

(Refer Slide Time: 29:17)

Processing downward or upward, Centralized or Decentralized elevation, Unidirectional

or Retractional flow, Vertical or inclined flow, Single or Multi flow. And then, Flow
between the different buildings also. Because last one let me explain, each one can be
explained in detail, but this is just to give an idea that the material flow usually we take it
in a horizontal direction also only. But many times we many Industries, you will have a
material flow in the vertical direction across the various floors of the organization or the
factory or the building.

So, the last one like floor flows between buildings. Suppose the company has two
buildings. So, the flow can be either at the top you can have a bridge in which the
material can flow from one building to the other building on the top floor or the material
can be at the ground. So, you bring the material down and at the ground floor only, you
are doing the flow of material from one, one building to the other building may be one
explanation of flow between buildings.

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(Refer Slide Time: 30:26)

So, one example with the help of photographs, you can see or with the help of picture
processing upward or downward. So, these are the different floor. This is the vertical
direction. So, in vertical direction we can have upward or downward movement, we can
have centralized or decentralized elevation; unidirectional or retractional, we can see.
Unidirectional, the material is entering here moving in a specific direction top floor and
then, may be moving downwards and then finally, being produced here. But here we see
the material is entering; then, it is moving here. Again, moving here. It is gear again
retracting again going back to the top and then coming down.

(Refer Slide Time: 31:08)

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So, we can have a unidirectional or retractional flow. Then, we can have Vertical or
Inclined Flow very easily you can see the material is moving vertically, whereas here it
is moving in an inclined fashion. Single or Multi flow material is entering here, it is
being subjected to different operations in a sequence and then finally, it is getting out and
then, there is multi flow also possible. So, we can see that the material may not flow on
horizontal floor only; material may flow in the vertical directional also across the various
floors of the building of an organization.

So, with this we come to the end of today’s session. I think we have tried and we have
been able to understand that within a factory layout, the material takes up a particular
flow line and we have to select the flow of material, we have to arrange our machines
and equipment under the facilities in an specific flow line only in order to ensure the
effective and efficient utilization of the various resources that we are using for
converting our raw material into the final product.

So, with this, I conclude the today’s session and in next session, we will discuss our final
aspects related to the topic of factory layout.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 25
Tools and Techniques used for Plant Layout Planning

Namaskar friends, welcome to session 25 in our course on Operations Management.

Currently we are in week 5 of our discussion on the topic and in week 5, we are covering
the Plant Layout. In the previous 4 weeks, we have covered the fundamental aspect of
operations management, the functions, scope of operations management. We have
covered product design and development and various aspects related to product design
such as value engineering and also we have covered design for manufacturing, design for
assembly principle of ergonomics and then, we have covered rapid prototyping.

In week 3, if you remember we have seen sales forecasting; qualitative and quantitative
methods of forecasting. And in week 4, we have seen plant location and factors affecting
plant location. In week 5, we are covering plant layout. Now, if you see the overall story
that we have built till today, we have try to understand that what the organization is
required to make in order to be successful and how to decide the quantity that has to be
made in order to be successful. And finally, we have seen that once you have decided
what you have to make how much you have to make? Finally, we are seeing that how to
make it. How to make it we have seen plant locations that how or what are the factors
responsible for selecting a specific location for setting up the manufacturing plant or
manufacturing industry.

Now, once we have decided that this is going to be the location. The next stage is the
layout of the plant. How the bird or maybe from a height, how we will look at the
various facilities within the plant and that is basically the layout. And in layout we try to
optimize, we try to figure out that what can be the best location of the facilities in which
we can make maximum possible utilization of the space available with us.

We can also decide that what will be the sequence of operations in order to minimize the
movement of men and material; minimize means unnecessary movement of material and
men needs to be avoided. There will be certain operations that are redundant or can be

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combined together. So, we will see, what are the operations that can be eliminated? What
are the operations that can be combined together?

And in order to make judicious decisions related to our layout of the facilities, we
sometimes make use of the various tools which helps in making these decisions. These
tools help us to have an overview of our layout. These tools help us to combine the
various operations these tool help us to identify the bottlenecks in the operational, may
be in the operational procedure or during the operations. They help us to identify the
unnecessary movement of men and material and these tool overall helps us to optimize
our overall layout as well as improve the productivity of the organization.

These also help us in achieving the overall objectives of operations management. That is
to produce the right quality of product in right time with minimum cost as well as in
appropriate quantity. So, the 4 terms that are very important are the quality, quantity,
time and the cost. So, if our layout is productive, if our layout is efficient; we will be able
to make use of the infrastructural facilities in the best possible manner for the advantage
of the organization.

Today, we will try to see that what are the various tools and techniques that are used for
identifying the bottlenecks in order to identify the unnecessary movement of men and
material in the plant. And we will see that how to represent the overall manufacturing
activity graphically on a piece of paper and how, this is going to help us to identify the
problem area. So, let us quickly start our discussion on the topic.

So, we will basically be covering 4 types of the diagrams or the charts that help us to
identify the problem areas in a plant and in order to optimize the layout for us; various
tools and techniques are listed on the slide.

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(Refer Slide Time: 05:06)

You can see we have Operation Process Chart; we have a Flow Process Chart; we have a
Flow Diagram; Scale Models; Machine Data Cards and Templates.

So, we will try to cover as much as possible in our session of 30 minutes. So, quickly let
us first go to the Operation Process Chart.

(Refer Slide Time: 05:25)

And for each one of these, we have taken a diagram. So, that the explanation becomes
more may be clear to all, the learner. So, the first type of chart is the Operation Process
Chart. Here, the manufacturing process is divided into separate activities. Now, what is

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the manufacturing process I am referring to? The manufacturing process may be the
production of electricity from coal; it is easier said than done.

So, you have a coal that is coming into the thermal power plant and then, this coal is
going to a particular section where it is being fed to the boiler; the steam is being
generated. It further moves forward; the turbine is there. The turbine will help in the
production of the electricity. So, there will be a rotor stator arrangement. So, the
complete process we can see is the conversion or the production of electricity.

So, it will encompass different types of may be sub-processes, sub-assemblies that will
help in the achievement of the overall objective. For example, another example we can
take. Suppose, we are producing a car so, for production of a car, it may represent a
manufacturing activity and we can represent this manufacturing activity with the help of
certain symbols and representations which will help us later on to do our analysis that
how many operations are being done? How many time where are inspecting our product?
Where the delay is happening? Where unnecessary work is getting piled up? So, the
chart will help us to represent our overall process on a piece of paper.

So, basically the manufacturing process that we are talking here is, is not just one process
that is casting or welding or machining; it is the overall manufacturing activity of an
organization that we want to represent graphically and then, we can analyze based on
that graphical representation. So, the manufacturing process is divided into separate
activities. So, the complete cycle is divided into individual operations or processes with
the help of Operation Process Chart.

One thing we must remember here is that this is the most comprehensive type of chart
that we usually draw and gives us the overall view of the manufacturing activity. It will
make use of certain symbols that we will see in the diagram and these symbols will help
us to represent the process or the overall manufacturing activity. So, it may not be related
to where, which process is located or how much time is being spent for a particular
activity or maybe, how many number of people are engaged in a particular activity. So,
may not be that detailed, but it will give an overview that how the activity or how the
manufacturing process is being carried out, how the manufacturing activity is being
carried out within the organization. So, if you see layouts we have seen there are
different types of layouts.

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We can have a product or line type of layout. We can have a process or functional type
of layout; we can have a fixed position layout; we can have a cellular type of layout. So,
in layout, we have fixed the positions. But here we will represent the activity, maybe we
will try to see the sequence of operations that how the complete product development
cycle or the product, I think product development cycle may not be the right words to
represent. We will see that overall product manufacturing is taking place, starting from
the arrival of the raw materials to the final dispatch of the final product; what are the
various operations been done on the raw material that will be represented by the
Operation Process Chart.

Now, if you have understood the first sentence that is very important; it is a overall
representation of the activities or the operations happening within the organization. So,
the manufacturing process is divided into separate activities with the help of Operation
Process Chart. It shows now, we can see what we can deduce out of the operation
process chart. It shows the point at which the materials are introduced into the process
that entry of the raw material.

It will show the sequence of various operations as well as the inspection. So, we will try
to understand it with the help of a diagram, but this will help us to see the overall picture
of the manufacturing. This chart represents the basic activities required for producing a
productizing; I have used this word earlier also for manufacturing of the product,
whatever operations are being done will be represented using a Operation Process Chart.
So, let us see with an example.

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(Refer Slide Time: 10:35)

On your screen you can see may not be that clear, but this is a operation process chart.
We can see there is a final product that we are making, operation number 9 on your
screen. This is 9 number, Final Assembly. I will read it for you. It is Final Assembly
here. And this is Part B which is coming from here. Part A is coming from here and Part
C is coming from here.

So, you have 3 parts or 3 sub assemblies A B and C and Part B, the operation is
mentioned here, Turn and Face. So, may be a lathe machine, we are doing the turning
and facing operation and then, the second operation can be Drill. So, we are doing 2
operations and operations are represented by circles. So, here 3 and 4 represent the
operations being done on Part B. Then, on Part A first operation is cut to size, second
operation is Turn and bore.

So, the boring operation is. Then, we have to inspect whatever the specifications we have
laid out. So, we have to inspect whether the cutting and the boring operation as well as a
turning operation are as per specifications or the Part B sub assembly which is being
produced after these 2 operations. Finally, is adhering to the specifications for which the
product or the sub assembly has to meet. So, then we have the assembly number 5, which
is also an operation. Thus this assembly basically is for Part B and Part A. So, we have
seen that Part B is having the individual operations. The operations are Turning, Facing
and Drilling.

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On Part B we have, cut in to size and then, Turning and boring operation and finally the
Inspection for Part A or sub assembly Part A and then A and B are getting assembled and
this operation is been termed as 5.

So, basically we have Part A and Part B having different sequence of operations; but
finally, getting assembled into 1 sub assembly. Now there is an independent Part C
which we can see here. Now Part C, the operations are Turning, Threading, Milling and
finally, the Inspection. Now 2 operations are very clear or 2 process chart symbols are
very clear to you; 1 is the circle which represents an operation and there is a rectangle or
a square that represents an inspection. So, the operation symbol and the inspection
symbol are clear to you.

So, here we have 3 parts which are finally, getting assembled. Number 9 represents the
final assembly. A and B have been assembled together at operation number 5 and A, B
and C are getting assembled at operation number 9. And finally, we do the inspection.
So, we see that inspections are numbered. This inspection is number 1; this inspection is
number 2 and this inspection is number 3. This is operation 1 2 3 4. Then, there is 5 6 7 8
9. So, we have 9 operations and 3 inspections in this overall process chart. So, we can
see this is a washer assembly and the product name, part name is also mentioned there.

So, 3 parts are coming together and getting assembled. What we can understand from
here? I have explained the operation process chart. What we can deduce? What we can
infer? What we can analyze from this process chart? First thing is it gives a true
representation of the overall manufacturing activity; looking at the chart we need not go
to the shop floor. We can just look at the chat and try to understand may be this type of
charts we can call as the language of engineers, just by looking at the chat we can see
that for washer assembly, these are the 3 sub parts and what are the specific operations to
be done on each sub part. And finally, where the final location, final not the location;
final assembly is taking place.

How many operations are there? There are 9 operations. There are 3 inspections. So, we
can do the analysis that whether these 3 inspections are mandatory or we can club some
of the inspection. We can take a decision that all this processes 9 operations that we are
doing; all 9 operations are important. Is there some technological advancement in which
we can combine the 2 operations together or as per specifications can we reduce the

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number of operations, can we eliminate some operation? So, overall analysis can be done
and seen; that what are the operations? How they are being done at which, in which
sequence they are being done? And how we are producing our final product?

So, the basic characteristics or advantages not the characteristic I have already explained;
what are the various advantages of operation process chart that we can try to understand
here.

(Refer Slide Time: 15:52)

This can be used to improve the shop or the plant layout. As we have seen will help us
with the number of operation and number of inspections and we can see that how we can
arrange our facilities in the most efficient and effective manner utilizing the space
available with us in the best possible manner.

It will also help us in specifying the basic manufacturing system to be followed. So, we
can even take broader guidelines. We can try to identify that what type of layout will be
more advantageous in this type of manufacturing activity. It will also help us in
determining the actual sequence of operations or maybe it will also help us to modify or
may be redesign our sequence or recalculate our sequence in order to make optimal
utilization of the facilities available with us. Also, as I have already told that these type
of charts these type of diagrams are the language of engineers.

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So, if we have new people joining our organization, we can show them these charts.
They can make use of these charts to have a hands on understanding of what is going on
in the manufacturing plant or what are the various sequence of operations being followed
in the manufacturing plant? So, we can see this type of diagram is an overview of the
activity that is happening within the organization; may be next in here if you see we are
not focusing much on the time.

The time required for each activity we are also not focusing on the other aspect that is the
number of men, number of resources or amount of resources being used at each and
every level. So, this is just giving us a sequence of operations and also giving us the
assembly and the inspection technique being or inspection positions that where we are
doing the inspection after sub assembly of A and B, we are doing a inspections after
assembly of A B and C, we are doing a inspection.

So, gives an overall picture. So, time domain is not mentioned in the Operation Process
Chart, but when we come to the Flow Process Chart which is a extension of operation
process chart. It is basically the graphical representation of all the production activities
occurring on the shop floor. So, some of you may be just be wondering that what is the
difference between the Operation Process Chart and a Flow Process Chart. So, we will
come to the difference when we see the examples. So, it includes operation,
transportation, storage and delay.

(Refer Slide Time: 18:28)

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And each one of these activity is represented by a symbol. In operation process chart you
have seen 2 symbols only; one symbol was a circle which was representing an operation
and activity, then second symbol was a rectangle which was representing an inspection.

Now, we will see that how do we represent storage, how do we represent transportation?
We will try to understand it in the next diagram. On the basis of this analysis that is once
we are able to represent the process using the flow process chart, we are able to combine
the various operations; we are able to rearrange the operations and we are sometimes
able to eliminate certain operations also we are able to maybe reduce the work-in-
process, avoid the delays in the manufacturing process. So, there are number of
advantages of representing the overall manufacturing activity graphically.

(Refer Slide Time: 19:32)

So, we will see graphically you can have a look at the diagram as given on the screen is
much more clear as compared to the previous diagram. Let us first see the 5 operations
which are very important. Circle represents an operation; square represents an
inspection; inverted triangle represents storage; D represents delay and arrow represents
transportation.

So, you have 5 symbols here; first symbol is operation, inspection, storage, delay and
movement or transportation. One additional information that you see here is the distance
moved in meters which was not represented in the operation process chart. Also we see
the time taken for each activity which was also not represented in the operation process

416
chart. So, here we see this is a portion of a process, flow process chart material type. So,
here, we are focusing on the material the movement of the material is being represented
showing the flow of the materials.

Just let us try to understand what are the symbols representing here; you can see, what is
the activity? First activity is steel plates are available in the store. So, maybe they may be
inspected there, inspection is represented here. They are moved to the gas cutting
machine. So, movement you see the circle here and the transportation because there is
movement of these steel plates to the gas cutting machines and then the weight for
cutting machine being set. So, we have the storage here it is here. So, they are waiting
their chance to be cut and as the machine is being set up for the cutting operation.

And finally, the plates are cut to the size. So, we see operation is happening, this is the
operation. The gas cutting is being used for cutting the steel plates. So, this is an
operation. So, there plates are cut to the size. Then they are moved to the machine shop
again transportation; here we have the transportation symbol. The cut plates or the plates
cut to size are now moved to the machine shop.

And then, they are inspected before machining. So, this should come ideally below this.
So, they are inspected before the machining operations. So, this is just representing a
complete process of material type. So, what is the focus area? What is the material that
we are focusing here? The material being focused are the steel plates and steel plates are
moving from the store. They are going to the gas cutting machine, from gas cutting
machine they are being cut into the shape whatever required dimensions. And finally,
they are moving to the store and their being inspected before the machining operations.
So, they are moving to the machining shop or the machine shops.

So, we have also represented the distance moved 20 meters and 15 meters and the time
required for each operation, the delay, the plates cut to size 40 minutes; moved to the gas
cutting machine 6 minutes. Waiting time is 20 minutes which we can say the delay sorry,
the storage where they are been waiting. So, sometimes there is a little bit of may be
confusion related to 2 things delay and the storage.

So, basically storage if we see is going to represent the wherever the material is being
stored for a particular type of operation to be done. Whereas, delay can be accounted for
as a unavoidable may be break down into the overall process. So, delay for example, the

417
material is moving to a specific machine and the immediately, the work could have been
done on that work-in-process. But because of some unavoidable delay breakdown of the
machine or the worker has to go out for a particular task or has been called by a
supervisor; there is a delay in the process.

So, that delay basically is the wastage of time and has to be minimized. Storage may be
where ever we are storing it, the machine is working continuously but, because this
machine may be slower as compared to the overall speed of the line of machines. So,
may be some work in process will pile up which is may be because of the slow nature of
the machine. So, that we can say that there is a storage of material; there before being
processed by the machine. The machine is working, but the speed may not be matching
with the speed of the other machine.

So, we need to understand basically we need to find out what are the various symbols.
As engineers all of us must know this symbol and then, depending upon the requirement,
we must use these symbols to represent our process. Many times here, we are using
single symbol only for the 5 types of activities or manufacturing activities. But in many
cases we will see there will be a combination of symbols also; that operation is
happening on top of that of operation inspection is also happening online on that point
only. So, we will combine the 2 symbols together; we will have a circle and we will have
a square. So, may be a circle, may be covered by a square.

So, basically 2, 1 symbol only representing 2 things. The symbol represents operation
also and it represents the inspection also at the same point. So, basically we need to
understand that there are 5 symbols representing; one representing operation; then, the
transportation; then, delay; then, storage and finally, inspection. So, we have 5 symbols.
Again I will read, maybe I will be able to miss 1 or the 2 symbols. So, this is operation,
inspection, storage, delay and transportation. Now, what are the advantages? Now, we
can see that based on the analysis, we can do a calculation that how many delays are
there? How many storages are there?

How many operations are there? How many inspections are there? How many
transportations are there? What is the distance the material is travelling within the
organization? Then, how much is the time required for the various activities? And finally
we can say that if we have the complete picture of the manufacturing activity, very easily

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we can take decisions; we can analyze the situation and make an improvement related to
the number of operations, related to the number of inspection, related to combination of
various operations, related to reduction in the inspection procedures and there can be
number of decisions based on the analysis that we can do based on the information that
we have represented on or we represented graphically. So, it can help us in the
Simplification of operations, Simplification of inspection required.

(Refer Slide Time: 27:02)

Reduction in the distance moved by men and materials in the shop, reduction in the
waiting time; reduction in periods of temporary storage so reduces work in process time;
so, you can see that it will try to make our manufacturing activity more lean, more
wastage free; we will not waste men’s time, we will not waste machines time. If we are
able to analyze the data properly and make judicious decisions based on the data which is
graphically represented using the flow process diagram.

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(Refer Slide Time: 27:37)

Then, we have Flow Diagrams. Let us quickly have a view of what is Flow Diagram?
Some additional information will definitely be there as compared to the flow process
chart. We have seen two types of graphical representations of the manufacturing activity;
the first one was the operation process chart, the second one was the flow process chart
which also included the time and distance. Now we have a flow diagram. This diagram is
used to supplement the flow process chart. Represent graphically the relative position of
productive machinery storage space, gangways etcetera and path followed by the men or
materials

So, it will give us a relative position also of the various facilities or the various machines
and equipment and the accessories being used for the manufacturing activity. It also
helps us for improving the efficiency of our operations. So, to study a process for
efficiency and improvement, it helps to show unnecessary steps; bottlenecks and other
inefficiency. So, overall objective of tools and techniques that are used for plant layout
and planning is to improve the overall productivity, overall efficiency overall
effectiveness of the manufacturing activity or the manufacturing system at large. So, this
also will help us in the same in achieving the same objectives only.

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(Refer Slide Time: 29:03)

And here you can see one representation of a flow diagram and we can see that we have
exact location that where which facility is located. So, Reboiler is here; you have a steam
here. Then this is may be another facilities, the condenser is here and this is a makeup
water coming from here. So, we can just look at the diagram and try to understand,
physically also that which facility is located where. So, this will help us to this is you can
see absorber here. So, this will help us to see which facility located here and how much
is the distance between the various facilities, how we can minimize that distance, how
we can optimize our operations in such a way that the time of men the time of machines
are properly utilized?

So, maybe we can discuss these things in much more detail, but the basic idea is to give
you basic understanding of the various tools and techniques that can be adopted for
optimizing our plant layout and 3 types we have already seen; the Operation Process
Chart, the Flow Process Chart and the Flow Diagram. This is specifically giving us an
overview of the layout also. Then finally, the last things that we have seen I think all of
us might have seen that whenever you enter into an industry or whenever you enter into
an educational institute, there will be Scaled Model of the organization.

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(Refer Slide Time: 30:36)

So, there will be 3-D models representing the various building, the ponds, the
playground, the hostels. So, that is basically a Scaled down model of the overall plant. At
least I have seen in when many organizations, they put a Scale down model at the
entrance of the organization.

So, that you can have an idea that where you are. So, sometimes they point out you are
here and then, they are standing there you can have an idea that where which facility is
located. So, scaled model provide a 3-dimensional view of the layout. These models may
be made up of wood or metal or plastic. Represent real situation and define the plant
perfectly and are easy to understand. So, they are much easier to understand because if
we are having a green field color coding is also used for scaled models.

So, basically when we have a green field, we will say ok, this is a ground or this may be
a some green-green area where, there may be a forest or forest cover. Wherever we see a
sky blue color, we may say there is a pond or any water facility created there. if is it
buildings, we can say this is some facility. Sometimes we mark it by number and give a
coding also that 4 represent boys hostel or 5 represent girls hostel; same type of scaled
model can be done in industry also and we can have a overview of what is happening
within the industry.

So, with this we come to the conclusion of today’s session. We have tried to understand
that how the overall manufacturing activity can be represented, with the help of

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Operation Process Chart. We have seen we can do the optimization of movement of men
and material using the Flow Process Chart and we have also seen that Flow Diagram will
give us the relative location of the various facilities within the organization. The overall
objective being to optimize the utilization of the resources, the utilization of the space
available with us, the utilization of men, utilization of equipment, utilization of machine
and with a broader objective of improving the overall productivity efficiency and
effectiveness of the operations.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 26
Production Planning and Control

Namaskar friends. Welcome to session 26 in our course on Operations Management and

today is a new day and we are starting our discussion for week 6. As you are well aware
that we have divided the course into different weeks and the weekly discussion focus on
a particular aspect of operations management. As we are well aware that it is a 12 week
course and in every week our focus is on a specific area related to operations
management.

If you remember in our previous 5 weeks we have covered the first week completely
dedicated to the basic aspects of operations management, scope function objectives of
operations management. Week 2, was focused on product design and development, week
3 on sales forecasting, week 4 on plant location, week 5 on plant layout and week 6 we
are starting our discussion on production planning and control.

So, you can imagine that different weeks we are focusing on a very very broad topic,
product design and development as I have already discussed can be covered in maybe
one semester where we can have 40 lectures related to product design and development.
Similarly, this production planning and control is also a very we can say exhaustive
topic. Usually it is covered in the UG and the PG level and one complete course three
credit or four credit course is dedicated for discussing topics related to production
planning and control. And somewhere in some colleges, universities, institutes it is
covered as a core course for mechanical engineering students. So, it will be difficult for
us to cover all aspects of production planning and control, but certainly we would like to
understand some basic tools which will help us to solve this problem of production
planning as well as control.

So, basically if we go by the topic production planning and control you can see that there
are majorly 3 words in this topic production, planning and control. So, let us treat these
three words independently first and then we will combine the meaning of these three

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words together or we will try to understand that what we are going to study what are the
basic objectives of production planning and control.

So, first word is production in which we convert the raw material using any conversion
process which can be a chemical physical or a mechanical process into a final product.
For example, the chair on which we sit has a raw material it can be a wood or a metallic
raw material then there is a conversion process which can be may be cutting welding in
case of metals or in case of wood it can be turning off wood or cutting off wood and then
may be joints of wood can be made and then finally, we get our end or tangible product
that is a chair. So, basically there is a raw material then there is a conversion process and
finally, there is a product. So, that is basically the definition of production wherein we
convert the raw materials using any conversion process into the final product.

The second is planning. So, planning word refers to decision making getting ourselves
prepared for any future event that basically is a literal meaning of planning that I
understand that we have to get ourselves prepared or we have to prepare ourselves our
resources our manpower our machines for the impending manufacturing or production
that we want to carry out. So, planning is usually done based on the demand in the
market. And we have already covered one topic which is related to sales forecasting. So,
once we have forecasted the demand we can do the planning activity accordingly. So,
planning is basically a decision making process in which we prepare ourselves for the
future events.

The third thing is the control now in production we know the process planning we have
already done based on the demand and then we have to finally, exercise a control. That
whatever we have planned whether the things or the activities or the jobs are being
performed as per the plan or not, if we are digressing from the path that we have planned
then there has to be certain control, if we are overproducing we have to slow down, if we
are under producing maybe suppose 500 products are required in a week and we are
producing only 300. So, what we need to do? We need to pull up our socks, we need to
rush, we need to expedite the production so that we are able to meet the monthly target
of suppose 2000 products. So, 500 products per week multiplied by 4 weeks in a month,
so approximately 2000 we have to prepare.

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So, if we are lacking in week 1, we have 3 more weeks to speed up and expedite and
achieve our monthly target. So, that matching up of the planned progress and the actual
progress is what we call as the control. So, the progress cannot be always in terms of
number of products it can be in different aspects. We can exercise control over time also
that whatever by that time suppose a particular activity must have been completed. For
example, suppose we are making a house or constructing a house. So, we have planned
that in 6 months this must be the progress that is the planning activity once we control
we will see what is the actual progress in the 6 months if we are lacking behind we will
try to expedite the construction activity. So, that we are able to make the house in a year
or 9 months that we have planned.

So, I think I have been able to put across my thoughts related to production planning and
control. Now, from operations management point of view our production already we
know that from raw material to the end product we have to convert it using different
processes that is production, planning, already all of you know control also you know
from operations management point of view our focus will be to make optimal utilization
of time resources, resources can be in terms of materials, in terms of manpower as well
as the plant facilities as well as the different inputs that go into the operations. We have
to optimally utilize these inputs in order to meet our target, our target in case of
operations management is to achieve the desired quantity of material in desired quality at
appropriate time and at appropriate or competitive cost.

So, these four words I have been using again and again quality, quantity, time and cost.
So, our planning that will help us to achieve these four objectives that is high quality,
adequate number of quantity, low price or maybe competitive cost as well as the right
time. So, these 4 targets if we have to achieve we have to plan the things properly.
Because sometimes we see let us take a lively example, or example related to our lives
we go to a tailor and suppose we have given our clothes for stitching and he has given us
one time that you that clothes will be delivered on 31st of August 2017. We go to him,
he gives us the clothes, nicely stitched, we will be very happy with that tailor.

On the contrary if we go to another tailor who delays we can say delivery of our stitched
clothes we will not be that happy with that tailor. So, there are two maybe production
houses, with one we are very happy, with other one we are not happy as a customer we

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want to be delivered or we want to be serviced in the time that has been contracted
between us and the vendor.

Now, the problem is at the back end. Ex-vendor may have got maybe number of orders,
but he has planned his manufacturing or in this case stitching in such a way that all
orders are delivered on time. On the other hand, the planning activity is not that well
planned or we can say well managed and therefore, he is maybe delaying or sometimes
there are other issues related to that. So, the planning will always help an organization to
grow to get more customers and to get a brand value for itself. So, many times people
say that planning is something which is related to common sense. So, there is no
scientific tools which can help us in planning, but I as a maybe teacher of operations
management or as a mechanical engineer I feel that if we make use of the tools that are
available with us for the planning activity we are certainly going to be better than an
organization which is not at all adopting the production planning and control.

So, with this introduction which is slightly longer than usually I give, but today is the
starting point of the week that is going to focus on production planning and control. So,
therefore, I have given a slightly longer introduction so that the basic concept of
production planning and control is clear to all of you. So, we will cover different tools
and techniques that are used for production planning and control, but in today’s class our
focus will be to understand that what are the functions and objectives of production
planning and control. As well as we will see that what type of planning activity is done
in any organization or what are the levels of planning that we are going to see in today’s
session. So, quickly let us see the definition of production planning and control.

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(Refer Slide Time: 11:41)

So, production planning and control is the organization and planning of the
manufacturing process. So, as I have already told we have a word production in
production planning and control. So, PPC usually is focused on the management aspects
of our manufacturing activity.

Production planning involves management decisions on resources that the firm will
require, for its manufacturing operations and the selection of these resources to produce
the desired goods at the appropriate time and at the least possible cost. Already I have
highlighted in the introduction these words that it is the judicious utilization of the
resources in order to meet the desired quality standards in order to meet the quantity
levels desired as well as to focus on the cost and the time aspects also.

So, basically all the 4 major objectives of operations management have to be considered
when we are understanding or trying to do our production planning and control activity.
So, the similar objectives are there for PPC also.

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(Refer Slide Time: 12:57)

As per Charles A. Koepke - Production planning and control is the co-ordination of

series of functions according to a plan which will economically utilize the plant facilities
and regulate the orderly movement of goods through the entire manufacturing cycle from
the procurement of raw materials to the shipping of finished goods at a predetermined
rate.

So, here again as per the definition we can see that it the production planning and control
the major focus is the management of the operations starting from the procurement of the
raw material to the dispatch of the finished product. So, we have to see that how the
product will move in the organization, what will be the sequence of operations that will
be followed and how the materials will be procured, how the materials will be managed.
So, all that we can say will fall under the broad umbrella of production planning and
control.

Now, what are the objectives of PPC? So, maybe many objectives I have already
explained one or two which may have been left in the discussion by now will be covered
here. So, objectives of PPC include to determine the requirements of man material and
equipment.

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(Refer Slide Time: 14:12)

As I have already told based on the customers demand we have to do the planning
activity. So, we will see that; what is the requirement of machines, what is the
requirement of men, what is the requirement of materials, so all that decisions will be
taken during the production planning and control activity. Arranging production
schedules according to the needs of the market or the marketing demand.

So, there will be some demand. So, we have to do the back calculation. For example, the
company has entered into a contract agreement with a customer that we will be able to
supply X amount of products by 31st of December. So, 31st December now is the
deadline and today we have entered into agreement. So, we will see that how many
months are available with us, how we have to work out a schedule so that we are able to
produce finish the production of the products by maybe 27th or 26th or maybe 25th of
December.

So, we have to arrange the production schedule that also comes under the production
planning activity only. Arranging various inputs at right time and in right quantity to
ensure maximum utilization of all the resources, to maintain optimum level of inventory
which is related to materials management, to maintain flexibility in manufacturing
operations, coordinate between labor and machines and various supporting departments.
So, overall, if you see the major objective is the best or maybe the most optimal planning
of our resources in order to meet the customers demand. So, the focus area of production

430
planning and control is right from the procurement of the materials to the shipping or
shipment of the final product. So, the complete management of the operations within
maybe the premises of the organization or within the shop floor falls under the
production planning and control.

(Refer Slide Time: 16:28)

Now, functions of PPC is a very good diagram taken from a book by M. Telsang. You
can see there are a few pre planning activities which we have some of them we have
already covered on your screen you can see product design. So, we have already covered
one-week discussion on product design then there is forecasting of demand that also we
have already covered. Workstation design is something which is not maybe being
covered in this course on operations management then process design we will be
covering the process planning part, flow design also the layout part already we have
covered in the last week.

So, pre planning activities already we have covered we have covered product design and
development, we have covered sales forecasting, we have covered layout. So, we have
covered maybe the work system design, we are not currently covering in this course. So,
you have to do first pre planning which also falls under the PPC and then the planning
activity. So, planning activity means planning for the 4 M’s. So, M’s basically can be
man material, machine and money. So, you have planning the different resources then

431
we have to plan the routing that is the process planning in our next session our focus will
be on process planning, that is may be the routing.

For example, a product requires 6 different operations. So, we have to identify the route
that how the product will flow and accordingly we have to see that what is the layout that
we have planned. In the previous week you if you remember we have seen the various
flow lines we can have a S-flow line or a U-flow line or a straight line. So, depending
upon the flow diagrams or flow lines we can see the process planning, we have to plan
the route that is the sequence of operations for a particular product. Scheduling is related
to time we have to schedule that at what time which machine will be working on which
particular product. Similarly, we have to estimate also, in estimating our focus will be to
see how many people will be required how many machines will be required. So, all this
is related to the planning activity.

Now, planning you can see if you see the pre planning and planning part if we have
already covered certain things here. So, here currently what we have not covered is the
planning of resources that is man material and 4 M’s man material may be machine and
the money. Then the process planning part we have not covered we will be covering in
this week scheduling is related to time, planning of the time and planning of time is very
important, scheduling is very important because the end date is already fixed as per the
contract agreement with the customer. So, we have to meet the time deadlines or the time
domain or timescale. So, therefore, we have to plan or we have to schedule our activities,
accordingly schedule our various jobs that are required to complete the product
accordingly.

Similarly, we have to estimate based on the time schedule. Once we know the route that
what is the sequence of operations, next is we know now each operation how much time
it will take that will be covered under scheduling we have to schedule our operations.
Finally, we have to estimate that in order to meet the deadlines how many such machines
will be required do we need to put additional manpower, in order to meet the target so
that estimation will be done based on the time calculations. So, once we are ready. So,
the pre planning and planning part has made us ready for taking the production or for
undertaking the production we know that we have done the product design, we have
done the forecasting, we know the sequence of operations, we know the time required for
each operation, we have estimated the number of manpower required or number of men

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required to complete the operation. So, our time is fixed man is fixed machine is fixed.
So, all our planning activity is now complete.

Then the basically control part comes into picture and the control is related to
dispatching. So, all the plans in terms of maybe the route sheets or route cards and with
all the details will be dispatched, they will be sent to the production department and
finally, there will be inspection that is basically to match the actual progress with the
planned progress and suppose we are lacking we need to expedite our work. So, that we
are able to meet the time line.

And finally, we will evaluate once we have maybe submitted the product or the
consignment to the customer we will try to evaluate that why do we need to expedite,
what were the problems in the overall chain, where were the problems, how those
problems can be tackled. So, that in the next production cycle we do not face the similar
problem. So, there will be evaluation at the end of expediting. And finally, whatever
problems are located in the evaluation stage feedback will be given to pre planning and
the planning functions of production planning and control.

So, I think this diagram is very important from the point of view of maybe putting the
different beads that we are covering into the single thread and making a MALA out of it.
So, basically we have seen that all topics are interrelated, we have already covered
product design, we have already covered forecasting. So, once all this is known to us we
have already seen plant location and plant layout.

So, we know that what we want to produce, how much we want to produce, where it will
be produced the layout has already been finalized. So, you know the factory has already
been laid out and now you have to plan for the next stage that is man material machines
and then you have to do the how the process will be designed, then you have to see how
many number of people will be working on that, then you have to do the control that
when the actual production is taking place how you are doing. Whether you are able to
match up to the planned progress or you are lacking behind. If you are lacking behind
you need to expedite, and if you need to expedite you need to evaluate that what are the
problems with the planned progress or what are the problem, what is the problem with
the planning activity and where do we need to plug the holes so that the expediting
function need not be called for during our production process.

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So, this is an important diagram and I believe that all learners must focus on this diagram
and try to understand the various functions of production planning and control. So, where
we can see I think everything I have already explained this is just for you. So, the
planning is focused on materials, machines equipment methods, process planning,
estimating, loading and scheduling and control is focused on dispatching expediting
inspection, evaluating and inventory control, inventory control is again related to the
control of the materials.

(Refer Slide Time: 24:05)

Now, coming on to the levels of production planning and control. Now, we know that we
have to manage our operations at the shop floor starting from the procurement of the raw
material to the final delivery of the finished product. So, there are different levels of
planning. So, the topmost level of planning is the strategic planning which is also called
the long range planning.

So, it is the process of thinking through the organizations current mission and
environment and setting a guide for future decisions and results it is done by the top level
management. So, strategic planning will focus on the long term maybe future of the
organization it is not going to focus on day to day routine or the maybe operational level
of planning, it will do the strategic planning that is a long range planning. So, they may
be focusing on the what is going to be the new technology in the next 5 years or they will

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like to see that which other product segments the company must focus on in the next
maybe 5 to 10 years’ time.

So, the top level planning will be related to the procurement of some new technology or
some new machines or the shift in the focus area of the organization. So, therefore, it is a
long range planning it is not an immediate planning that today we have decided to
change a machine and tomorrow will change the machine, it will focus on the
development of technology which will help the organization to improve its productivity
efficiency and effectiveness and it will focus on a long time horizon.

(Refer Slide Time: 25:56)

Second level of planning will be the tactical planning, and the tactical planning is the
intermediate range planning. So, it is done over an intermediate term or medium range
time horizon for middle level management.

Maybe there are other terms also used for tactical planning, some people call it as the
corporate level planning also. So, the top level planning is the strategic planning which is
a long term planning then you have a tactical planning which is a corporate level
planning which is done for an intermediate period of time. Sometimes we call the mid
middle range or medium range planning as the aggregate production planning, APP also,
and we will discuss aggregate production planning in our maybe discussion during this
week only.

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So, our focus then will be on 1 year or a 2-year basis and we will try to utilize our
resources or our manufacturing resources in the best manner in the most optimal manner
so that we are able to get more and more profit for our organization. So, we will see that
what is the overall demand and then how to meet that demand in the best possible
manner so that the overall profit of the organization increases. So, the middle level
planning or the intermediate range planning that is for a year or 2 we will focus on the
maybe the most optimal utilization of the resources. So, it will basically be executing the
decisions which have already been taken by the top levels. The top level has taken a
decision all other may be detailed or the detailing of those decisions will be done at the
tactical or the corporate level.

And at the last level or the lowest level of planning is the operational planning or it is a
short range planning. It is done over a short range time span it is developed by the low
level management, it is concerned with utilization of existing facilities rather than
creation of new facilities. Now, creation of new facilities will be taken care at the top
level management only or at the strategic level. So, whatever are the existing facilities
the lowest level of planning or the operational planning will focus on maybe 3 months to
6 months time and the focus will be to meet the targets that have been already fixed by
the forecasting team or the marketing team of an organization. So, there will be the more
action packed may be planning activity where you have to take maybe day to day
decisions you have to adjust your schedules, you have to estimate the maybe manpower
and the machine requirement on a weekly basis or a monthly basis to meet a quarterly
target or a month or a 6 monthly target. So, the short level planning or the operational
planning is the maybe lowest level of planning activity.

So, our production planning and control decision, making activity, may involve long
range decisions, intermediate range decisions and low level decisions. But maybe I must
say that all level of decision making is equally important from the point of view of the
success of an organization and different people will be involved making decisions at
different levels of the organization.

So, with this I think we conclude the today’s session, and I think the session was very
brief and we have been able to address two important points today that is the what are the
functions of production planning and control, and what are the different levels of
planning activity in production planning and control domain. And in next session or

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maybe in this week our focus will be on certain tools and techniques that will help us that
will equip us with the knowledge to solve the problems that may arise during the
production planning or sorry during the manufacturing activity in our organization.

So, with this I end the today’s session.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 27
Process planning

Namaskar friends, welcome to session 27 in the course on Operations Management, we

are currently in the sixth week of our discussion and today is the second session in
production planning and control. In our last five weeks, I think I will just like to have a
brief review we have covered the basic aspects of operations management, we have
covered product design and development, we have covered demand or sales forecasting,
we have covered plant location and we have covered plant layout.

So, discussion regarding five weeks is over and currently we are into the sixth week of
our discussion. And we have two and a half hours dedicated for production planning and
control; why am I emphasizing on two and a half hours is, because this topic production
planning and control is usually taught as a full fledged UG program or UG course in
most of the college and universities.

So, we may not be able to cover everything related to production planning and control,
but certainly we will try to address few important tools or techniques; which are
important when we are studying this important topic. So, we will be considering two,
three important points like the process planning, then we will be covering the aggregate
production planning and finally, the capacity planning. Because basically the task is the
planning task only in operations management and the execution then will be followed at
the control stage.

So, we may not be focusing too much on the control part, but we will be focusing much
more on the planning part. So, from the planning point of view; PPC has got certain
advantages and certain limitations. And we will start our discussion today with the
advantages and limitations of PPC, then followed by the basic aspect of process
planning.

And finally, we will see that an example where we can calculate the number of machines
based on the data that is available with us; that is how many number of products we have

438
to produce? What is the machine capability? And depending upon these parameters; how
many number of machines will be required to meet the demand?

So, basically that will fall under the process planning because now we have to see that
how the raw material will enter into the company? Then we have to see that which
machines will be used to operate this raw material? And at what rate these machine will
be working? Who are the people who will be responsible for working on these machine?
How much time will be required in each machine? What will be the delay for; maybe
what will be the work in process during the overall operation or the overall maybe
product cycle?

Then all these parameters we have to take into account while we are making our
planning activity or when we are doing our planning activity for a particular batch of
products. So, we have to take into account the time we have to take into account, the man
we have to take into account, the machine.

So, all these things have to be managed; in brief all the production resources have to be
managed in such a way that our optimal utilization is ensured and we are able to achieve
the four important objectives of operations management. That is again I am reiterating,
again I am re emphasizing the four words again; the quality, quantity, time as well as the
competitive cost. So, we have to ensure that our production is of right quality, in right
quantity, we are able to produce at the right time that is the delivery date which has been
fixed and finally, the production must ensure that the competitive cost is also achieved.

So, production planning and control as we have seen in the previous session is focused
on the planning of our production; in such a way that we are able to manage, we are able
to make best possible utilization of the resources that we have at our disposal. And with
this background; let us now try to see that if we are able to do the PPC activity; that is
the Production Planning and Control activity successfully, what are the advantages that
we can derive?

And if we are not able to do the PPC or what are the limitations of the PPC? Where PPC
will not be much helpful to us? So, let us start today’s discussion with the advantages
and limitations of PPC.

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(Refer Slide Time: 05:17)

So, on your screen you can see the benefits of PPC. So, production planning and control
coordinates all the phases of the production system. Now all the phases mean that the
management activity will ensure that from the start of the procurement of raw material,
to the final dispatch of the finished goods; all operations or all maybe we can say
activities, jobs, events will be in the overall focus area of production planning and
control.

So, PPC department will ensure the smooth operations; a continuous operation so that
the due date of delivery is met in the most efficient manner. An efficient plan results in
higher quality, which is one of the objectives of operations management. Better
utilization of resources; as I have already highlighted that the main objective is to ensure
the optimal utilization of the resources. Reduced inventories; so we do not want to block
our money by keep a very large sized inventory, we would like to keep an inventory
which is maybe there is a new concept or just in time.

So, when the product or when the part is required; we must get that part. So, an inventory
must be; maybe as less as possible working process must be less, better customer
services. So, basically if we are able to do our production planning and control activity in
the most efficient and effective manner; we will get better quality, better utilization of
resources, reduced inventories and better customer services. An efficient plan enables the
firm to improve the sales turnover, market share and profitability.

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So, if we take a similar example of our life only; we get suppose 100 rupees salary in a
month. And suppose out of the 100 rupees; we are able to judiciously spend on our
requirements, on our family requirements. So, we are use making use of the resource that
is the money that is available with us; in the most cost effective manner, we will
definitely be able to save some money for the future also.

So, the best utilization of the resources will always help the organization to be more
profitable; to be more maybe the sales turnover will increase. Similar is the case of the
organizations; so, if the resources are optimally utilized, the man power is optimally
utilized, the machines are utilized to the maximum possible extent; then in those cases
the overall sales turnover will increase, the profitability of the company will also
increase; overall we can say the economic well being, the economic health of the
organization will increase or improve; if we are able to make judicious, optimal, efficient
and effective use of the resources available at our disposal.

So, the PPC activity in general or maybe in specific and the operations management in
general ensures that whatever resources are available with us; we are able to make use of
these resources, in the best possible manner or we must use the tools and techniques
available with us to ensure the best possible utilization of the resources. But many times,
we are not able to make best possible utilization of the resources; because of poor
planning and because of maybe the lack of knowledge related to the tools and techniques
available with us.

So, the PPC function is based on certain assumptions or forecast of customer’s demand,
plant capacity, availability of materials etcetera.

(Refer Slide Time: 09:28)

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So, whatever we are planning; we are planning based on something, based on some input
data. For example, we already had a discussion for one week on sales forecasting. So,
why do we do sales or demand forecasting? To get an idea that what is the demand of the
or what is going to be the demand of the product in the next year? So, or in the next two
years. Based on that; we do the calculations and we try to plan our production. So, our
production is planned based on certain data, which is a forecasted data; which may not
be correct.

So, the plant capacity we make an assumption that we will see in an example today; that
we have a plant capacity to produce maybe 10000 products per month, using all the 100
machines available with us. But if we see that all 100 may not be working; some may be
under maintenance, some may be under breakdown. So, that is also we are planning
based on the plant capacity or the overall plant capacity, but that capacity may not be
available to us; during the complete month or during a week in a month.

So, therefore, the PPC is based on certain assumptions and therefore, sometimes it tends
to be very rigid. So, rigidity is one problem related to the product planning and control
because most of the time whatever we have planned; the manpower, the skilled people
working for the organization would love to stick to those plans and to achieve those
targets. But many a time, there will be some unforeseen circumstances, some unforeseen
events in the manufacturing facility which may disturb the plans that we have made.

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And therefore, some kind of dynamism or some dynamic planning is required which
sometimes is not done by the organizations. And therefore, there are problems related to
the delivery dates; problems related to the number of products that we have produced or
we want to produce. So, there are issues related to the volume of production, there are
issues related to the due delivery dates or the postponement of the due delivery dates.

So, because of the rigidity also there is an issue and then the PPC activity requires certain
skills, certain knowhow, certain formulas. So, there maybe sometimes situation where
small companies may be operated by individual; may not have the requisite skills to
implement or to use the tools and techniques of production planning and control.

So, basically these are the three major limitations I must say that are inherent in
production planning and control activity. The first one is the assumptions that we make
in terms of demand, in terms of available plant capacity, in terms of availability of
materials rigidity. Because once the plans have been made, the companies love to stick to
those plans and many times; some dynamic planning may also be required based on the
specific requirements and then it is difficult for small firms sometimes to implement the
PPC.

Now, process planning we are going to cover today.

(Refer Slide Time: 12:59)

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Process planning answers the following questions; let us read the questions first. How it
can be made? It means the product. How the product can be made? How much it will
cost? How long time it will take to complete? So, time is also coming; process is also
coming how it can be made? Then how reliable it is? How can we recycle? So, there can
be number of further questions that may be answered by our process planning
department or process planning results.

So, basically the process planning will focus on the first two, three points that are
mentioned here that; how it can be made? Now how it can be made does not refer here to
the actual manufacturing process that; suppose we are doing casting. So, for casting how
the solidification will take place? And how the mold has to be made? What type of
pattern will be used for making this casting? No, it is focussing on the steps that will be
required, the sequence of operations that will be required to complete the product or to
complete the batch of products.

(Refer Slide Time: 14:16)

Now, it is known as the manufacturing planning, process engineering and machine

routing; so, people may call it with different names. So, basically requiring a complete
process, it may have 4 operations, 5 operations. So, depending upon the process we will
define what is going to be the sequence? Which are machines that are going to be used?
Who are the people who are going to work on those machines?

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So, maybe we will plan the complete process; it determines how the work is to be done.
So, that is important thing that has to be listed down; as we have seen in functions of
production planning and control, there was one diagram which we have seen in the
previous session; if you remember. We have seen that there are important steps or
important functions of production planning and control, there is a preplanning activity
which involves layout planning of the factory; which we have already covered in week 5.
So, it requires sales forecasting; it required product development

So, first you have preplanning and then in the planning; you do 4 resources or 4 M’s. So,
Man, Material, Machine, Money that four resources that we take into account and then
finally, we decide on the routing, as scheduling, estimation, dispatching, expediting
evaluation. So, these are all functions of production planning and control; so, here also
we will see how the work is to be done. Now from how point of view; we will see that
what is the route of machines that is going to be followed? As we will estimate the time
required for each machine to work on the product, then we will decide the number of
people required to work on individual products.

So, all that is being decided during the process planning stage only; so, process planning
establishes the shortest route that is followed from the raw material to the finished
product. So, shortest route means that the sequence of operations that we are deciding for
a particular product needs to be the best possible sequence to get the product.

(Refer Slide Time: 16:31)

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Now the activities that are associated with process planning are like how we can do our
process planning? First we have to list the operations to be performed and then we have
to decide on their sequence. Let us take an example of making a metallic pulley; now
suppose you want to make a metallic pulley by casting process; what is required?

First step I think will be we have to make a pattern. So, first we require to have a
drawing of that metallic pulley then we have to develop or maybe design a pattern giving
all the pattern allowances. We will make a wooden pattern then we take this pattern to
the foundry shop, we will make a mould; then in the mould we will melt the metal pour
the metal into the mould and finally, we will break the mould and get our metallic pulley

So, this is the sequence that has to be followed for making a metallic pulley using the
casting process. So, this is we have to list the sequence of operations, we have to list the
operations first and then we have to establish the sequence that is required to get our
product. So, specifications of the machine and equipment required we must know; now
we must know that if we have to melt the metal, which type of furnace do we have? We
have to melt maybe 5 kg’s of metal, then we must see that whatever furnaces that are
available with us; which one is suitable for melting 5 kg of metal?

So, the machine specifications, equipment required that also is required for process
planning activity. The necessary tooling, jigs and fixtures required; suppose we have to
make a sand mould; what are the tools required? Moulding box may be required, then
ramming tool will be required; there will be number of tools required for making a
mould.

So, all that is also needs to be listed down’ gives the manufacturing details with respect
to feed, speed, depth of cut for operation to be performed. So, the last maybe point is
related to suppose we have to do the machining activity. So, for machining three
important parameters are there; the cutting speed, the feed rate and the depth of cut. So,
that also needs to be specified; suppose the machining operation has to be done after
doing the casting operation.

So, we are doing sand casting; for finishing, we may require to do a machining operation
also. So, for machining we may have to specify these three operating parameters like
cutting, speed feed and depth of cut. So, basically we can see that process planning does
not only require the management knowledge; process panning also requires the

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engineering knowledge also. Because we need to identify that how the product will be
converted into the or how the raw material will be converted into the product or how the
product will be processed though the various sequence of operations.

So, it requires both type of knowledge; it requires engineering knowledge also, it

requires managerial knowledge also. Now what are the factors affecting the process
planning?

(Refer Slide Time: 19:48)

Now, we have seen that how we can use the information available with us for making
our process plan. In the previous slide, we have taken an example also that what are the
inputs required? So, this information must be available with us; if we have to make a
process plan.

Now once we are in the process of making a process plan, we need to consider number
of factors. Now what are these factors? Now these factors are the volume of production;
volume of production may be in terms of number of products that we are planning to
produce in a particular week or in a particular month or in a particular quarter or in a
particular year.

So, first thing is the volume of production that will affect our process planning; then the
delivery dates of the products, definitely will affect we have to schedule our operations
in such a way that we are able to meet the targets. Then accuracy and process capability

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of machines that is also very important to ensure the quality of the final product. The
skill and expertise of the manpower is also very important, material; that is the raw
material specifications must be known to us. Because once we know the material, we can
very easily select the processes that can be used for that particular material.

Accuracy requirements of components or parts; that is the accuracy; or the specification

or the quality specifications of the product, so basically we need to understand that what
we want to make? What are the design specifications of that product? What are the
quality specifications of that product? That is one thing related to the product that we
must know, then related to the machine we must know what is the machine capability?
How much quality that machine can deliver? How much volume of production that
machine can deliver? What is the maybe preventive maintenance requirement? What are
annual maintenance requirement?

So, all details related to the machine also we must know and prior to that; what is the raw
material? Whether it is steel or it is aluminium or it is a plastic or it is maybe some
advanced material or advanced alloy. So, related to the material also we must have all the
information. So, I have I think taken a reverse route; we can take another route also that
starting from the material, we must know all details related to the material; why?

Because suppose we are going to make a metallic pulley, if we are going to make it with
aluminium; we need to use a temperature for melting aluminium, which is going to be
different from melting of steel. So, first we must know what is the material that we are
going to use? Then the processes; for each process we must know what is the capability?
How much quality the process can deliver? What is the volume of production the process
can deliver?

So, everything related to the process and in many cases; there will be sequence of
processes or sequence of operations that have to be done on a particular product or on a
particular raw material. So, we must know the capability of each and every machine and
finally, what are the quality standards of the product that we must know? So, broadly
starting from raw material; the process and the product all these three; all details must be
available with us and specifically from process point of view; what are the number of
operations; sequence of operations and at each operation what are the details there in; all
that information is required when we are going to make a process plan.

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(Refer Slide Time: 23:45)

Now, this is product realization; the source is also given process engineering. So, by
Doctor. R. A Wysk; so product realization very quickly we will go through this. So, the
first thing on your screen you can see; there is a product design. So, once we have a
design the material for the product is also finalized. So, we know that the product is
going to be made by this material, this is going to be the shape, this is going to be the
tolerances, this is going to be the surface finish required.

So, once we know what is to be made? We have the product detailed design
specifications, we will go to the process planning and this is what we are discussing
today. And once we have done the process planning, we will go to the operation
programming where checking will be done at the verification stage. In operation
programming, we will make a complete process plan and we will execute maybe the
process plan. Then we will verify scheduling, execution and whatever feedback is there;
will go back to the process machine knowledge into the process planning. So, maybe this
is a representative diagram for product realization that once where product design is
ready, then the process planning is an important step in the overall product realization.

So, that is very important; so, we must remember that when process planning has to be
done? So, after product design is ready; we know what is the number of products
required or sales forecasting is done; then we will go for process planning and rest things
will follow.

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(Refer Slide Time: 25:30)

Now very important methods of process planning; now, there are two methods; manual
method of process planning and computer aided process planning.

(Refer Slide Time: 25:44)

So, quickly we will see; in manual method it depends on the manufacturing engineers
experience and knowledge of production facilities, equipment and their capabilities,
processes and tooling; I think all this we have already covered. A person or an engineer;
who is going to make a process plan must know about all the processes, about the
capabilities of the various processes; he must know the sequence of operations required

450
for a particular product, he must know what are the tools, jigs, fixtures, equipment
available? And how they can be utilized for making a particular product?

So, the complete knowledge about the manufacturing facility must be there with the
person, who is going to make a process plan. So, this method is usually time consuming
method because there are few changes which are beyond the control of the
manufacturing engineer. There are certain events which are beyond the control and
therefore, maybe to make an effective process plan; sometimes becomes difficult and
then there are certain maybe exigencies to which a factory has to or organization has to
respond. And then some of the plans may get disturbed or may not be able to achieve the
desired results.

So, this method usually is a time consuming method again and again; you have to change
the process plans, then may not be consistent and optimum. So, we are sure because of
the dynamic changes happening and there if suppose a company is making 5 batches of
product and all the due delivery dates are fixed. All of a sudden you get a new order
which has to be done and there is a maybe time contract agreement with one of the
customers and you are getting lot of profit out of it.

So, you will see that how I can adjust the other 5 batches; so, that this particular batch
can may also be put in and we are able to get the profit that we are envisaging that is
possible with adjusting the sixth batch products also. So, this sixth batch may be
economically lucrative to us, but will disturb the process plans of the other five batches,
which may not be a good decision to take.

But many times seeing the economic benefit of the sixth batch; we are maybe tempted to
take a decision that let’s take this also and we will try to manipulate the other process
plans to make this happen or the make the sixth batch also possible. So, that is basically
requiring a time therefore, it makes it a time consuming process, then you have to adjust
everything and if we say that no the sixth batch will not be possible for us, we will focus
on our process plans for these five batches of products only, I think there must not be a
problem.

But may not our; this thing manual process planning may not be consistent and optimum.
So, that is also one of the limitations of the manual method; so therefore, there is a new

451
technique which is not new I must say; text is available and in books we can find that
topics related to computer aided process planning.

So, these days we are using computers, we are using information technology for
developing the process plans based on the capabilities that we have. And there are
softwares that can be developed for making use of the plant facilities in the best and the
most optimal manner. So, keeping the time paucity into maybe consideration; we are not
discussing computer aided process planning here.

But if the time permits in our subsequent discussions, we will see that we can cover this
computer aided process planning in slightly more detail. But I think, I have been able to
highlight the problems associated with the manual process planning. Because so, many
things have to be taken care of and human intelligence and decision making also has got
a limitation. And therefore, we make use of computers in our decision making process.

Now, let us take a very small example of machine requirements.

(Refer Slide Time: 30:11)

Like when we are doing the process planning; we may have to take a decision that how
many machines will be required for achieving our target? So, in a manufacturing
organization, the major share of the investments are required for procurement and
installation of plants machines and equipment. It is very important to optimally invest in
plant and machinery; the return on investment can be maximized by making optimum

452
investment in plant and machinery, as well as making optimal utilization of the installed
production capacity.

So, this is related to one aspect of our resources that are available at our disposal; that is
the machine.

(Refer Slide Time: 30:55)

Now, the number of machines required for a given problem or for a given situation can
be easily calculated as; so, N is representing our number of machines. So, we can
calculate it, we can have standard time for the operation; that we can very easily find out
in our subject on time and motion study or motion and time study.

The number of machine required are given below:

N=

N=

So, in motion and time study we can calculate the standard time for the operation; then
we require the maximum production required during the specified time. We must know
the machine capability or machine capacity that is also known. Then utilization of

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machine capacity; so, many times machine capacity we may not be able to utilize 100
percent; so, we have 90 percent, 80 percent utilization of machine capacity.

So, the four unknowns here; if we know these unknowns, very easily we can calculate
the number of machines required for a particular situation. And this is one aspect only of
the overall process plan or the development of a process plan; just I am trying to take one
example that what type of calculations we do when we make a process plan?

Now, let us take a very simple example.

(Refer Slide Time: 32:15)

A job is performed on a milling machines which is a common machine in any machine

shop. The following details are given standard time for a job; so, suppose we are making
a pocket in a maybe; we can say a square pocket in a block of steel. So, square pocket
has to be cut; standard time for cutting this square pocket is 6 minutes. If data is given
that for cutting one square pocket, you require 6 minute; number of jobs.

So, we have to do 70000 such pockets we have to cut in steel block, machine capability
is 2000 hours/month. So, we can make use of a milling machine and a milling machine
has a capability or capacity to work 2000 hours in a month and machine utilization is 90
percent. So, 2000 hours is the maximum capacity, but we can make use of the 90 percent
of this only.

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So, now we have to calculate that how many machines will be required to achieve this
target of 70000 square pockets in a steel block? And for each square pocket, we require 6
minutes. So, very easily standard time is given 6 minutes.

(Refer Slide Time: 33:30)

So, we can convert it to hours because the other data is available in hours. Maximum
production required is 70000, machine capacity is 2000 hours per month and utilization
is 90 percent; so, we get is to 0.9. So, very easily we can calculate what is the number of
machines required?

So, by using the formula which was given in the previous slide; where we can calculate,
we can see the standard time is multiplied by the maximum production required and
divided by the machine capability into the utilization of capacity. So, we can get 4
machines are required to achieve a target of 70000 products; each product requiring 6
minutes of standard time.

N= = = 4 machines

So, in this way we can very easily make our process plan that in order that all unknowns
are known here now; so, we know that 70000 products are to be made and what is the
machine capability? What is percentage utilization of machine capability? And what is

455
the total number of products required? Now based on this information, we can calculate
the number of machines required.

Similarly, we can calculate the number of people required also. And in this case; in
simple case only one type of product is being made on one type of machine only. So, we
can calculate the number of machines, but you can see that is there is a product which
require 10 different operations; on three different types of machines. So, you can
yourself imagine the complexity involved in developing a process plan; in such a case or
for such a maybe difficult situation. So, therefore, we are using a computer aided process
planning technique for making the process plan nowadays.

(Refer Slide Time: 35:35)

So, last slide that I want to cover in this session is the process and equipment selection.
Because when we are doing process planning, we definitely would love to select our
process and equipment judiciously so that we are able to meet our overall objectives. So,
there are many factors which influences the selection; some of them are listed here. So,
first is economic considerations, production rate and unit cost of production; durability
and dependability, minimum setup time longer, productive life of machines or
equipment, functional versatility or maybe the versatility of the equipment and the
machines.

So, basically when we are trying to make a judicious selection of our process and
equipment; these are the parameters that we need to take into account. And if we are able

456
to ensure all these things; their setup time is less, the cost effective production is being
ensured, machine capability is being utilized to its fullest, we are able to meet the
delivery dates or the due targets. So, then our overall process plan; we can say is a
successful process plan based on all these factors.

So, with this I conclude today’s session; in next session we will cover two important
topics in our remaining sessions. In the next session, we will cover the aggregate
production planning and in the remaining two sessions; our focus will be on capacity
planning. So, with this I conclude today’s session.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 28
Aggregate Production Planning

Namaskar friends. Welcome to session 28 in our course on operations management. As

you are aware, we are discussing the production planning and control and we have
already finished the discussion for the previous 5 weeks in this course. In the last session,
if you remember, we discussed the process planning part which is an important aspect of
production planning and control and we have seen that what are the factors that we need
to be considered for process planning and one aspect that is how to select the number of
machines required that we have covered with the help of a numerical problem.

So, this topic is more or less based on certain mathematical calculations and today also,
we will try to understand the concept of aggregate production planning with the help of a
numerical problem, but first we go to the numerical; first of all let us see that; what do
we mean by production planning or aggregate production planning.

As we have seen in session one of this week that was related to production planning and
control; basic fundamentals, we have seen that usually, we do planning activity at
different time horizons. We make a long term plans which we call as the strategic plans,
then we do the intermediate planning and then finally, we do the operational or the short
time planning or the short term planning.

So, our aggregate production plans usually fall in between. So, it is intermediate
planning where we plan our production for the next maybe a year or maybe 2 years. So,
our plan which is intermediate production plan falls under the aggregate production
planning horizon.

So, basically we are going to see today that how we are going to optimally utilize our
resources in order to meet the demand. Now basically in production planning if you
remember, if we have to sum up the definition of production planning in 2-3 sentences,
we will definitely use the same words again that it establishes a planning activity to

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ensure the maximum possible utilization of the resources available at our disposal in
order to achieve the targets of quantity quality time and cost.

So, basically we are focusing on optimal utilization of our resources to meet our intended
targets in terms of quantity, quality, time and cost. So, that is the overall summary of
production planning activity and today, we are going to see that once we have to meet a
target of a particular volume of production, how we are going to use the resources
available at our disposal in order to meet that demand which we have already forecasted
in our week 3 of discussion.

If you remember, in week 1, we have covered the basic aspects of operations

management. In week 2, we have covered product design and development. In week 3,
we have covered sales or demand forecasting. In week 4, we have covered plant location.
In week 5, we have covered plant layout and week 6, we are covering production
planning and control.

And in week 6, today is our third session; in first session, we have covered the basic
aspects of production planning and control; in the second session, we have covered
process planning, we have seen; what are the factors influencing the process selection
and equipment selection and finally, today we are going to cover the aggregate
production planning and I have told you that aggregate production planning is a planning
horizon of maybe a year or 2 years and we see that what are our production alternatives,
how we can make use of this production alternatives in order to satisfy the demand in
terms of number of products required in a particular quarter or in a particular month or in
a particular year.

So, let us start our discussion related to this very important part of production planning
and control that we call as the aggregate production planning. Now aggregate planning
determines the resource capacity needed to meet the demand over an intermediate time
horizon.

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(Refer Slide Time: 05:00)

So, intermediate time horizon means as I have already explained, there is a strategic time
horizon or maybe a long term planning activity may be focussing on next 5 or 10 years
of the organisation, then the intermediate activity or planning activity focussing on the
one or 2 years planning horizon and finally, a short term planning activity or the
operational planning activity may be focussing on 3 to 6 months of the time horizon.

So, the aggregate planning as we can see here it focus on the intermediate time horizon,
aggregate refers to product lines or families. So, we can see that aggregate word may be
focus on the product lines or families aggregate planning matches the supply and
demand. So, supply means, we have to see that how we can meet the demand using the
production alternatives that are available at our disposal. So, next, we will try to cover
that what are the major objectives of aggregate production planning.

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(Refer Slide Time: 06:17)

So, the major objectives, we can see are to establish a companywide game plan for
allocating the resources.

So, we have seen in the previous slide that it matches the supply as the demand. So,
basically, we have a demand data available with us, we know that what is going to be the
demand or we have forecasted the demand for the next year or may be it can be on the
quarterly basis, it can be on a monthly basis, it can be on a bi monthly basis. So, time
horizon may vary for which the demand has be forecasted. So, we may have forecasted
the demand on quarterly basis that for quarter 1 of the financial year 2018-19, this is
going to be the demand for the next quarter; this is going to be the demand.

So, we have forecasted the demand. Now we have to plan our production in such a way
that we are able to meet that demand that we have covered in the previous slide that our
aggregate production planning matches the supply and the demand. So, the demand has
been forecasted that we are assuming that their data is already available with us. We may
have forecasted the demand using any method, qualitative method, quantitative method;
within quantitative, we have seen there are number of method; averaging methods are
there, time series models are there, then maybe exponential smoothing methods are there.

So, any method; we may have used for forecasting the demand, but we assume in
aggregate production planning that the demand for the next year is available with us. So,
it will establish; we can say our strategy to meet that demand on a quarterly basis or on a

461
yearly basis and develop an economic strategy for meeting the demand. So, only one
word is very important here that is economic. So, we will take a decision which is going
to save the money of the organization.

Now, let us see if we have to meet a demand of suppose 1000 products in quarter 1, 2000
products in quarter 2, again 1000 products in quarter 3 and 2000 products in quarter 4.
So, we have 1000, 2000, 1000 and 2000. So, it is 6000 products in a year. So, these 6000
products; we must be able to produce using the available production alternatives
available with us in the most economical manner.

Now, most economical manner means that we have to utilize our resources in such a way
that we are able to meet this demand of 6000 products in a most cost efficient and
effective manner. Now some of you may be wondering or maybe thinking; what are
these production alternatives. Now production alternatives may be our regular time
production, sometime we may have to go for an overtime production, sometimes
depending upon the demand, it may be overshooting our capacity, we may have to hire
some more people many times because of less demand, we may have to fire some
workers many times, we may have to subcontract a portion of the demand to some other
sister concern.

So, these are the production alternatives that are available with us, we have to distribute
our demand among these production alternatives in such a way that we overall the total
production cost for a particular year for which we are making this aggregate production
plan is maximized or minimized is it cost. So, we have to see that it is minimized, we
have to find out the strategy in such a way that the overall cost of production is
minimized and we will try to understand this with the help of a problem and I think the
problem will make the things very clear to all of you.

But the overall maybe the summary of aggregate production planning is the first thing
that we must remember that it is an intermediate time horizon plan that is we are
planning for the next one year or at the maximum 2 years, then the inputs can be we can
say the company policies, we can have an economic policy of the company, then maybe
the material policy for the company, we will try to see that with the help of a diagram.

There will be some input and the aggregate production plan will give us some output the
output that the production plan will give us is the workforce required the normal time

462
production required, the overtime production required the number of people required
maybe to be hired, to be fired, how much amount we must subcontract to a particular
sister concern in a particular quarter, how much back ordering can be done, backordering
means we enter into a contract agreement with our customer that we may not be able to
supply all the amounts of products required in one quarter, it must be distributed in the
next 2 quarters.

So, that is kind of backordering a contract agreement between the customer and our
company. So, the output of this aggregate production plan will be an optimal distribution
of the demand into these production alternatives. So, we may have different production
alternatives available with us and we will distribute the demand among these production
alternatives in such a way that our overall cost of production for the complete year is
minimized.

So, we may have as you can see that there can be so many permutations and
combinations possible to meet the demand, but which alternative is going to give us the
best result that we have to find out and there are scientific mathematical models methods
that can be used to find out the optimal combination of production alternatives that are
going to give us the minimum total production cost.

That is our target and we will see a list of methods that can be used to optimize this
problem of minimizing or maybe I should not use the word optimize to solve the
problem of minimization of the total production cost now this diagram few things I have
already explained.

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(Refer Slide Time: 13:15)

So, let us quickly go to the focus area here aggregate planning is what we are doing and
these are we can see the basis or the inputs based on which we are going to make our
aggregate production plan. Now company policies strategic objectives financial
constraints capacity constraints demand forecast, all these are kind of inputs that we
require to make our aggregate production plan.

One of the foremost is the demand forecast we must know that what is going to be the
demand in the next year if we want to make a forecast on planning activity on quarterly
basis, we must know that what is the quarterly forecast for the next year, then the
capacity constraints is also very important, we must know that what is the regular time
production that we can do, we have maybe 100 machines; each machine has a capability
of making 100 parts. So, that will define our capacity capability to do the normal time
production we can use it for overtime production also.

Then, if we have a demand which is still higher than the capacity that we have, we may
have to subcontract, we may have to give a portion of the demand or a portion of the
number of products to any sister concern and get the products from them and then
complete the maybe consignment and hand it over to the customer some portion or some
part of the demand, we are satisfying some part of the demand we are getting it satisfied
or getting it made by our sister concern or any other company that we may feel fit deem
to make this product.

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So, basically these are the 2 important things or the inputs that are going to play a very
important role in our aggregate production planning activities the other things are also
very important, but may not be playing a direct role in the aggregate production planning
calculations. So, company policies, strategic objectives and financial constraints are
other important inputs and we can see when you understand the problem, you will be
able to appreciate these 3 inputs also when we are doing the aggregate production
planning. Now, what will be the output? What we will get out of the aggregate
production?

Once we solved this problem, but we will get, we will get a output that what is the size of
the workforce required; must we have same number of workers working throughout the
year or should we ration the employment of workers that is for a particular quarter when
the demand is very high, we may have a larger workforce for a particular quarter on the
opposite side, if we have a very low demand or there is no demand, can we fire these
workers or can we put them to rest; can we give them holidays. So, that we are not
paying them; maybe extra amount of money when they are not required in the
organization or sometimes the companies may even like to fire these employees.

That is one output, we will get another output will be; what are the inventory levels that
we must maintain. Now inventory is we can set the materials are the finished products
that we are keeping in the organization or in our warehouse. So, what is the inventory
levels that we must maintain how much regular time production we must do how much
overtime production we must do then backlogs back orders or lost sales this is also one
of the outputs that we will get from aggregate production planning lost sales maybe the
demand is so huge that using all our alternative we are not able to meet the demand
maybe some portion of the demand may go to the competitor.

So, we will say; this is last sale from our part, then subcontracted production is another
output. So, basically we have numbers that we get from the demand we have constraints
on our production alternative that we can make this many products only using regular
time production we can make this many number of products only using the overtime
production we can hire only this many number of employees because of the financial
constraints of the organization.

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So, we have certain constraints we have the numbers in terms of demand now we have to
solve this problem how to allocate these resources to a particular number of demand. So,
that the demand is satisfied and the cost remains minimum.

(Refer Slide Time: 18:23)

Now, meeting the demand strategies we can now we have a target that is our demand we
have to meet this demand now how we can meet this demand by using the production
alternatives now let us see how we can meet the demand adjusting capacity resources
necessary to meet demand are acquired and maintained over the time horizon of the plan
now resources can be terms of machines this can be in terms of manpower.

So, adjusting the capacity; so, first thing is we need to adjust the capacity that is required
to meet the demand very simple example we can take that suppose we have to meet
demand of 1000 products and our regular and overtime production is not able to meet
that 1000. So, what we can do we can take 2 more machines for a period of maybe 2
years and then we can just sell of those machines we are only acquiring the capacity to
meet that demand.

So, first is adjusting the capacity resources necessary to meet the demand are acquired
and maintained. Maintained means we have to meet that demand regularly for next 2
years. So, we have to maintain those 2 additional machines with us minor variations in
demand are handled with overtime or under time. So, if there is little variation we can go
for overtime operations then we have to manage the demand and then we have to finally,

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be very proactive demand management that is an another maybe strategy to meet the
demands I am a little bit quick in the discussion because it is easier to understand the
maybe philosophy of aggregate production plan with the help of an example.

So, I am trying to jump to the example as quickly as possible now strategies for adjusting
the capacity can be level production, we try to understand this level production with the
help of an example now producing at a constant rate and using inventory to absorb the
fluctuations in demand, we will try to understand this with the help of an example now
level production means that all round the year we will make the products maybe uniform
number of products per month or per quarter and for one quarter we may have less
demand for other quarter we may have more demands.

So, we will be making a level production only every quarter or every month same
production. So, whenever there is more demand we will be using the material or the
products stored in the inventory. Chase demand chase demand means whatever is the
fluctuation in the demand over a period of time maybe if we are taking yearly demand.
So, how the demand is varying over one year from January to December or if we talk of
a financial year from April to March, we will chase the demand, whenever the demand is
more, we will hire more people, we will subcontract, we will use all production
alternative or combination of production alternatives to meet that demand.

But wherever the demand is less, we will fire certain people; we will stop production for
maybe 3 days or 5 days in a week to meet that demand. So, when the demand is less, we
will adjust ourselves accordingly when the demand is more we will gear up accordingly.
So, we will be chasing the demand. So, we will try to understand this with the help of a
diagram. Peak demand maintaining resources for high demand level.

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(Refer Slide Time: 21:59)

(Refer Slide Time: 22:10)

So, we may keep some reserves; in case of the peak demand, we can have overtime and
under time increasing or decreasing the working hours. We can usually in most of the
organizations, we have the provision of overtime subcontracting, let an outside company
complete the work part time workers, we can hire part time workers to complete the
work backordering providing the service of the product at a later time period, I think I
have already highlighted backordering in today’s session only.

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So, these are all the alternatives that are available with us to satisfy the demand or to
meet the demand targets. So, you can see, we can focus on regular time production, we
can focus on overtime production, we can focus on hiring more number of people, we
can focus on firing the extra or the excessive baggage that we have in terms of worker.
So, we can go for subcontracting we can go for backordering.

So, as a production manager I am a rich man because I have so many production

alternatives available with us, but if I do not reduce or if I do not maybe minimize the
total production cost for meeting the specific demand for a particular year I can be the
poorest man in the organization now I have to use as a production manager my skills in
order to minimize the total production cost for the company.

Now, I have so many alternatives available with me based on the information in terms of
the capacity constraints for each alternative because each alternative will have a capacity
constraint, we have our regular time production there is a capacity that we can produce
overtime also we have a capacity.

So, based on the capacity constraint and the cost of production for each production
alternative as we can take an example; for example, regular time production when we are
using our production facility for making the regular time production, cost will be maybe
just as compared to if we subcontract the same thing to any other organization because
their profit will also be added in the cost or maybe the price of the product that we are
buying from any subcontractor. So, the cost will be different.

So, as a production manager, I have to see 3 important things; what are the production
alternatives available with me or the strategies available with me, then what is the cost of
each particular production alternatives; that is regular time production, what is the cost
per unit for overtime production, what is the cost per unit for hiring up people, what is
the cost for firing the people, what is the cost. So, I must have the number of production
alternative, what are available with me that is one thing, second is the cost involved with
each production alternative and third thing that I must know is the capacity constraints
on each alternative.

So, these are the 3 things that I must know the type or number of production alternatives
available the cost involved in each production alternative and the capacity for each
production alternative. So, if this data in simple mathematical numbers is available with

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me, I can very easily calculate the total production cost for the complete year based on
the demand which is the forecast for the next year based on the forecasted demand, I
have another number that this is the number of products that have to be made in the next
year.

So, that demand is available with me and all other things are also available in terms of
mathematical numbers very easily I can calculate and how to do the calculation that we
will try to see in our example. So, this is level production, this is the variation of the
demand over a period of time.

(Refer Slide Time: 26:07)

And in level production, we will do uniform production all round the year. So, we can
see that wherever the demand is more we are producing less, but wherever the demand
was less the demand is less here, but we are producing more. So, this is the extra
production that we will utilize here some extra production, we are doing here because the
demand is less.

But we are producing more; we are producing at the level production here. So, we are
able to satisfy this additional demand with the inventory generated here during the lean
period of the demand.

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(Refer Slide Time: 26:52)

Now, chase demand as I have already told we will chase the demand like this. So, this is
the demand curve and we will see wherever the demand is less we will produce also less
wherever the demand is more we will produce more.

So, we will manage that demand as per the time. So, if in any particular quarter or any
particular month the demand is more we will produce we will use our alternatives in such
a way that we are able to satisfy the demand there. So, we are not maintaining maybe
inventory. So, the focus on inventory is less in case of chase demand. Now, how we can
optimize this problem. Now we see that there is some mathematical data available with
us cost for each production alternative per unit is available with us capacity constraints
are also available with us the demand that has to be satisfied is also available with us.

How we can solve this problem of minimization of the total production cost, we can use
pure strategies, mixed strategies, pure strategies in terms of level production.

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(Refer Slide Time: 27:58)

Or chase demand strategy mixed strategies combination of both linear programming

transportation method and there are other quantitative techniques available. So, we will
use any of these methods to solve the problem of minimization of the total production
cost for the year.

Now, let us quickly take 1 or 2 examples. So, here we can see quarterly demand is there
sales forecast in pounds. So, spring 80,000 pounds, summer 50,000 pounds, fall 120,000.

(Refer Slide Time: 28:37)

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So, we have a quarterly demand data hiring cost is dollar hundred per worker firing cost
is dollar 500 per worker, regular time production cost per pound is dollar 2, inventory
carrying cost is dollar 0 point, we can say 50 cents or half a dollar per pound, per quarter
production per employee is 1000 pounds per quarter and beginning workforce is 100
workers.

So, this is we can say available information with us for solving this problem. So, 2 things
you can see here which I have already highlighted; we must have a demand. So, here we
have a sales forecast on quarterly basis we must have the cost data also. So, hiring cost
for worker firing cost for worker regular time production cost per pound of the product
produced because the forecast is in terms of pounds 8000 pounds.

So, regular production cost per pound is available with us inventory carrying cost is also
available in maybe 50 cents per pound per quarter production per employee is also given
1000 ponds. So, this is capacity constraints are also given that production per employee
every employee can make 1000 pounds per quarter only and beginning workforce is also
given that we have a workforce of hundred people available with us.

Now, what is the problem the problem is that we have to satisfy this demand; we have to
plan our production in such a way that this demand is satisfied over a period of time or
enough for a one year period of time. Now we one strategy can be level production.

(Refer Slide Time: 30:25)

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So, we can see the level production strategy, we will produce uniformly all round the
year. So, what is the total requirement? 50,000 is the forecast for maybe we can see,
there are 4 forecasts available with us. So, if we add this 4 forecast our level production
average production comes out to be 1000 pounds.

= 100,000 pounds

So, we are going to make 1000, sorry not 1000, 100,000 pounds per quarter. So, we are
level production; how we are calculating we have the spring summer fall and winter for 4
quarters we have the demand data available with us. So, for each quarter we are adding
this and dividing it by 4. So, it comes out to be 100,000 pounds per quarter, we must
produce. So, for spring, the sales forecast is 80,000 pounds, but our production plan says
100,000 because we are leveling our production on quarterly basis; for every quarter, we
will produce 100,000 pounds of product only.

So, we are producing 100,000, 100,000, 100,000, 100,000 that is the 400,000 pound that
is the overall yearly demand for the next year, but we are managing the inventory in
spring the forecast was 80,000, but we have produced 100,000. So, 20,000 goes to
inventory. Similarly, in summer the forecast or the second quarter the forecast was
50,000, but we have produced using level production 100,000.

So, 70,000 is the inventory, 20,000 produced here and 50,000 extra produced here. So,
we have an inventory of 70,000 and in fall we see our production is only 100,000 as per
our level production strategy, but the demand is more. So, 20,000 is used from inventory
and then in winter also we had 100,000 regular time production, but 50,000, we used
from inventory. So, there is no inventory at the end of the year. So, we have used our
inventory in a judicious manner and solved the problem of 400,000; producing 400,000
pounds of a product in a year.

Now, what is the cost we know that dollar 2 per pound is a regular time production cost.
So, we have produced 400,000 pounds multiplied by dollar 2 plus we have to add the
cost of managing the inventory here. So, averaged out inventory cost is 140,000 if you
see here the overall inventory 70 plus 20; 90 plus 50; 140. So, 140,000 pounds was
stored in the inventory. So, per quarter cost is 50 cents here; 0.5 dollars. So, we add this

474
overall cost and it comes out to be dollar 870,000 is the cost for one year of production
of 400,000 pounds of the product. Now this is one strategy that is level production
strategy.

Cost of Level Production Strategy

(400,000 X $2.00) + (140,000 X $.50) = $870,000

Now, other strategy if you remember can be a chase strategy in chase demand strategy
we are not going to do the level production we are going to chase the demand.

(Refer Slide Time: 33:46)

So, if 80,000 dollars; if 80,000 pounds is required, we will go for 80,000 pounds only;
Now you can see sales forecast is 80,000 production plan is also planned for 80,000
only. So, we know that each worker can produce 1000 pounds per quarter. So, we need
80 workers only, but you if you remember, we have a starting work force of 100
workers. So, we will hire only 8 workers for the first quarter. So, 20 are additional. So,
we will fire 20 workers here, in the summers the demand is only 50,000 pounds and we
will plan for 50,000 pounds only.

Each worker can produce 1000 pounds per quarter. So, we require 50 workers, we will
fire 30 workers here because in first quarter we had 80. So, we will fire 30 more to
maintain a workforce of 50 workers, but in fall third quarter we have a demand of
120,000 pound. So, we require 120 workers here, but currently, we are having only 50

475
workers. So, we will hire 70 more workers and similarly for winter, we have a
requirement of 150 workers and we have 120 workers in quarter 3. So, we will hire
additional 30 to make it 150.

So, we are chasing the demand if you see our production plan is focusing on the exact
demand requirement for that particular quarter where as in level production we have
averaged out 100,000 pounds per quarter and here we are producing as per the demand.
So, we can calculate the cause of chase demand strategy 400,000 pounds, we are
producing in regular time production the cost is dollar 2 per pound. So, this gave us the
regular time production cost plus we are firing if you see here we are hiring hundred
workers 70, we are hiring in third quarter and 30 we are hiring in fourth quarter. So, 100
workers, we are hiring and the cost of hiring for worker is dollar 100.

So, this is giving us the hiring cost and then we have to calculate the firing cost also we
are firing 50 workers and 50 multiplied by the firing cost for each worker that is dollar
500. So, this is giving us the total production cost for the next year where we have the
demand available to us on quarterly basis. So, this is giving dollar 835,000.

Cost of Chase Demand Strategy

(400,000 X $2.00) + (100 x $100) + (50 x $500) = $835,000

So, we can compare among the various strategies to meet the demand and see that which
strategy is giving us the minimum overall production cost and this way we can save lot
of money for the organization there can be mixed strategies also which is a combination
of level production and chase demand strategy.

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(Refer Slide Time: 36:38)

The examples can be no more than x percent of the workforce can be laid off in one
quarter that is one capacity constraint inventory levels cannot exceed x dollars. So, that is
also maybe another constraint when we are using a mixed kind of strategy to meet the
demand.

So, many industries may simply shutdown manufacturing during the low demand season
and schedule employee vacations during that time this is also one of the mixed strategy
that whenever the demand is less you just tell workers to go on a vacation. So, that you
are not producing and managing the products in the inventory. So, we can have a purely
level production strategy we can have a chase demand strategy we can have a mixed
strategy. So, different types of strategies can be adopted to satisfy the demand.

So, with this, I can conclude the today’s session, I think with the help of an example all
learners might have understood 2 different type of strategies which fall under the
aggregate production planning and the overall summary of today’s session is that we
have to optimally utilize the production alternatives available with us in order to satisfy
the demand with the overall objective of minimizing the total production cost.

Thank you.

477
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 29
Capacity Planning: Introduction

Namaskar friends, welcome to session 29 in our course on operations management. So,

we are discussing in week six the basic aspects related to production planning and
control and as I have discussed in our last session also, that production planning and
control is a very exhaustive topic, and it is not possible to discuss all aspects of
production planning and control in short duration of two and a half hours.

But still we are trying to focus on the broad overview of production planning and control
and trying to understand that what exactly is expected out of an engineer or out of a
production manager, who is undertaking the production planning and control activity in
an organization. And in this series we are today into the session four of week six in
which we are discussing production planning and control, just to have a brief review of
what we have covered till date.

We have already discussed the basic aspects of our course that is operations management
in week one, in week two we have discussed product design and development, in week
three we have discussed sales forecasting or demand forecasting, in week four we have
discussed plant location, in week five we have discussed plant layout, and in week six we
are discussing production planning and control.

And in production planning and control we have already discussed the basic aspects,
objectives functions of production planning and control we have discussed process
planning, then we have discussed in the last session if you remember we have discussed
the aggregate production planning.

Today we are going to discuss capacity planning. So, this is the overview of the course
that we are undertaking, now in aggregate production planning we have discussed that
we have to allocate the demand to the production alternative. So, we have different types
of production alternatives available with us, and we have to allocate this demand as we
have seen that aggregate production planning is an intermediate time horizon planning

478
activity. So, intermediate time horizon means that it is one year to two year of planning
activity.

So, we are going to plan, we are going to prepare ourselves for the next one or two years.
So, for that we need to have the demand data for the next one or two years. So, once we
have the demand we have to allocate this demand to the available production
alternatives, now production alternatives can be like regular time production, over time
production, hiring of workforce, firing sometimes of workforce, subcontracting, back
ordering inventory. So, we have different types of alternatives available with us and we
have the demand data available with us.

So, we have to map the two things together the demand may be available on quarterly
basis the demand data may be available on monthly basis that is the forecasted demand
for the next year. So, we need to understand this all depends upon the capacity, if you
remember in the last class we have seen that a problem we have tried to solve in which
there was a capacity constraint of 100 men available in the beginning of the production
year.

So, we have 100 people available, then we have also seen that there can be constraints in
terms of time, we have also seen that the machine also has got a capacity that we cannot
produce more than this many number of products on that machine. So, there are capacity
constraints, and these capacity constraints which we have to overcome we have to plan in
such a way that we are able to satisfy the demand, in terms of quality, in terms of
quantity, in terms of time as well as in terms of cost.

So, here we are trying to understand that always for any facility there will be some
capacity for example, maybe if there is a hospital. So, the capacity may be the number of
beds the hospital has for the patients, if it is an example of a hotel it can be the number of
rooms which the hotel has for the guests.

So, every maybe object or every machine or every facility or every production facility
has got a capacity, and we have to plan our production based on this capacity and we
have to do the capacity planning. So, that we are able to find out the best operating level
at which we must operate and how much capacity we must utilize in order to satisfy the
demand.

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So, this is the topic for today, today we are just going to have an introductory discussion
in capacity planning, and we will have one more session dedicated to capacity planning
and try to understand the concept of capacity planning in a much better manner. So, let
us quickly start our discussion now first let us see, what is capacity?

(Refer Slide Time: 05:27)

Because there are two words capacity and planning. So, first we must understand the
meaning of the two words, planning we have already discussed in the previous sessions
that where we can have a strategic planning, we can have a corporate planning, we can
have a operational planning at different levels of management.

At the top level we have strategic planning, at the intermediate or corporate level we
have a corporate planning activity, and at the lowest level we have an operational
planning activity which only focuses on three or four months period. So, capacity
basically when we are talking about production planning and control, the productive
capacity is generally measured in physical units, refers either to the maximum output rate
for products or services or to the amounts of key resources available in each operating
period I am sorry, it should be to the amount of key resources available in each operating
period.

So, this is a productive capacity in terms of products we can say it can be the output rate,
for products maybe we can say 5000 nut bolts per day nut and bolt assemblies per day.

480
So, it is the product over a period of time day is representing the time domain and
number maybe 5000 is representing an output.

So, the output rate for products or services it may be the capacity of a machine, the
machine can produce a nut bolt combinations or combination of machines for nut bolt
type of manufacturing two machines can produce nut bolt assemblies 5000 in a day. So,
that is the capacity that is an example of an output rate for product or services.

Similarly, we can say a booking or a clerk, clerical staff in a banking sector can service
maybe 100 clients in a day. So, all transactions maybe withdrawals or it is we can say
deposits or issuance of cheques issuance of drafts. So, one clerical staff can render his
services his or her services to 100 clients in a day. So, that is also maybe the output rate
for a service.

So, basically for any capacity we can we can have a output rate in terms of number of
products per hour, per day, per week or it can be the number of services rendered per
week or per month or per year. So, that is one thing or the amount of key resources
available in each operating period. So, capacity can be in terms of number of machines
available or it can be number of manpower or the people or workers available with an
organization.

So, that is the basic meaning of capacity, so we know now that the number of machines
are available with us, we have a capacity of 100 machines for example, planning means
that how to use this capacity of 100 machines, in order to achieve our targets that is our
targets are basically coming from the demand that we have forecasted for the
organization. So, based on the demand data we will see that how we can optimize or
optimally utilize our capacity. So, that we are able to meet the demand.

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(Refer Slide Time: 09:02)

So, strategic capacity planning maybe the top level of capacity planning, the capacity
word again we are trying to define it here again capacity is literally dictionary meaning
can be is the ability to hold, receive, store or accommodate raw materials, finished
products, or the customers, in case of services now strategic capacity planning is an
approach for determining the overall capacity level often capital intensive resources,
including facilities, equipment, and overall labour force size.

So, we can see here that the, we have two capacity planning basically refers to
determining the overall capacity level of capital intensive resources. So, capital intensive
word means that which are an involving lot of money. So, capital intensive resources and
these resources are facilities equipment and overall labours.

So, if you remember in the previous session we have taken an example, towards the end
of the session where we have tried to calculate the number of machines available that is I
think in process planning, we have covered that in session two of this week. Where we
have calculated the number of machines and there one slide we have focused on this ROI
word that is return on investment, and we have emphasized that manufacturing involves
use of machines and equipment which are costly and therefore, we have to be very
judicious in spending money related to the purchase of these machines and equipment
until and unless the ROI justifies the purchase, we must not involve or we must not
commit too much of resources into the organization.

482
So, here also our capacity planning means we have to judge that what is the capacity
required for running a particular or for meeting a particular demand, and then only based
on this decision, we must commit ourselves to adding the facility or for reducing out
capacity, depending upon the demand in the market. Now strategic capacity planning we
can see that capacity utilization rate can help us to identify that how we are utilizing our
capacity and this will help us to take further decisions related to capacity that whether we
must increase our capacity, whether we must reduce our capacity.

(Refer Slide Time: 11:35)

Now, capacity used is the rate of output, actually achieved and how it is calculated we
will see that capacity utilization rate is equal to capacity used divided by the best
operating level.

Capacity Used
Capacity Utilization Rate 
Best Operating Level

Now what is best operating level is also given on the slide you can see the best operating
level is nominally, the capacity for which the process was designed. So, usually we see
that any product may be designed for a particular load carrying capacity, it may be
designed to carry a maximum load of 100 kgs, but we are using it only for 70 load kg
carrying only.

So, we can say the capacity utilization rate can be 70 kgs divided by the best operating or
the best load that it can carry is 100 kg. So, 70 by 100 just a vague example based on

483
their utilization rate, we will see that with the certain examples that how we can calculate
the capacity utilization rate.

So, the load example may not be truly representing the way the capacity utilization rate
must be used for example, another example is just coming to my mind that is related to
the capacity utilization rate in a hotel industry or of a particular hotel, suppose the hotel
has 100 rooms, available with it for offering to the guest, but the average utilization for
the month is only maybe 70 rooms, average utilization is there on per day basis. So,
maybe on per day 100 rooms are available for the hotel only 70 are being used.

So, we can see what is the capacity utilization rate that is 70 by 100? So, we can very
easily calculate the utilization rate, and think that how to optimize our unutilized facility
or capacity that is available with us. Now what are the decisions that can be taken we can
very easily find out what is the capacity utilization rate, now what are the decision based
on this capacity utilization rate.

(Refer Slide Time: 13:52)

So, we can in terms of capacity maximum capacity to produce we have rated capacity is
theoretical, effective capacity includes efficiency and utilization.

So, based on the capacity utilization rate, we can see that what theoretically is the best
capacity available with us and how much of that we are utilizing or what is our
efficiency.

484
So, we can try to improve our efficiency and effectiveness by making some or taking
some major decisions or making some major modifications in our thought process in our
procedures. So, that we are able to improve the capacity utilization rate for the
equipment or the services or whatever the organization is involved in.

(Refer Slide Time: 14:39)

Now, capacity utilization these are just some brief definitions because these words you
may find in different books. So, I thought that we must just have an overview of all these
words capacity utilization is the percentage available time spent working. So, this is the
percentage of available time spent working in context of the total time, available capacity
efficiency is how well machine or a worker performs compared to a standard output
level.

So, we have a standard output level, which is a base or the denominator in the numerator
we will have a value that is how well a machine or worker performs. So, divided by that
we will get the capacity efficiency for example, how well a machine or worker performs
compared to the standard output level, since machine is mentioned here. So, if you take
an example of machine.

So, the machine has a rated standard output level of 100 components per hour, but it is
producing only 70 components per hour. So, very easily we can calculate the capacity
efficiency that 70 components per hour it is producing 100 is the rated output which is
standard output level for that machine. So, seventy by 100 is the capacity efficiency.

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Similarly, in terms of load, the capacity load can be calculated standard hours of work
assigned to a facility, similarly capacity load percentage can be calculated that is ratio of
the load to the capacity, or the standard capacity. So, you may find different words, but
the basic a sense of doing the capacity planning is to make the most optimal utilization of
the capacity, of a particular person, of a particular machine, of a particular equipment, of
a particular facility. So, maximum possible utilization of the capacity is what capacity
planning is all about.

(Refer Slide Time: 16:48)

Now, effects on capacity requirements we will try to see. So, you have different
dimensions of demand. So, demand can be in terms of quantity, demand can be in terms
of timing, demand can be in terms of quality, desired or quality specifications of the
product, demand can be in terms of location. So, I think in the sales forecasting in the
very first section or in the very first or second session, we have seen that demand is not
only related to the number of products demands has varied dimensions.

The varied dimensions mean demand can be in terms of time, demand can be in terms of
the location that where the particular product is required or where a particular facility
must be created for example, there can be number of villages in a particular country
where the electricity or the power has not been delivered till today.

So, the location is important the demand of electricity is specific to a particular location.
So, the demand has a locational dimension also demand has a quality dimension also

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demand has a timing dimension also. So, seeing the dimension of demand the effect of
capacity requirements is given now quantity wise we can say how much capacity is
needed.

So, based on the number of products that we have to produce because in the previous
session, if you remember in aggregate production planning we have seen that based on
the demand and we have seen two examples also one was level production for aggregate
production planning, and other one was chasing the demand for aggregate production
planning. So, in both cases we have seen that the quarterly demand data was available to
us.

So, in terms of the number of products required, so quantity is the number of products
required. So, how it will affect the capacity we need to answer how much capacity is
needed to meet that demand in terms of volume of production. Then from timing when
must the capacity be available with us, then from quality point of view what kind of
capacity is needed, because once we have to deliver a quality product the type of
machines that are available with us may not be able to achieve the quality standards set
up in the design specifications of the product. So, then we need to take a decision that
what kind of capacity we need to add to get this desired quality product.

Similarly, from location we can say where must the quality be installed. So, you can see
that from the demand point of view, we have different dimensions to the decisions
related to capacity that how much capacity we must have, when we must have that
capacity, what kind of capacity is required? Where the capacity must be installed? So,
there are so many decisions related to capacity that we have to take, and all these
decisions come under the capacity planning purview.

So, when we are doing the capacity planning we must ensure that in order to get or in
order to produce the product which has been designed, we must have the requisite
capacity to produce that product and if you do not have the capacity the we need to add
the capacity in order to meet the demand, now capacity planning already I think it is
clear.

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(Refer Slide Time: 20:37)

So, quickly I will rush through the slide, capacity is the maximum output rate or
production or production service facility, capacity planning is the process of establishing
the output rate that may be needed of a facility. And how you will identify or how you
will find out what is the output rate which is needed at the facility this is based on the
demand for which we are doing the production capacity is usually purchased in chunks.

So, you will keep on adding the capacity as per the requirement. So, the what are
strategic issues related to this how much and when to spend capital for the additional
facility and equipment as I have already told based on the capacity utilization rate we
will decide, whether we require to add capacity in terms of machines or equipment or not
or we can even think of reducing the capacity, because the demand is less we may try to
sell off some of the machines or equipments.

In order to add additional types of machines which can help us to improve or increase the
demand of our product in the market, tactical issues are also involved such as work force
and inventory levels and day to day use of equipment. So, tactical issues may be as
written there that workforce level and inventory levels and day to day use of equipment
also are important when we are doing the capacity planning.

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(Refer Slide Time: 22:03)

Now measuring capacity examples, it is maybe capacity word I am using maybe again
and again I think maybe 100 times I may have used the word capacity we have tried to
define capacity in two-three different ways, but I think still there may be some doubts.
So, we have included this table which give us an exact maybe example of how capacity
can be defined for different sectors or different segments.

So, we can see there is no one best way to measure the capacity output measures like car
per day are easier to understand, with multiple products input measures work better. So,
with multiple products means if a company is producing different types of products, so
the input may be constant, so based on the input we can measure the work better.

So, let us try to see the type of business for example, a car manufacturer the input
measures of capacity can be how many labour hours are input for making the cars per
shift. So, output measure of the capacity is how many cars are being produced per shift.
So, you can see per shift is in terms of time and number of cars is a number.

So, what are we trying to do here, we are trying to see that how many number of cars are
produced per unit time. Similarly, hospital what are the available number of beds and the
output measure can be patients per month. So, our available number of beds can be 100,
but patients per month can be or per day basis can be only 60 or 70, similarly pizza
parlour labour hours can again be the input output can be how many pizzas are served
per day.

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Similarly, for a retail store usually we see that this is the biggest shopping mall in the
city this much of square feet area for shopping. So, floor spacing square feet can be the
input measure and the revenue per foot that the shopping mall or the retail store is
generating can be the measure of the output. So, we can have input measures of capacity
we can have output measures of capacity as given by the examples, now another thing
which is very important is the best operating level I think.

(Refer Slide Time: 24:30)

The first part of our discussion was related to the understanding the words what is
capacity and what is planning. Now, for we know that how the capacity can be defined
as in terms of number of patients served in a hospital per day per month or number of
cars produced per shift or the revenue generated per square foot of the retail store. So, we
have understood that how we can define or understand the capacity.

Now, from planning point of view we have to see that how much of our capacity we
must utilize in order to achieve the economies of scale or in order to achieve the lowest
overall operating cost. So, we will try to understand this with the help of an example
here. So, the best operating level is defined here the example engineers design, engines
and assembly lines to operate at an ideal or best operating level to maximize output and
minimize wear just one vague example is coming to mind.

Whenever we are driving a motorcycle or a car usually the speedo meter will show from
0, we can go to 200 kilo meters per hour, but there will be one limit in between which

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will be shown as the optimum range for driving. So, if we are driving below that range
may be our fuel efficiency may not be that good, but when we go beyond that range also
our fuel efficiency may not be good.

So, that optimal range basically is helping us to identify that if we drive continuously in
that range our fuel efficiency will be best. So, we can say that is the best operating level
for that engine, so here again it has been tried to explain.

(Refer Slide Time: 26:30)

So, this is an average unit cost of output suppose we are producing a product, it can be
soap cake, so it is average unit cost of product. So, if we are producing less number this
is the volume of production that is increasing suppose we are producing only 100 soap
cakes the average unit cost of output is more, but if we are producing 500 soap cakes we
have that can be the best operating level, but if we are producing 5000 soap cakes.

Then maybe we are over utilizing our resources and the unit cost may further go up, now
why the unit cost may go up because it may lead to wear and tear of the machines and
then the maintenance cost of the machines will be added to the overall production cost,
which may lead to the overall increase in the cost of the soap cake or the average unit
cost of the output So, there has to be one best operating level at which we must operate
and this graph sums up everything and this is another example.

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(Refer Slide Time: 27:32)

That was a general operating curve here we can see that the best operating level for a
hotel. So, number of rooms in a hotel, so if you have 500 rooms in a hotel the average
cost per room is lowest, but if you have more than 500 rooms the cost is increasing. So,
that represents the diseconomies of scale, but if you have very less rooms you have 100
rooms only you have to spend more money for the up keep maintenance and there are
few costs, which are maybe if they are spread over large number of rooms they will
remain constant. So, where we can see the economies of scale we must take advantage of
and we can find out the best operating level which in this example is a 500 rooms.

So, number of rooms in a hotel, suppose they are 500 it is not maybe representative it is
just an example it we cannot say for every hotel that if we have 500 rooms, it will give us
the best operating level this is just an example to understand that if we have less rooms
our economies of scale are not helping us with the minimum cost per room, if we have
more than 500 rooms there is diseconomies of scale.

So, we have to see that what is the best operating level in terms of number of rooms in a
hotel which will give us the average cost per room to be minimum, now let us try to
understand these two terms and then we will close the today’s session economies of scale
and diseconomies of scale.

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(Refer Slide Time: 29:10)

Now, much capacity is best we have seen the best operating level. So, the best operating
level is the output that results in the lowest average unit cost, I think all of you must have
understood with the help of the example of a hotel. Now why this is possible because we
are taking advantage of the economies of scale, now economies of scale are achieved
where the cost per unit of output drops as volume of output increases.

So, we have seen when the number of rooms are increasing the cost per room is
decreasing, why it happens because it spread the fixed cost of buildings and equipment
over multiple units also sometimes it allows bulk purchasing and handling of material.

So, there can be depending upon the segment of industry we are focusing on there can be
different reasons that may lead to economies of scale, but yes there will be a best
operating level at which our overall cost will be optimized, and that will lead to the
lowest operating cost, but there is opposite to the economies of scale also if we are not
taking advantage of this bulk purchasing or handling of material.

We are maybe going on adding capacity and going beyond the best operating level, there
can be diseconomies of scale also. So, what are the diseconomies of scale where the cost
per unit rises as volume increases?

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(Refer Slide Time: 30:35)

Now, economies of scale represent where the cost per unit decreases as there the volume
increases and here the diseconomies means the average cost per unit increases as the
volume increases. So, why it happens, it happens because of congestion overwhelming
the process with too much work in process and scheduling complexity, wear and tear of
machines, then the skills available with the people are not matching up to the we can say
the rate at which we want them to work.

So, there can be number of reasons when you have large number of products we being
manufactured in a small unit or in a small manufacturing facility, there can be scheduling
problems, which may lead to failure defects and there can be number of reasons or in
general I can say there will be lot of chaos in the manufacturing facility, because of
increased number of different types of products that we are producing.

So, there can be diseconomies of scale there can be economies of scale. So, based on our
capacity we must be able to find out the best operating level, at which the average cost
per unit is minimum and that should be our operating level at which we must operate or
utilize our capacity.

So, with this we conclude today’s session in our last session on production planning and
control we will again focus on the other aspects related to capacity planning.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 30
Capacity Planning Examples

Namaskar friends, welcome to session 30 in our course on Operations Management. So,

today we are exactly midway of our course the course is a 12 week course and we are
going to finish our discussion for the 6th week today and we will be finishing 30 sessions
of approximately half an hour each. And as far as I have seen the data I have always
exceeded the time limit of 30 minutes.

Persistently I have tried to explain that what are the various maybe aspects of the topics
that we have covered and with passion when you speak you just forget all the time limits
and I think last sessions were maybe 40-42 minutes each. But I feel that I have tried to
explain the things in the most simplistic, most simpler as well as most clear manner, but
still if there are few suggestions the suggestions are most welcome we are midway
through the course and whatever feedback we get from the learners we try to incorporate
that feedback in our next courses.

Already we have re recorded two courses under MOOCs scheme one of course, was run
successfully on product design and development, and another course was run
successfully or is currently running under processing of polymers and polymer
composite. And this is the third course we are recorded and whatever feedback we have
got for the previous courses we have tried to incorporate that feedback in the current
course. So, exactly midway I think I am highlighting the passion behind recording this
courses and today we are going to discuss some examples some numerical problem
maybe one or two related to capacity planning.

So, in the 6th week of our discussion our focus was on production planning and control
and we are today in the 5th session of week 6 and in week 6 the very first session was
focused on the objectives and functions of production planning and control. In week 6
the second session was on process planning and the third session was on aggregate
production planning, and the 4th session was on capacity planning introduction and the
basic objectives of capacity planning.

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In the last session we finished at the economies of scale and diseconomies of scale and
there are definitely many things which we must understand that what is economies of
scale, what is the best operating level, what happens when we are operating below the
best operating level or maybe prior to the best operating level, what happens when we
use our capacity beyond the best operating level. So, that capacity can be utilized prior to
the best operating level if you remember in the previous session we have seen an
example of a hotel industry.

So, 500 rooms were found out to be the best operating level. So, if we are using only 200
rooms we are underutilizing our capacity. If we are using maybe 1000 maybe 500 rooms
are the operating best operating level suppose we have 1000 rooms, we may be over
utilizing our additional facilities. For example, suppose we have maximum utilization
may be beyond 500 rooms there can be a condition of chaos restaurant may not be able
to service all the people staying in all the rooms, sometimes our hot water facility maybe
may not be able to serve all the guests staying in the rooms there can be problems
associated with the excessive utilization of the facility also.

Similarly, I have talked about an example in which on the speed indicator of any vehicle
we have an optimal speed if we go beyond that speed, if suppose the overall the
maximum speed marked on the speedo meter is 200 kilometres per hour, but we usually
do not drive at 200 kilometres that is the maximum rated speed. But if you go towards
180 190 it may not be the best operating level the safety maybe one of the concerns, but
if we stick to the best operating level we will get the maximum results, the fuel
efficiency can be better safety can be better.

So, there are maybe the rated capacity is always different from the utilized capacity. So,
the rated can be higher, but the actual utilization of the capacity may not be the
maximum. As we have seen a term called utilization rate. So, we have calculated the
utilization rate also in the previous session.

In today’s session again I will focus slightly on where we left in the previous session on
economies of scale and diseconomies of scale. Because I believed that I have not been
able to explain the things properly so again I have taken an example today just we will
try to have a overview of the best operating level because that is where the capacity is
being utilized because we have understood what is capacity, what is capacity planning

496
and then we have tried to understand the best operating level. And there we have seen
one or two diagrams, but today again we will try to understand the economies of scale
and diseconomies of scale with the help of the diagram. So, you can see the economies
of scale.

(Refer Slide Time: 06:06)

On your screen you can see the average unit cost of output or average unit cost 100 unit
plant, 200 unit plant, 300 unit plant, 400 unit plant. So, you can see that beyond 300 unit
plant for this particular manufacturing facility the average unit cost has started to
increase beyond 300 unit plant.

So, the minimum average unit cost we are achieving at 300 unit plant only. So, why this
happens we will try to understand. The diseconomies of scale have started to take effect
after the 300 unit plant. So, why do these happens or there are two things to understand
here. First is why the average unit cost is reducing till 300 unit plant question umber one.
Question number two is why it has started to increase after the 300 unit plant. So, here
the thing to understand is the economies of scale and the diseconomies of scale.

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(Refer Slide Time: 07:22)

Now, from the graph that is shown on your screen, we can see that as the plant produces
more products they gain experience in the best production methods and reduce their costs
per unit. So, this is the cost per unit or the price per unit and this is the total accumulated
production of units.

So, with time when you produce more number of units you learn more about the process,
you learn more about optimization, you learn more about the skills required to make that
product you develop the skills required to make that product. So, from manpower point
of view, from experience point of view from, optimization point of view we become
better as a teacher maybe let me share this example with you.

When you are checking the answer scripts for the students the first 10 to 15 answer
scripts may take more time as compared to the same number of answer scripts when you
are checking towards the end of the class. Maybe you have 100 copies to check the first
15 may take much more time as compared to the last 15 why because while checking the
answer script you develop that skill of reading the answer script where to look in what
type of answers the students have given also you memorize the maximum number of
marks for each question.

So, you develop that kind of an experience for checking the answer sheet. So, that is the
economies of scale that you derive that the average time spent on checking the answer
scripts keep on reducing. Similarly, the cost per unit also reduces.

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Another point that I want to emphasize here is the concept of value engineering that we
have covered in our week 2, in our topic of product design and development. So, over a
period of time when you analyze the process, when you analyze materials, when you
analyze the design of the product you always think or you always propose to come up
with new materials, new processes, new designs in order to improve the product. So,
with passage of time the things have to improve and therefore, we take advantage of the
economies of scale because now we are using the best possible methods of production.

Now, economies of scale we have tried to again emphasize it cost less per unit to
produce high levels of output one point must be taken into account high levels of output
is not something which is linear. So, the cost per unit will not reduce linearly with high
levels of output as we have seen as the volume is increasing, to some extent the cost per
unit is reducing. So, cost per unit is reducing, but after the best operating level the cost
per unit again starts to increase as we increase the volume of production. So, why do this
happen? Why the cost per unit reduce with the increase in the level of output? So, it
reduces because the fixed cost can be spread over a large number of units.

So, suppose you have setup a factory, you have procured the land, you have brought the
machines, now this is related to the fixed cost required for setting up of the industry or
the factory. Now, suppose you make only 100 components per month. So, the cost of
setting up of the plant which includes the cost of the land and the cost of the machines
that you have procured will only be spread over the 100 parts that you have made in a
month. But suppose you make 1 lakh parts in a month. So, the fixed cost that you have
spent on the machines and land will be spread now over 1 lakh parts that you have
produced in that month.

So, therefore, when you increase the numbers of products that we are making the fixed
cost are spread over a large number of product. So, it gets spread out. So, the cost comes
down. So, production or operating cost do not increase linearly with output levels. So,
production or operating cost do not increase linearly, so that there is the, this is an
established phenomenon why because you take advantage of the maybe the discounts
that are available you take advantage of purchasing the raw material in bulk and
therefore, the production cost does not increase linearly.

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The same thing has been highlighted; the quantity discounts are available for material
purchases. So, if you buy suppose 10 parts you may have to pay rupees 2 per part, but
suppose you buy 20 parts the price may come down to 1 rupee 8 paisa. So, that is the
quantity discount. So, when you are buying more volume of raw material you get some
discount on quantity. So, that can be taken care of when you are producing more number
of products and in order to take the advantage of economies of scale. Operating
efficiency increases as workers gain experience which I have already highlighted.

So, these are 4 important point which are responsible for reduction in the average input
cost as the volume of production increases and thereby helping us in utilizing the
economies of scale. But after a best operating level the diseconomies of scale start to set
in. Now, why do these occurs this is given here, this occur above a certain level of output
that we are terming as or that we are calling as the best operating level.

(Refer Slide Time: 13:16)

Now, why does this happen? This happens because of the diseconomies of distribution,
diseconomies of beaurocracy, diseconomies of confusion, diseconomies of vulnerability.

So, if you see in totality I can say the chaos starts to set in we are not able to utilize our
capacity properly, we are not able to plan the things properly, why because of the
complexity in managing the operations.

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(Refer Slide Time: 13:45)

And I think we have one example here the diseconomies of confusion if we see 4
processes we have to manage 6 linkages, 6 processes, 15 linkages 8 processes, 28
linkages. So, the complexity increases with the number of linkages between departments
or processes the number of links between n nodes is a network is n into n minus 1 by 2.

So, this is diseconomies of confusion. So, if you have to manage large variety of
processes large variety of product or large variety of skilled manpower. So, it becomes a
difficult operation or difficult process and therefore, we are not able to achieve our target
of minimizing the average cost per unit. And therefore, beyond a particular operating
level of capacity the things start to get out of hand and the average unit cost starts to
increase.

So, I think the overall objective of understanding this capacity utilization or capacity
planning is that we must identify that what is the optimal capacity utilization that we
must target where the average unit cost of product or the process or the service that we
are going to maybe study is minimized. So, we can see if we have a service that we are
providing if we are a service sector industry, we have maybe 10 people working in for
our company, we must identify that what is the exact number of this manpower that
would help us to achieve the best operating level.

If we are doing the analysis of machines, we must identify what is the exact number of
machines that we must use in order to satisfy the demand and in order to operate at the

501
best operating level. So, basically the purpose is to finalize the capacity that we are going
to use.

Now, let us see one example capacity utilization, this formula we have seen in the last
class in the last session capacity utilization rate. So, the problem statement goes like this.

(Refer Slide Time: 16:06)

During one week of production a plant produced 83 units of a product its historic best
utilization was 120 units per week. So, it has produced 83 units in the current week, but
initially in when the plant was operating maybe to the best of its capacity it has also
produced 120 units per week. Now, what is the plant’s capacity utilization rate?

Capacity Used
Capacity Utilization Rate 
Best Operating Level

83 units / week
  0.69  69%
120 units / week

So, the capacity utilization rate as we have seen as for the formula is capacity used
divided by the best operating level. So, the best operating level here we take as 120 units
per week, so 83 units per week divided by the 120 units per week we get 0.69. So,
approximately 70 percent is the capacity utilization rate, a very simple example simple
mathematics only involved. But what information we can deduce from here the decision
making information that we can infer from this is that we have the capacity to even

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produce 120 units, but we are not able to optimize or we are not able to achieve the best
operating level that can be possible or that is possible in the plant.

So, we can try to see that how where we are lacking so that we can improve our
efficiency effectiveness as well as the productivity. Now, when we are doing capacity
planning what all we must focus on. So, determining the capacity requirements.

(Refer Slide Time: 17:44)

Now, if we see we are at the fag end of our discussion on production planning and
control in the last session our focus was on capacity planning the introductory part only
and prior to that we have seen aggregate production planning.

Now, suppose in aggregate production planning we see the regular time production is
going to be this much units, the overtime production is going to be this much unit, now
in overtime production suppose we are spending more money the cost of production is
more because we have to pay more to the workers who are doing the overtime. So, we
can see we can do a trade off that why not to install one or two more machines and
employ one person more or one worker we can add. So, that the overtime we need not
pay in the regular time only we are able to produce the products so as to meet the
demand. So, such type of decisions we have to take.

Now, adding two machines means that we are adding a capacity to our existing capacity
as we have seen that capacity is usually added in chunks. So, we are adding a capacity to

503
overcome the overtime production and to focus on the regular time production only. So,
determining the capacity requirements is one thing. So, this will help us in planning our
production in a more efficient manner. So, what is required? So, forecast of sales is
required within each individual product line suppose the company is a multi brand multi
product company. So, it may be making 5 different types of products. So, for each
product we must have a forecast.

Then calculate the equipment and labour requirements to meet the forecast if you go to
the functions of production planning and control there is a term called esrouting and then
estimating. Now, in estimating we have to estimate the machine requirement as per, as
well as the labour requirement also to meet the forecast. So, first we need to forecast then
we need to understand how many machines, how many people are required to make the
product in order to satisfy the demand and then project equipment and labour availability
so that must also be known to us that what is the equipment available or how many types
of machines numbers of machines that are available and what is the availability of the
labour.

Now, we have seen we have calculated machine requirement and labour requirement and
we have exact labour and machine requirement as per the current status we can see what
is the difference and that difference we will try to do with capacity planning. So, we will
try to bridge that gap of difference by doing the capacity planning by utilizing our
existing capacity as well as by adding the additional capacity. Now, capacity planning
we can see 3 important considerations are there in capacity planning maintaining a
system balance.

In the ideal case the output of one stage is the exact input requirement for the next stage.
So, we have to maintain that particular, sequence or that particular balance otherwise
what will happen if the output at one stage is much more than the input at the next stage
the line will be slow. So, we have to plan our capacity in such a way that the system
balance is maintained, the line balance is maintained, and the output of one stage is
exactly equal to the input of the next stage. Then the frequency of capacity additions we
have to see that thereby because there are costs involved in adding of the capacity too
frequently as well as too infrequently. So, we have to see that when and where we have
to add a capacity in order to meet demand.

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Then the external sources of capacity also need to be we can evaluate also needs to be
explored I must say. So, it might be cheaper outsource some of our production and if you
remember in the session on aggregate production planning we have seen that outsourcing
is also a very good production alternative to meet the demand. So, from capacity point of
view we have to see that we have to manage our capacity in such a way that the system
balance is maintained, the line balance is maintained. Secondly, we have to focus on the
addition of the capacity wherever required and thirdly we have to ensure that how we can
augment our capacity with the help of outsourcing some of the production to maybe our
sister concerns or to the well established companies who are also in the same business.

Now, some of you may be wondering that why should we give a production our maybe
demand to some other company or maybe that may not too well for the organization. But
many times we see that whenever we go to buy a particular product from a grocery store
and if that grocery shop owner does not have that product he will send his sales boy to
some other shop to fetch that product for us we could have also gone there, but there can
be maybe this branding involved that if maybe I am going to a particular grocery store he
may not like me as a customer to go to some other vendor.

So, I will do it for that customer maybe I have to get it done from some other source also
without revealing to the customer that what was my source of production because I will
be putting my brand on that particular product also. But there can be many managerial or
strategic decisions that the company have to take. So, there therefore, sometime
outsourcing is also a very good production alternative.

So, we have to see what capacity we have to deliver to the demand and how we can
augment our capacity internally as well as with the help of our outsourcing agents.

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(Refer Slide Time: 24:17)

Now, making capacity planning decisions the 3 step procedure for making capacity
planning decisions is as follows identify the capacity requirements already we have seen
in the previous slide develop the capacity alternatives and I must address outsourcing is
one important capacity alternative and then we have to evaluate the capacity alternatives.

So, this is a very simple procedure for developing a plan to change the capacity. First I
will just read it for you determine project capacity requirements given a demand forecast.
So, the input is a demand forecast that we have. So, as per the demand forecast we have
to map that what capacity we have to meet that demand.

We may be having additional capacity also, but that does not make a difference because
if we have additional capacity demand is less no problem, but in case where the demand
is less, but we have sorry when the demand is more and our capacity is not able to meet
that demand in that case we have to see that how to satisfy this demand. Formulate
alternatives to meet future capacity requirement because we have the forecast of the
demand. So, we have to formulate what alternatives we have at our disposal to satisfy
this forecasted demand.

Then evaluate the alternatives. Now, we may have different alternatives, but we have to
evaluate them. How we can evaluate them? They can be evaluated based on economic
factors, costs, revenues, risks, competition, flexibility, quality of the products,

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organizational and managerial adjustment. So, there can be as I have told you that while
going for outsourcing there can be number of factors that we have to take into account.

Similarly, these are the criterion as mentioned in point number 3 on your screen here
which will help us to evaluate these alternatives and to find out the best alternative for
changing our capacity.

(Refer Slide Time: 26:15)

Select the optimum alternative and implement the capacity development plan. So, in
summary we can see that when we have to change the capacity what we need to do. First
we need to establish that what is the capacity requirement depending upon the demand
forecast whether we have the capacity to meet the demand forecast, suppose the answer
is no then we have to look for alternatives that what are the other alternatives that we can
explore. Suppose we have 4 5 alternatives we have to evaluate those alternatives based
on a number of factors or based on the number of criterion and then we have to finally,
select the best alternative that goes well with the strategic policy or maybe the policies of
the organization.

So, friends let us take an example on the capacity planning and this is the last part of our
session today. So, the problem statement is given here, manufacturer produces mustard
in small end family sized plastic bottles with the following demand forecast. So, the for
the 4 years the demand forecast is given and the products are two products, one is small
sized plastic bottle and another one is a family sized plastic bottle for the manufacturer.

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So, the product is mustard. We can see here the 4 years’ demand forecast is available
with us and in order to meet this demand forecast we have different types of machines
available.

So, 3 machines of 1 lakh units per year with the capacity of 1 lakh units per year is
available for small bottles and two machines of 1,20,000 units per year capacity are
available for family sized bottles.

(Refer Slide Time: 28:07)

So, maybe we can say two types of machines are available for small size we have 3
machines, for large size bottles we have 2 machines and the individual capacity is also
mentioned.

So, one resource is machine the other resource is manpower that is also mentioned here
for operating the machines for making small size bottles or we can say 2 operators are
required per machine. So, total 6 operators are required and for running or for managing
the machines used for making family sized bottles 3 operators per machine is required,
per machine are required and there are two machines. So, we can say that we have 6
people required to run the machines for making the family sized bottle.

So, we have in nutshell 3 machines for making small sized bottle and 2 machines for
making large sized bottle 6 people are required to run the machines for small sized bottle
and 6 people are required to run the machines used for making family sized bottle. So,

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that is the problem statement now. Demand is given to us. So, we have to map this
demand with our capacity. Capacity is in terms of machines and the manpower available
at our disposal. So, we can calculate now that how much capacity is used and what are
the machine and labour requirements.

So, labour is available 6 people are available to run both types of machines, but whether
their utilization is happening properly, whether their services are being utilized properly
that we can calculate mathematically. So, the problem whatever was given in the form of
sentences is summarized here.

(Refer Slide Time: 30:10)

Machine capacity overall capacity is to make 3,00,000 small sized bottles per year.
Similarly, 2, 40,000 bottles for family sized bottles. So, maybe we have a capacity of 2,
40,000 for family sized bottles 3, 00,000 for small sized bottles. Similarly, labour
availability is 6 each for small sized bottles also or for family sized bottles also. Why?
Because for small sized bottles two operators per machine are required and for large size
bottles or family size bottles 3 operators are required to operate the 2 machine. So, we
have a labour availability of 6.

Now, we can do these calculations on your screen. You can see we have taken an
example of family size only.

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(Refer Slide Time: 31:02)

So, the percentage capacity used is 47.92 percent. Why? Because we can see the demand
for year one is 1,15,000. So, we can say 1,15,000 is the demand forecast and we have a
capacity of 2,40,000 because there are two machines available with us with the capacity
of 1,20,000 each. So, 2,40,000 is the overall capacity for making family sized bottles and
the demand is less it is 1,50,000 only. So, the percentage capacity used is 47.92 percent.

The second is how many machines are required? So, if we can see just without
calculation also our just by looking using common sense 1,15,000 is the demand forecast
and each machine can produce 1,20,000. So, and the percentage capacity utilization is
also less than 50 percent. So, we can say that 0.96 machines or approximately one
machine can do the work for year 1, when we are making family sized bottles as per the
demand. So, how much is the labour required. So, for operating one machine 3 people
are required. So, mathematically we can calculate the number of machines into the
number of operators required per machine. So, we can see 2.88 is the number. So, 3
people are required to run the machine.

So, if we see we are not properly utilizing the capacity that is available with us and then
we can think that how this additional capacity the gap between the available capacity and
the utilized capacity how we can make use of this gap, so that we are able to map up the
two things together as operations manager, as a production manager our target is always
to ensure the most optimal utilization of the resources at our disposal.

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So, that is only possible if we do these types of calculation and statistically or
mathematically analyze that how much of our capacity we are utilizing. So, this type of
analysis can be done this is just a representative analysis shown for 1 year only, if we do
these calculations we can calculate for the all the 4 years that what is the percentage
capacity used, how many machines are required and how much labour force is required.

(Refer Slide Time: 33:54)

So, if we see that most of the time our capacity percentage capacity used is less or
approximately equal to the maximum utilization 80 and 83 percentage here because the
demand is maximum 240 and 200 here in the 4th year. So, prior to that for the first 3
years we are not able to utilize the capacity available with us and therefore, we can just
use some creative thinking your innovative thinking to find out other usage of this
capacity that is available with us.

So, with this we conclude this week’s discussion on production planning and control
with an understanding that we have understood that, what are the roles responsibilities of
a production manager, and what are the important tools and techniques that he can use
for ensuring a smooth production, meeting the overall objectives of quantity, quality,
time and cost.

In next week we will start our discussion on the next topic in our overall objective of
understanding the fundamentals of operations management.

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Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 31
Project Scheduling

Namaskar Friends, welcome to session 31 in our course on operations management and

we have started now the second part of the discussion regarding the course. We have
already finished 50 percent discussion regarding the course that is 6 weeks of discussion
is already over and in this 6 weeks we have tried to cover a product design and
development, we have tried to cover demand forecasting, we already discussed plant
location plant layout and finally, we have seen the production planning and control.

Today we are going to start another important topic that is project management project
scheduling. So, we will be covering the network diagrams here, we will be seeing that
how the projects have to be managed like the operations are usually managed in the form
of a project. These days there is a project team which is constituted to solve or to meet
the 2 ends meet that is to complete the project work or complete the target or to meet the
demands that is there in the market.

So, basically the work that is assigned is in the form of a project, there project team
members, each one has a defined roles and the responsibilities accountability is
established, that project team works together to deliver the project and the project can be
different types of project. You may be having a batch production a complete batch or a
complete type of a product, that will be a product starting from the conceptualization of
the product then maybe the prototyping or testing of the product and finally, the
manufacturing of the product finally, the product will be sent to the market for market
survey and full scale production will starts.

So, there will be a project team which will be responsible right from the
conceptualization of the product to the final launch of the product in the market. So, that
project team will be over all responsible for the success of the product, at this I think we
have already discussed in product design and development. So, whenever a project team
is constituted there are fixed targets that within this much time domain the project has to
be completed, similarly in operations management also supposed there is an order for

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supply of 10 aircraft. So, suppose there is a company which is manufacturing aircrafts
and it receives the order of manufacturing 10 aircrafts by any company.

Now, there will be a team that can be constituted to execute this order. So, 10 aircrafts
have to be manufactured already the design is there, the only focus area here is the
manufacturing of the aircraft keeping in mind the target deadline or the target due date.
So, as per the due date all calculations will be done, what material will be required, how
much material will be required, when the material will be required, how many people
will be required, how to do the back calculations, when the manufacturing must start?

There has to be answer to each one of these questions in order to achieve the target
deadline or in order to achieve the due dates. So, in that case a project team may be
constituted for this particular order of 10 aircrafts and this team will then do the
calculations will draw the networks, will take help of different scheduling tools for
example, CPM and PERT and finally, will be able to deliver the products on the target
date. So, for that we a use very simple tools which we usually called as CPM and PERT
the critical path method and the program evaluation and review technique.

So, we will be seeing this to think in the next 2 weeks this week our focus will primarily
be or critical path method and the next week of a target will be on PERT. So, we will be
seen that what is a project, how the networks can be drawn, what are the things that we
have to take into an account while drawing a network, then we will see what type of
calculations can be done based on the critical path method as well as the PERT technique
and finally, we will see that how cost and other maybe resources can be included while
our calculations using CPM and PERT.

So, we usually focus on 3 parameters here the first parameter as I have try to explain in
the beginning that time is a critical parameter. So, the first thing is time, the second time
the second think that we can take into account is the people or the number of people
involved in the project and the third parameter can be cost.

So, these are the 3 important resources that we will be the optimising using the CPM and
PERT technique, we will focus on time, we will focus on manpower, will focus on cost
and try to solve different problems and try to schedule the projects in such a way that our
target due deadlines are met effectively and efficiently. So, let us start our discussion for
week 7 and the first session that we have today is regarding project scheduling and in

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project scheduling our focus will be to understand the 2 words that is project and
schedule, schedule is always in the time domain. So, we will be studying a project what
is a project, how to define and then we will see how to represent a project on a piece of
paper, what are the various rules that we used to draw the network or to represent the
project in the form of a network.

So, let us quickly start our discussion on this important topic and I must address here that
this is not an important topic only for a mechanical or P and I engineers this topic is very
important for all engineers, CPM and PERT can be used in civil engineering projects
also. There also being use in most of the research projects specifically PERT is used for
search such type of projects, this is not only relevant to mechanical or P and I engineers
were those people were involved in the manufacturing of products for development of
products and processes, but there are also useful for other engineers as well as well as for
the manager who have to manage very big projects where different activities are
involved and there is an interrelationship among the activities.

So, the topic is really important and I feel that when we discuss this topic or learners will
enjoy the topic and will definitely add a new skill to their skill set by solving certain
problems related to CPM and PERT. So, let us start our discussion with this topic.

(Refer Slide Time: 07:25)

So, what are the objectives of project scheduling? Why do you do project scheduling?
So, as per the main objective goes the first one is to prepare an optimal project schedule

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in terms of cost, time or risk. So, 3 terms are mentioned here cost, time and risk we have
meet the deadline therefore, our focus is on time, we must be able to achieve our target
with an optimal cost. So, cost is also mentioned there and there is always a risk involved
with the execution of the project.

So, we will try to mitigate this risks and the risk factor has to be taken into account when
we are doing our project scheduling, so these 3 parameters are important when we are
focusing on a preparation of project schedule, the second objective is it is difficult to
optimise the 3 variables at the same time. So, we have to that how these 3 variables can
be optimised it is difficult. So, therefore, what do we do, the setting an acceptable limit
for 2 of the 3 variables. So, usually we see whenever a building is constructed, what are
the things that we usually fix, we usually fix the cost as well as the time and then we try
to minimise the risk somewhere maybe we may be able to optimise or maybe set limits
or to think the third thing can be cost, cost can be variable, but the other 2 things are
fixed.

So, thus setting an acceptable limit for 2 of the 3 variables and optimising the project in
terms of the third variable, many times may the risk we say we are not going to take any
risk we will reinforce everything risk you can say that we are zero risk decision is taken
time is also fixed. So, cost can be a variable. So, may be any 2 of the 3 we will fix and
third we will try to optimise.

(Refer Slide Time: 09:40)

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Now how do we try to we can define a project, on your screen you have a project
definition of a project a project is a series of activities directed to accomplishment of
desired objective. Now, the desired objective can be construction of a building, it can be
delivery of 10 aircrafts to a to the customer, it can be maybe setting up of assembly line
for manufacturing of a car.

So, the objective can be anything, but the project is a series of activities. So, it is a
combination of activities or jobs that when finished are able to represent the
accomplishment of an object, the objective is pre decided we do a project in order to
achieve an objective. So, a project we can say a series of activities is directed to
accomplishment of a desired objective, project management is evolved to coordinate and
control all project activities in an efficient and cost effective manner.

So, basically the concept of project management is a subset of the operations

management. So, in operations management we have broad objective where as the
project management is one subset wherever focus is on managing the activities related to
the successful accomplishment of the objectives of operations management. In
operations management we may set a particular objective within the domain project
management will focus on these 3 parameters that we have already seen, the cost time
and risk and will try to optimise the use of resources. So, that the targets are achieved the
project management is revolved to coordinate and control all project activities in an
efficient and cost effective manner.

Now, let us see what are the salient features of a project, how we will define project?

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(Refer Slide Time: 11:42)

A project has identifiable beginning and end point. So, as I have already told and tried to
explain with help of an example, suppose we have to meet a target of supplying 10
aircrafts to a company. So, we have to take a decision when the manufacturing of these
aircraft must begin, what is the start date of this project and the deadline on the day when
we have to pack this or dispatch this order for the customer the deadline is also fixed.

So, the project has an identifiable beginning and end points, each project can be broken
down into number of identifiable activities which will consume time and other resources
during their completion. So, this project has can be divided into, has to be divided into
number of interrelated activities and each activity will definitely involve some time it
will involve resources in term of manpower machine equipment.

So, these activities when combination of these activities are interrelated activities when
these activities are completed successfully, it represents the completion of the project. A
project is scheduled to be completed by a target date which I have already highlighted; a
project is usually large and complex and as many interrelated activities. So, it may like I
have already given an example manufacturing of an aircraft will involve maybe 100s or
1000s of interrelated activities.

So, the project is very large in size it has interrelated activities which have to be
completed for the success of the project, the execution of the project activities is always
subjected to some uncertainties and risk. There are always risks involved like there can

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be breakdown of a machine, there can be a strike by the workers, there can be some
orders of the government that you have to follow, there can be some changes in the
schedule because of some unforeseen in circumstances. So, there are always risks
involved in the execution of the project.

Now, one of the method of representing the various activities is a Gantt chart, you can
see here.

(Refer Slide Time: 14:01)

Why the Gantt chart has been put in this presentation because this is also one of the
techniques of project scheduling and there is another technique which is the network
diagram. So, we will try to understand what can be the differences between a Gantt chart
and a network diagram, here also you we can see we have scheduled the various
activities as you can see on the vertical scale we have activities A, B, C, D, E, F, G and
on the horizontal scale we have days.

So, we can see activity a start on day 0 and is finished by day 4 activity week starts after
the completion of activity A and continue till 12 days, similarly the other activities are
also depicted. As most of the learners will be students studying for different programs or
different degrees or diploma or maybe postgraduate programs most of the time whenever
you are doing a project you are always told to draw the Gantt chart and show that how
your project will be completed, what are the various activities involved. For example, for
a bachelor’s project or a B-tech project usually the student starts with literature review

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then development of experimental setup, then they go to experimentation, then data
analysis, then the next activity is maybe the writing of the thesis finally, the submission.

So, different activities are involved in the completion of the B.Tech project and this is
the way the activities can be represented. Suppose it is a 1 year projects you divide the
time into 12 months and then maybe the first 2 months can be related to literature survey
and problem formulation, then the next step can be development of experimental setup it
can take 2 to 3 months time. So, this way we divide the overall B.Tech project into its
individual activities and when these all activities are completed jointly we say the project
has been completed.

So, this is one way of a representing the project or representing the schedule of a project,
but there are other better method, here we see the only focus is on time. So, there is no
focus on who is going to do the activity, how many people are going to be involved in
these activities, what is the cost element involved for each activity. So, here the focus is
primarily on activities or the times related to the activities also there is little focus on the
interrelationship among the activities. So, that interrelationship also sometimes is very
important because there will be some activities which can be done con currently, but
there will be some activities which are interdependent.

So, the start of one activity will be dependent upon the end of another activity. So, the
activity can only start when the previous activity has been completed. So, that kind of
interdependence among activities is not very clear with the help of Gantt chart. So,
therefore, we go for network diagrams which offer us all this flexibility of including the
manpower involved including the cost factor, involved including a little bit of risk
involved also. The network diagrams help us to focus on all the 3 elements of a project
schedule that is the cost, the time as well as the risk involved. So, let us know focus on
the network diagram.

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(Refer Slide Time: 17:53)

So, why the network diagrams are important? The network diagrams splits of the
decision making process in 2 method or logic the order in which the tasks have to be
completed. So, usually we call it as the precedence relationship. So, there will be a
precedence relationship among the various activities and that will be taken into account
with the help of the network diagrams.

The next thing is the time the estimates for the time to completion can be added to each
task, resources these can be added and then analysis can be carried out to the resources
can be in term of manpower involved, then this manpower and machine and equipment
can further be clubbed together in the cost element and then cost analysis can also be
done with the help of network diagram.

So, we will see during the discussion that how fast can be incorporated into the network
diagram, we will also see that how manpower can also be included in the network
diagrams in addition to the time for which they are primarily drawn. So, important point
to understand is that there is a project which has to be completed, a project is made up of
different activities or jobs. These activities may have some inter relationship among them
we have to represent this network on a piece of paper and then we have to do the analysis
and do the calculations to find out that whether will be able to meet the deadline or not
for example, there can be a tournament that is coming up in 2020, right now we are in
2017. So, we have 3 more years to go.

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So, we can do we can make use of this network diagrams to find out or to schedule our
activities. So, that all the stadiums that are required for the execution or for conducting
the tournament are ready by the deadline. So, we can see that the acquisition of land
must be completed by such and such date which is one activity, after that the foundations
have to be laid or the drawings have to be or the architecture to finalize the maybe
designs of the stadium.

So, that has to be completed by the state, there can be these two things can go parallel if
you know that this is the area that we are planning to acquire. So, based on that the
architects can start their work, there can be some parallel time between these 2 activities
and then further we have to see having the foundations can be laid and then what will be
the different time targets or due dates for the structure to be built and finally, what is the
deadline when the structure will be ready to be handed over to the organisers.

So, maybe 3 years’ time schedule can be worked out. So, that we are not delayed in
handing over the stadium to the organizers. So, that that is the maybe one of the
applications of the use of these networks. Similarly, when we are doing our operations
on the shop floor we can again make use of these networks and schedule our activities
schedule the different operations in such a way that we are able to meet the deadline of
the delivery that has been contracted with the vendor or with the customer. So, we can
see that in order to do all these calculations in order to take these decisions we have to
represent the project on sheet in the form of a network diagram. So, network basically as
we have seen why network diagrams are important, now we are coming to the actual
maybe understanding that, what is actually a network.

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(Refer Slide Time: 21:48)

So, we will see and network is the graphical representation of the project, which we will
see in the subsequent slides with the help of a diagram a network is the graphical
representation of the project activities arranged in a logical sequence and depicting all
the interrelationships among them. So, a network is basically what can we call as a
drawing or it can be called as a pictorial representation of graphical representation of the
various activities that are involved in the project. One more important thing has been
highlighted in this point and that is the interrelationships are also clearly establish in the
network diagram or with the help of a network diagram, a network consists of activities
and event.

So, we will see that what are the activities and what are the events? An activity is a
physically identifiable part of a project which consumes both time and resources. So, we
will see that an activity or activity is a representation of one job for example, we want to
construct a house. So, the laying of the foundation can be one activity. So, this activity is
identifiable because we are constructing house we have to make a foundation that is our
first task.

So, for foundation it is identifiable part of the project and it con it will consume certain
time and there will be some people, some material, some equipment that will be required
to complete this activity. So, that can be called as one activity, then there can be other
activities like erection of the walls can be another activity, laying off the roof can be

523
another activity, setting up of the electrical connections can be another activity. So, you
have combination of activities that are involved in construction of a house.

(Refer Slide Time: 23:50)

So, network fundamentals let us see there few things that we have mentioned here, the
first one is activity or a task I have already explained, it is a work component needed to
be accomplished a task within the overall project that a definite beginning and ending
point the activity consumes time. So, activity or a task is basically identifiable small part
of a project which has a beginning which has an ending events designates the beginning
or ending of the activities, a point in time. So, maybe we can say as we are travelling
from Roorkee to Delhi in between, we have milestones after one kilometre after 2
kilometre may after every kilometre we have a milestone. So, event can be those
milestones representing the end of a particular distance in case of travelling.

But here it will mark the ending of a particular activity or a group of activities,
designates the beginning or ending of activities at an event some of the activities will be
finishing and some other activities will be starting. So also shows the precedence
relationship or the activities why because the activities that are finishing here are the
predecessor of these activities must be completed before the start of the new activity. So,
that events will represent the beginning or ending of the activities and the network is a
combination of activities and events that describe the logic of the project, there is one
definite starting and ending point.

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So, in today’s session we have seen that what is an activity? What is an event? What is a
network? As is clear on this slide and prior to this today we have seen that what actually
is the importance of project scheduling and then we have tried to compare the 2
important representation of a project when is the Gantt chart and another one is the
networks and we have tried to just understand the basic terms related to a network
diagram and in the next session we will see that what are the rules that are used for
drawing a networks.

We will see the Fulkerson’s rule and maybe the use of the dummy activities for showing
the presidents relationship among the various activities. So, the introductory part of the
project scheduling is over today, in the next class we will focus more on the actual
drawing of the networks.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 32
Network Diagrams

Namaskar friends, welcome to session 32 in our course on Operations Management and

in week 7; our focus is on project scheduling, CPM and PERT. In PERT, we will be
discussing in week 8; so, in week 7 focus will primarily be on learning the project
scheduling and the project management using the concept of networks network diagrams
as well as CPM.

If you remember in the first session that we discussed in this week, we have taken into
account the importance of network diagrams, we have tried to understand the importance
of a project, we have seen the definition of a project. Also we have identified that for
scheduling any project; there are three important things that have to be taken into
account. And the first one is the cost; then the resources and third one is the risk
involved.

So, the cost, time, resources can be in terms of times; the resources can be in terms of
manpower. So, primarily focus when we talk of scheduling is on time; so, we say cost,
time and the risk and we try to optimise all these three in order to complete our project
by the deadline.

So, also I have emphasized that project scheduling or project networking or project
management is not only related to activities on the shop floor, but is universal in nature.
Even software industry, works in the project management mode; even the construction
industry works in the project management mode; even the government also works in a
project management mode. So, this is universal in nature; so for that sake all of us must
know that how to define a project? What makes a project? What are the various
ingredients constituents of a project? So, that we have highlighted in the previous
session.

Today our focus will be that; how to represent a project in the form of a diagram? How
the project representation can be successfully done in the form of networks? In the last

526
session, if you remember we have seen a Gantt chart which is also a representation of a
project, but it only shows the time domain; the cost, the manpower involved is not
represented there.

So, only we have time domain which activity? When it is starting? When it is ending?
Also it is not able to show the inter relationships among the various activities, the
precedence relationship among the various activities. Therefore, networks offer maybe of
broader scope to project management.

And therefore, we are going to learn that how the projects can be represented in the form
of networks? What calculations we can do based on the networks? And how these
calculations can be used for decision making by the managers or the engineers? And that
is why today our focus is on network diagrams, we will see that how to represent a
project in the form of a network? And how this network can be used for certain
calculations? So, let us start our discussion with the network diagrams.

(Refer Slide Time: 03:46)

On your screen; you see a very simple form of a network There are three activities here
and the fourth one is a dummy activity, which is represented here. We will try to see
what is the importance of the dummy activity in due course of time, but prior to that; let
us see how a project has been represented in the form of a network here?

527
Now this project consists primarily of three activities; the activities are activity A,
activity B, and activity C. As we have seen in the previous session; on the last slide, we
have seen that there is a activity or a task, then there is an event and there is a network.
So, network is a broader picture; it is representing the various activities and the events.
The events mentioned here are the circles, this is the first event which is representing the
beginning of activity A. So, this may be day 0; when the project is starting or initialising.

So, this is the start of the project; then activity A is taking place; definitely it will require
some time and resources. This event; second event circle represents the completion of
activity A and the beginning of activity B and activity C. And this particular node is the
last node because from here; no other activity is emanating or starting.

So, this circle usually is called as the node; so there are 4 nodes; N O D E S; 4 nodes in
this network; node 1, node 2, node 3 and node 4. Some of you may be wondering that
why I am calling this as node 3 and this as node 4? Why not this is 3 and this is 4?
Absolutely right question that has come to your mind; so, we will try to answer this
question also today with the help of Fulkerson’s rule for the numbering of nodes.

So, first thing that we must learn is that; where is the activity? And where is the event?
So, the circles are representing the events and the arrows are representing the activities.
So, here we see activity A; this is a start node or start event for activity A, this is the
finish node for activity A, this is the beginning node for activity B and activity C and this
is the finishing node for activities C, and this is the finishing node for activity B; as well
as activity C, through this dummy activity. We will try to understand why dummy
activity is used? And what is basically a dummy activity?

So, this is the representation of the project network and we will be focusing on these
types of network in our discussion on CPM as well as on PERT. So, it is very important
that all learners acquaint themselves with the basic terminology of nodes and activities.
So, this representation is the; arrows are representing the activities or in the other way,
we can see the activities are on the arrows and the nodes represents the events.

So, arrows represent the activities A, A and the nodes represents the events; with this let
us just read whatever I have already told. This is the start of activity; this is the end of
activity. So, the tail of the arrow represents the start and the head of the arrow represents
the finish.

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(Refer Slide Time: 07:58)

So, let us see the head and the start; the head of the arrow represents the start of the
activity and tail of the arrow represent; its end. so, head and tail maybe I have used in the
opposite manner. So, in the network we can see may be the sentence may not be correct,
but this is the start of the activity and this is the end of the activity A; this much we must
remember.

Then activity description and its estimated completion time are written along the arrow.
In our network we have not represented the time, but in the networks that will follow in
our discussion; we will definitely be representing the name of the activity like in our case
there were A, B and C activity. We will be representing the activities with the alphabets
as well as the time will also be represented on top of the arrow.

So, activity, description and its estimated completion time are written along the arrow.
And activity in the network can be represented by a number of ways. So, we can
represent an activity like in our case our activities are represented as alphabets A, B and
C and we can also represent by the number of the node. So, suppose we are numbering
our node as 1, 2, 3 and 4. So, one activity can be 1, 2; so, 1, 2 in our case was activity A;
2, 3 can be activity B; 2, 4 can be activity C.

So, we can represent an activity by the start and the end node also or by a letter code as I
have already told the alphabets A, B and C can be used for representing the activities.
Now all those activities which must be completed before the start of an activity under

529
consideration are called its predecessor activities. Now, if we see the previous network
here; in this network activity A must be completed before the start of activity B and
activity C; therefore, activity A is a predecessor for activity B and activity C.

(Refer Slide Time: 10:09)

All those activities which have to follow the activity under consideration are called its
successor activities. Now A is a predecessor activity for activity B and activities C,
similarly B and C are successor activities to activity A. So, all these terms must be
known to all the learners because we will be drawing a complicated network also. So, we
must know that what is the predecessor activity? And what is a successor activity?

Now predecessor activity in our network was A because A must be completed before B
and C can start, but for A; B and C are the success activities that; after A will be
completed B and C will start.

So, predecessor and successor has to be known to all the learners. An activity which is
used to maintain the predefined precedence relationship only during the construction of
the project network is called a dummy activity. So, we have seen in the network there
was a dummy activity; this is the dummy activity which is represented here. So, the
dummy activity represents an activity which will not consume any time, it will not
consume any resource, but it is represented in the network in order to present some logic.

530
So, the logic can be a precedence relationship; the relationship of the form of predecessor
and successor that this activity must be completed, then only these activities will start.
So, that type of logic can be established with the help of dummy activities and we will
try to see that with the help of an example in the subsequent slide. So, we have tried to
define the dummy activity also; dummy activities represented by a dotted arrow and does
not consume any time and resources.

So, dummy activity is we can identify when we look at a network; it will be easy to
identify the dummy activity. Because it will be represented by a dotted line; all other
activities will be represented by the solid lines; so just by looking at the network, you can
have an idea that this is specifically the dummy activity. And why this has been drawn?
When you will analyse the network, you will see that a dummy activity has been drawn
in order to establish a precedence relationship among the various activities.

So, an unbroken chain of activities between any two events is called a path. So, in our
network we have seen A, B can be one path; A C and D was a dummy activity, so we
can say D1 is a dummy activity. So, our network has two paths; if we see that network
that we have seen. Again I will go to the network, in the network if you see we have two
paths here; one path is A and B; this is one path unbroken path of activities. And another
one is A C and suppose we call the dummy activity D 1; so, A C and D1 is another path
and A B is one path in the networks. So, again I will read how to define a path; an
unbroken chain of activities between any two events is called a path.

Now, let us see what are the important rules for drawing the network diagram? Rule 1.

531
(Refer Slide Time: 13:33)

Each activity is represented by one and only one arrow in the network. So, this is very
important that every activity has to be represented by one arrow only; it must not happen
that activity A we are representing with three different arrows. A means one start node,
one end node and on the arrow we have to write activity A.

Rule 2; no two activities can be identified by the same end events and this has been a
explained with the help of a diagram also. You can see this is wrong; red colour defects
wrong here A, B, C and D; so this network has 4 activities activity; A, B, C and D and B
and C have same start node, same start event and same end event which is wrong from
the network representation point of view.

And therefore, how we can represent this network? This is the right network here; we
have incorporated a dummy activity here which is represented by this dotted line. So,
this is now actual representation; which is correct from the network description or
network representation point of view.

So, we can see one use of a dummy activity here that no two activities can have a same
start and end node. So, a dummy activity will help us to resolve this issue.

532
(Refer Slide Time: 15:02)

Rule 3; precedence relationships among all activities must always be maintained. We

have to ensure that the predecessor successor relationship always has to be maintained.
Rule 4 dummy activities can be used to maintain the precedence relationship only when
actually required; their use should be minimised in the network diagram.

Many times; I have seen the learners will make very liberal use of the dummy activities
which is not allowed or which is not maybe right from the calculations point of you; also
if we are using a software for doing these calculations, it may take more time if we have
been very liberal with the use of dummy activities. So, the use of dummy activities must
only be restricted to establishment of precedence relationship among the various
activities only. So, we should not use dummy activity just at the throw of the hat.

533
(Refer Slide Time: 16:05)

Looping among the activities must be avoided; so, here you can see rule 5 looping
among the activities. So, here there is a loop which is created here, which is not correct
you can see this has 5 activities activity A, B, C, D and E, but there is a loop between B
D and C; this is arrow B, D and C. So, this type of loop has to be avoided because this is
not going to help us to reach the last node and right way is A, B, D, C and E. So, the
looping must be avoided will create problems when we will do the calculations for
finding out the critical path.

(Refer Slide Time: 16:48)

534
Now, let us see the dummy activity; again we have come to the same diagram. So, by
now we have seen the general rule for drawing a network, we have try to understand
what is an activity? How it is represented? What is an event? How it is represented with
the help of a node?

So, at least now if we have a list of activities and precedence relationship for each
activity; we can try to construct a network, but before going to the actual construction of
the network; let us try to understand the use of dummy activity and try to understand
what a dummy activity actually is?

A dummy activity actually is an imaginary activity which does not consume any resource
and time and it is called dummy activity; is usually represented by a dotted line in the
networks. So, dummy activities are simply used to represent a connection between
events in order to maintain a logic in the network. Now here, we see the use of the
dummy activity; in this network let us try to understand from a different point of view
that how dummy activity is important?

Now in this network, suppose there are two more activities; currently we have three
actual activities A, B and C and there is a dummy activity D1. Suppose, we have two
more activities which we call as D and E; D has predecessor, that is B only and E has
predecessor that is C only.

Just again I am repeating D has a predecessor B and E has a predecessor C; now your D
can start from the network, I think I will try to draw this and try to explain this network.

535
(Refer Slide Time: 18:45)

Now, this is my start node then I have A; this is not sorry A; this is an event here and the
nodes can be numbered as 1, 2 and this is my dummy activity here 1, 2, 3 and 4. I think
this is a network that we have here A, B, C and then a dummy activity there. Now
suppose there is activity D, which is only dependent on activity B. So, the activity D will
start from here and the predecessor is B and there is an activity E; which has only
predecessor as C.

So, here we can see; if we do not use this dummy activity and we directly take C here;
so, D and E have will emanate from that node 4 or in that case node 3, if we do not use
this dummy activity. So, B and C cannot go directly into node 3 or 4; as per our rule that
no two activities can have same start and the end node, so they have to be separated.
Then the successor activities are also having different predecessors; D is having a
predecessor B and E is having a predecessor C.

So, we have to see if we combine the two together, if we combine; if you do not use this
dummy activity D1; what will happen? We are not able to establish this precedence
relationship of activity D and activity E. Because we both starting from the same node
means E is also dependent on B, which is not true.

So, therefore, the use of dummy activity has helped us to establish this precedence
relationship that C is the predecessor of E and E can only start, when C has finished.

536
Similarly, D can only start, when B has finished; this logic has been established only
been made possible with the use of this dummy activities.

So, similar type of situations may arise when we are using the networks and these
networks are maybe representation of the project and this project definitely would be
requiring us to calculate the times required for the project. And if the representation is
not correct, we may not be able to get the right time for completion of the project.

So, I think I have tried to explain the use of dummy activity and we have an example
also which will show the use of dummy activity.

(Refer Slide Time: 21:59)

Two activities starting from the tail event must not have a same end events; to ensure
this, this is absolutely necessary to use A or introduce a dummy activity. So, 1 or 2
activity A here and there is another activity B which is incorrect. So, correct way is that
we must use a dummy activity here and from successor predecessor relation point of
view, I have tried to explain there; that in order to satisfy the exact logic of the network,
we must use the dummy activity.

537
(Refer Slide Time: 22:31)

Now, the next part of the network representation is the numbering of the nodes. So, here
you see I have numbered the nodes as 1, 2, 3 and 4. So, the nodes are representing the
events in the network; so here I have used them because we keep on drawing this
networks, when we go to the class and teaching the class; it has become our habit to
number the nodes and maybe we are most of the time correct, when we draw them.

But there is a rule that has to be followed for numbering of node and the rule is
mentioned on your screen. You can see the procedure for numbering the events using
Fulkerson’s rule; step 1, number the start or the initial event as 1. So, you see initial
event is marked as 1 here; how we can find out that which is the start node?

If you see a network; one is by intuitively we can look that this is seems to be the start,
we can say this is our first node or first event. But we can see that there will be a node in
the network; in which there is no arrow entering, but only arrows coming out.

So, if we see in this network only there is one event; where there is no entry of any arrow
only one arrow is coming out; that is our activity A. So, that is the identification of our
start node which we are going to number as 1; from event 1, strike of all out going
activities. So, you strike off the activities; we can see strike off this activity and then try
to figure out that which is the node; which has no arrow entering into the node or events
and only arrows emanating or coming out.

538
So, we see this is the node in which only arrows are coming out; 2 arrows are coming, 2
activities are starting from this events, but no arrow entering into this. So, we number
this has 2; so, from event 1, strike off all outgoing activities. This would have made one
or more events as initial events, event which do not have incoming activities; number
that even or node as 2.

Repeat steps 2 and for event 2; the step 2 means striking off of the activities or the
arrows coming out of the events; you repeat that step sequentially and every time you
will get at least 1 event or 2 events in which, there is no arrows entering, but only the
arrows are coming out or the activities are only starting from that event and keep on
numbering those events maybe in a serial manner.

So, repeat step 2 for event 2, event 3 and till the end; the end event must have the highest
number. So, serially we have to number the events; which are representing the network.
So, let us now try to see an example on your screen.

(Refer Slide Time: 25:40)

So, we can see here I have tried to explain on the white board. So, one is on your screen
which has no activity entering only three activities are coming or starting from this event
one; so, that is a, b and c. Now you strike of a, b and c and try to see a node in which
there is no activity entering, but only the activities coming out or the arrows coming out
from that events.

539
Now this is one; this we have already deleted from here we see that and all three have
been deleted from here. So, from here e and d are coming out; d is a dummy activity
here, from 5 g is coming out and from 3 your f and h are coming out. Now, here from
maybe this node even after deleting this activity b; d is still there. So, a, b and c goes in
the first step; so, we get 2 and 3 here.

So, normally it is a practice that the top one; we will give the lower number and the
lower one, we will give the larger number. So, 1 then this is 2 and this is 3 and this we
are not numbering as 4 right now here; because d is coming out from 2 and entering here.
So, this has two entry points here; so, even after striking off this, there is another activity
that is entering here.

So, once 2 and 3 are numbered; then we will cut all activities coming out from 2 and 3.
So, this is cut and from 3; this one and this one is cut then we will try to figure out which
one is the next higher number that we can give. So, 1 is numbered, 2 is numbered, 3 is
numbered then 4 and 5 come into picture; because 4 is on top so, we will represent it as
4.

And then the 5 activity and similarly we will keep on striking off the activities that are
coming out from a particular event and will keep on numbering. So, you can practice this
and in case of any conflict; the top representing event is given the lower number and the
bottom is given the higher number as in case of 2 and 3; similarly 4 and 5. So, this is a;
may be a rule for numbering of the nodes.

Now, towards the end of today session; let us try to see one problem.

540
(Refer Slide Time: 28:24)

Consider the project given in the table and construct a network diagram. So this is the
way the problem will be mentioned; so, we have activity description as we have seen
activities can be represented by alphabets A, B, C or they can be represented by the start
and the end note for the activity, but currently we are focusing on the alphabets as the
representation of the activity.

So, there we have activities A to F; that 6 activities, A, B, C, D, E, F and the description

is also given purchase of land, preparation of building plan, level or clean the land,
register and get approval, construct the building, paint the building. So, this is just for
construction of a house; the overall maybe work has been divided into 6 activities and
here we see there is a predecessor or a precedence relationship.

Purchase of land has no predecessor, preparation of building plan has no predecessor,

level or clean the land has got a predecessor A. You can only level or clean the land;
once you have purchased that land. Similarly register and get approval; A and B are
must, you must have purchased the land and the preparation of the building plan has to
be ready when you get registered and get the approval.

Now, for constructing the building; levelling or cleaning of land is necessary. So, E can
only be done; when C has been completed, paint the building when the construction of
the building has been done. So, maybe one precedence relationship is given; here I think

541
in place of D, we should have C here; maybe C must be the predecessor for F, when the
building has been constructed, we can paint it; so E has to be here.

Paint the building; when after the construction of the buildings, instead of D; I think we
must have E, this is my logic that goes for the project, but the purpose of showing this
diagram is that how to represent the network? We can leave the description part also; we
can leave this description, we have a set of activities; we have the predecessor relations
and relationship and then we have to represent the network.

(Refer Slide Time: 30:43)

So, here we can see this is the representation of the network. So, A and B there is no
predecessor, C can only start when A has been completed, D can only start; when A and
B have been completed. So, D can only start when A and B; so, we use a dummy activity
here to represent the network and here we can see the use of dummy.

C is only dependent on A, but D is dependent on both A and B. So, we therefore, we

require the dummy activity here because C is dependent only on A, D is dependent both
on A and B. then E is dependent on C and F is dependent on D. So, F can only start when
D is completed; so, we can see F can only start, when D is completed.

So, this is the way in which we can represent our project in the form of a network
diagram. And in our next session, we will see that how and what type of calculations can
be done based on this network? So, we have finished two sessions on project scheduling

542
and networks. And in first session our target was just to understand the importance of the
network diagrams and just to understand the definition of a project and project
scheduling objectives of project scheduling.

In today’s session we have seen the rules that one must be kept in mind, while drawing a
network we have try to understand the use of the dummy activity. And finally, we have
seen one problem of construction of a house; that how the different activities can be
listed, what is the precedence relationship among the activities? And finally, how a
project network will actually look like; in the next session, we will see the calculations
based on this network.

Thank you.

543
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 33
Critical Path Method

Namaskar Friends, welcome to session 33 in our course on operations management,

currently we are discussing the fundamental aspects of project scheduling and we are
into third session in this week for dedicated for project scheduling and if you remember
in the very first session we have tried to compare the Gantt charts and the network
diagrams, and the second session we have tried to see that how we can draw on network,
how a project can be represented in the form of a network.

We have seen that we can have a combination of nodes and arrows and these nodes and
arrows can defect the various activities which are required to be completed in order to
ensure the completion of the project. There are basically 2 different methods for
representing the network, one is the activity on arrow as we have seen in our previous
session activity is represented on a arrow.

So, we have one node there is another node there is a start node and end node and in
between we have a activity.

(Refer Slide Time: 01:36)

544
So, let us quickly see that how we can represent the networks. This is our node one or we
can called as the start node and then there is an arrow and there is another end node for
this activity, which we usually maybe depict by number 2 and activity is represented like
this. So, activity A starts from node 1 and it ends that node 2 this type of networks are
called activity on arrow type of networks, there other types of networks in which we will
represent the activity on the node itself.

So, here activity A is at this node and activity B is here and this type of networks can be
called as the activity on node or A O N type of network and this type of network can be
called as A O A activity on arrow type of network. The calculations will remain same for
both types of networks and in the previous session we have basically seen this type of
network, where the activities are represented on the arrows and we have learnt of
fulkerson rule for numbering this node in the previous session.

So, today our focus will be to see the examples based on A and B that is activity on node
and we will try to seen our subsequent sessions because this method we are trying to
learn in another 2 sessions also there are 5 sessions of half an hour each dedicated to
critical path method today is the third session.

So, we will further see some calculations based on both types of networks. So, that we
are able to understand the working of both types of network that is, you can use a
network in which activities are represented on the arrow and you can also use a network
in which activities are represented on the node. So, today my focus will be on activity on
node type of networks and we will try to do the calculations for early start late start early
finish late finish for each node that is for this node.

Now, suppose this is my start node and this is the second node in my network and this
activity takes maybe supposed 3 days’ time. So, the earliest start for this activity A can
be calculated as day 0 and then it may take 3 days’ time to complete that activity A and
then this activity B can only start. So, we will divide this total node into various sections
and we will do the calculations for early start, late start, early finish, late finish for this
node also early start, late start, early finish, late finish for this node and we will carry
forward these calculations for all the nodes in the network and try to find out that what is
the critical path.

545
So, this is the objective of today’s session to find out that what is the critical path based
on the calculation so quickly we will rush through the presentation and try to learn that
how we can calculate the critical path and what is the meaning of the critical path. once
we know how to calculate then I will try to explain the decisions that we need to take
based on the critical path method.

(Refer Slide Time: 05:17)

So, as you all can see on your screen the critical path method or the critical path analysis
is a mathematics-based algorithm for scheduling a set of project activity. So, we have to
calculate based on the precedence relationships that how these activities must be
scheduled in order to complete the project in the minimum possible duration. So, it is an
important tool for effective project management because we are able to find out the
minimum time required for the completion of the project in addition to the completion of
all the activities that comprise of the project, as we have seen that each and every project
will have defined identifiable activities which have to be completed in order to ensure
the completion of the project.

So, commonly used with all forms of projects including construction, software
development, product development, engineering and plant maintenance. So, CPM
method as I have already earlier also highlighted is not only related to mechanical
engineering and manufacturing engineering it is related to civil engineering also it is
related to product development also it is related to software industry also, it is related to

546
plant maintenance also. So, the application areas of project management are huge and
critical path method is one of the important tools that is used for project management.
So, any project with interdependent activities can apply the method of CPM for
scheduling the various activities.

(Refer Slide Time: 06:56)

Now, in critical path method the essential technique for using CPM is to construct a
model of the project then that includes the following. So, basically, we will use the, what
the nodes and arrows that I have drawn on the whiteboard. So, these type of nodes and
arrow combinations will be used to represent the various activities that comprise of the
project. So, we will see that we need to have a list of all activities required to complete
the project this is also known as the work breakdown structure WBS, the time that it
activity will take for completion and also the precedence relationship among the various
activities.

Now, some of you may be wondering that, why this slide is important? This slide is
important because when we have to construct a network for the project we need to have
this information. First of all, we need to have a work breakdown structure of the
complete project that these are the number of activities that have to be completed
necessarily for ensuring the completion of the project. So, the total project may be
divided into 8, divided into 8 to 10 to 15 to 20 activities, which each activity which will

547
require some time, some resources, some manpower for it is completion and the
combination of these activities will result in the completion of the project.

So, first we have to break down the complete project into individual activities that is
point number 1, point number 2 is we must know the resources required for the
completion of the activity the resource can be time it can be manpower it can be caused
or money involved for the completion of the activity, that is second data that we must
know and third as we all understand that we must have the information regarding the
precedence relationship that is the predecessor and successor for each and every activity
that is included in the project.

So, we must have that information also. So, we require the list of activities the time
required for each activity as well as the relationship among the various activities in order
to draw the project network, and then once we have drawn the project network we will
do the calculations to find out that what is the critical path for this project and what are
the activities that are lying on the critical path.

(Refer Slide Time: 09:27)

So, what is the critical path, the critical path of any network is the longest path through
the entire network. Now starting from the start node to the end node critical path
represents the longest path or the maximum time taken for the completion of the project.
So, sorry not the maximum it will represent the overall time duration for completion of

548
the project. So, since all activities must complete the entire project the length of the
critical path is the shortest time allowable for completion of the project

So, as in the beginning of today’s session I have told it will give us the shortest time
required for completion of the project I think in between I have flipped, I may have
called the longest time, but we will see that it is the shortest time allowable we will try to
understand this with the help of an example also. So, we will see all activities have to be
completed and they have to be completed in such a way that time required for
completion of all the activities is the minimum time required. So, it will be the longest
path in the network, but with minimum possible time. So, if the project is to be
completed in that shortest time all activities on the critical path must be started as soon as
possible.

So, we will see that the time required for each activity is accounted for and if each and
every activity has to be completed we have to ensure that all activities are completed by
that time, it may not happen that by the time that we have calculated there are 12
activities 8 are completed 4 are not completed we cannot say that the project has been
completed.

So, we have to ensure that within that time frame that we have calculated using summing
up of the time of the activities that lie on the critical path, we must ensure that all
activities are completed and therefore, when we draw a network there is one start node
and one end node. So, one end node will ensure that all other activities between the start
and the end node have been completed in that time that we have calculated so, that the
overall project can be said to be completed. So, these activities that fall on the critical
path are called as the critical activities.

549
(Refer Slide Time: 11:55)

Critical path method again the summary the activity does not lie on the critical path is
called a non-critical activity which is just maybe opposite to the critical activities. So,
these non-critical activeties may have some slack time, now new word has come that is
slack time now slack time basically is the duration in which the activity can be extended
further without compromising with the overall completion time of the project.

So, slack is the amount of time by which the activity or the start of an activity may be
delayed without affecting the overall completion of the project, but a critical activity has
no slack. You cannot change the duration of any critical activity if we delay any critical
activity the overall project duration will get delayed.

So, this is very, very important to understand the basic we can say philosophy behind
critical path method. The critical path will represent the longest path that is one thing and
it will be the shortest time required for completion of the project. So, these 2 words we
have to always keep in mind the path that we are calculating will be the longest, but it
will be the minimum time required for completion of the we can say project. So, these 2
things must be absolutely clear and they will become more clear when we will take an
example.

550
(Refer Slide Time: 13:33)

Now, scheduling of activities we can I will read what is given on the slide and we will
try to understand this with the help of an example. So, for every event as we have seen
here activity A and activity B represented on the node so, they represent an event. So,
before a critical path in a network is determined, first of all we have to construct the
network. So, once the network is ready it is necessary to find the earliest and latest time
of each event to know the earliest expected time at which the activities originating from
the event can be started and to know the latest allowable time by which the activities
terminating at the event can be completed. So, I think little confusing here we can try to
understand this with this network.

So, this is A so, we must be able to find out that when activity A can be started at the
earliest and we need to calculate that when activity A can be started at the latest.
Similarly, for this we can do the calculation early start, late start, early finish, late finish,
similarly for this activity B which is at node second node here we can do the calculation
what is the latest start for activity B what is the earliest start for activity B.

So, if B is dependent on A only suppose so and a will take 3 days’ time. So, we can say
the earliest start for activity B can be 3 days because A has to be completed before B can
start and A is the only predecessor for activity B and A will take 3 days’ time for
completion. So, earliest start for B will become 3 and latest start is calculated when we
do our calculations from the end node.

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Now, suppose this is my end node and there are 2 other activities here. So, A B C D and
E now suppose this is the complete network for calculating when B can start at the latest
we will start our calculation, that is the backward direction and earliest when can b start
we will do the calculations in the forward pass directions.

So, we will start moving from this direction and try to find out the earliest maybe time
when B can start earliest time when C can start earliest time when E can start then from
this side we can do the reverse calculation and find out the latest times involved for each
and every activity. So, we will try to understand this with the help of an example. So, we
can calculate for each node the earliest expected time and the latest allowable time, and
the activity which will be on the critical path there will be no slack available which
means the earliest start and late start will be the difference between the early start and
late start will be 0.

So, this is forward pass calculation.

(Refer Slide Time: 17:17)

So, begin from the start event and move towards the end events. So, from here
deliberately I have drawn this diagram so, that we can understand this so begin from the
start event. So, we start from A and we go till E. Put TE is equal to 0 for the start event.
So, for A, the earliest start time to calculate the earliest time TE we will put it at 0 go to
the next event that is node 2 that is where we have presented B.

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If there is an incoming activity for event B so, we can see there is one incoming activity
for event B, add calculate TE of previous event that is event one and the activity time.
So, we have TE is 0 here and activity time is 3 here. So, 3 plus 0 we will add and TE for
B will become 3. So, we get the TE for B note if there are more than so there can be an
event where more than 2-3 activities are coming together.

So, maybe if we can draw another line here because here we see each event has only one
entry entering activity. So, suppose we draw another activity here like this maybe. So,
here we can see event E is having 3 incoming arrows. So, which one we will select there
will be 3 this time will be a activity for time for C will be added for D will be added and
for B will be added. So, which time we will select here TE.

So, we will take the maximum time that is coming from the 3 node which you have a
very maximum time that time will be taken here. So, for calculation of TE at activity TE
at activity E when we will calculate we will take the maximum of the 3 arrows similarly
for calculating the late time that is given in the previous TL for calculating the TL here
we will take TL value which will be equal to TE and from here we will start our reverse
calculation for calculating the TL for this event similarly TL for this how we will
calculate we will subtract the time for each activity and calculate the TL value.

So, this we will try to understand with the help of a diagram. So, here you can see I will
read it for you on your screen begin from the end event and move towards the start event.
So, for latest time we will start from the right-hand side that is end event.

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(Refer Slide Time: 19:42)

And move towards the left-hand side. So, assume that the direction of arrow is reverse
now. So, for late calculations we perform the backward pass latest time TL for the last
event is the earliest time TE for the last event which I have already explained and then go
to the next event, if there is an incoming activity subtract the value of TL of the previous
event from the activity duration. The arrived value of TL is the value of TL for that
event. If there are more than one incoming activities, then we can take the minimum of
the TE values. So, while we performing the forward pass if there are more than 3 or 4
incoming events or arrows into one node.

We were taking the maximum value for TE here if there are 2 or more incoming arrows
into the node we will say that we have to take the minimum value while doing the
backward pass calculations. So, we will try to understand this with the help of an
example. So, we will try to calculate the first is calculation of in general the earliest
expected time for each event and the latest expected time for each even then we do it for
activity wise and here we can see we will calculate the nomenclature is given at tij is the
duration of the activity.

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(Refer Slide Time: 21:15)

TE is the earliest expected time that we have calculated while moving from left to right
or from the start node to the end node. TL is the latest allowable time that we have
calculated by moving from right to the left then, ES is earliest start time for the activity,
EF is earliest finish time for the activity, LS is a latest start time for the activity and LF is
a latest finish time for the activity. So, for each activity for example, this node is
representing activity A, for activity A we can calculate all these 4 values early start time
late start time early finish time and the late finish time and from these values we will
calculate the float and slack time.

(Refer Slide Time: 22:02)

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Now, the total float can be calculated the formula is given on the screen latest start minus
early start or TL minus TE minus the time duration for that activity both ways we can
calculate the value and we will try to calculate it with the help of an example also and
free float can also be calculated.

Total Float TFij:

TFij = LS ij – ESij
TFij = (TL – TE) – tij

Free Float FFij:

FF ij = (Ej – Ei) – tij
FFij = Total float – Head event slack

Independent Float IFij:

IF ij = (Ej – Li) – tij
IFij = Free float – Tail event slack Where tail event slack = Li – Ei

Where
tij = duration of activity
TE = earliest expected time
TL = latest allowable time
ESij = earliest start time of the activity
EFij = earliest finish time of the activity
LSij = latest start time of the activity
LFij = latest finish time of the activity

(Refer Slide Time: 22:24)

Let us take an example maybe that will be more you can say beneficial. This is one
example representing the network as I have drawn a very simple network here, the

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network on your screen may feel a little complicated. So, this is giving an example of
construction of a building. So, we have excavated lay foundation, rough plumbing,
framing fine in finish the exterior, sheet rock installs the cabinets final plumbing install
the flooring. So, you have different HV heating and ventilation air conditioning rough
electrical work is done painting is done finally.

So, you have different activities which are required for making a house and in the last
session also I think we have taken an example of house building only your construction
of a house. So, these are different activities each one of these have got their predecessor
relationships and now we want to calculate that how much time will be required to
complete this project, what is the shortest possible time required to complete this
project? And what is the longest path in the network which will give us the shortest
possible time for completion of the project so, that we will try to understand.

(Refer Slide Time: 23:50)

What is the information required? We have to have the activities. So, they named as A to
M and the description of each activities given here time required for each activity is
given in days and the immediate predecessor activities are also given. Predecessor
activity as we have told in the previous session also are the activities which are
proceeding a particular activity for example, H has to be preceded by C E F and G that is
sheetrock can only take place once C E F and G are completed. That is rough plumbing
is done finish exterior is done rough electrical is done and installation of HVAC is done.

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So, when C E F and G are complete then only H can start. This is another way a very
good way of representing the early start time, early finish time, late start time and late
finish time and ti is the duration required to perform activity i and ti is a duration and i is
the name of the activity.

Where
ti = DURATION required to perform activity i
ESTi = earliest possible start for activity i
EFTi = earliest possible finish for activity i
LSTi = latest possible start for activity i
LFTi = latest possible finish for activity i

(Refer Slide Time: 24:49)

So, in our case i can be A in the very first node and then for A we can calculate the early
start time the early finish time the late start time and the late finish time.

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(Refer Slide Time: 25:10)

So, quickly we can try to see that how we are representing first we are doing the forward
pass. So, on your network when we are doing the forward pass we have to move from the
start node to the end node. Now start node here is A and the end node here is M. So, we
start from A so the first point here is the earliest start. So, earliest start is 0 because we
have to start our project on day 0 and it requires 3 days so this is a time duration. So,
early finish can be 3 days it cannot take more less than 3 days it cannot take more than 3
days. It can take more than 3 days, but then the project may be delayed if there is no
slack in the activity. So, we get the early finish as 0 plus 3 as 3.

Now, for activity B we see what is the earliest start that is 3 how much time it requires 4
days. So, 3 plus 4 earliest finish time will be 7 as given on your screen. Similarly, for C
what is the earliest start earliest start can be because A and B have to be completed
before C can take place. So, 3 days plus 4 days 7 days have to be spent before C can
start. So, the earliest start for C is 7 and it will require 3 days. So, earliest finish for C
becomes 10. So, here for all these 3 activities only one arrow is entering into these
activities, but if we take an example of H there are 4 activities entering into H.

So, we will see the earliest finish time for all the 4 activities. So, which will become the
earliest start time for this activity H and if we look at these 4 activities from which are
prerequisite for the start of H, the earliest finish for C is 10, the earliest finish for E is 25,
the earliest finish for F is 21 and earliest finish for G is 23. So, the maximum value is for

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activity E that is the earliest finish for activity E is 25 therefore, the earliest start for
activity H will become automatically 25 because I have told that when we are moving
from left to right or from the start node to the end node we have to take the maximum
value only, but on the contrary when we are doing the backward pass that is we are
starting from the end node towards the start node we are moving for calculating the late
start and late finish.

Note:
ESTH=MAX(EFTC, EFTE, EFTF, EFTG)=25

We have to take the minimum values so let us perform the backward pass now in the
backward pass we see here the earliest finish is 46

(Refer Slide Time: 28:01)

So, we will take it as the TL value that is 46 so 46 minus 4 is to 42. So, here we see only
one node is there so there is this node where we have 2 we can say nodes which are
entering into this node H. So, when we reverse the direction of arrows we will see that
here 2 are entering similarly for B also we have 2 arrows with through which we can to
pass through which we can enter that node.

So, for this if we see we have to do find out that what is the latest and we have to take the
minimum value for that and here we can see for the late this is 33 here and it is 35 here.
So, we will take maximum or minimum while calculating the backward. So, while
calculating the back backward pass we have to take the minimum so we will take 33. So,

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33 becomes the latest finish for this activity and the latest start will be 33 minus 8 that is
25.

Note:
LFTH=MIN(LSTI, LSTJ)=33
LFTD=MIN(LSTE,LSTF ,LSTG)=17
LFTB=MIN(LSTC, LSTD)=7

So, while doing the forward pass we have to take the maximum value, while performing
the backward pass we have to take the minimum value. So, similarly for B also we can
see we have 2 options available here. So, as here we have taken the minimum value
between 35 and 33 here also between 7 and 22 we have to take the minimum value. So,
the minimum value is 7 out of 7 and 22. So, we can very easily do the forward
calculation and the backward calculation also.

Now, how we can use this network so the slack as we have seen will be 0 for the
activities that lie on the critical path. So, we can see the difference between early start
and late start or early finish and late finish has to be 0. So, here we can try to look out
those activities where the difference between early start and early finish and late start and
late finish is equal to 0. So, first activity is A then B, we can see early start early finish
late start late finish. So, early start minus early finish there is no gap, late start minus late
finish no gap, A similar is for B then we see here there is a gap here there is no gap 7
minus 7 0, 17 minus 17 0.

So, there is no slack available, then we see other active here there is a gap available slack
available 17 minus 17 0, 25 minus 25 0. So, A B D and E are on the critical path, then we
see H 25 minus 25 0, 33 minus 33 0. So, H is again on critical path and when we see the
other activities where we have no slack, we will find I K and M.

So, where critical path becomes A B D E H I K and M for which the slack is 0 and when
you will see the other activities on the required for the completion of this project, you
will definitely find some slack. So, here for example, for activity F we can say slack is
25 minus 17 4, 25 minus 21 4. So, we have a slack of 4 days available for F which means
that if F does not start on it is earliest start day it can start after 4 days also without
affecting the overall project duration, but activity A B D E H I K and M cannot be
delayed because if they are delayed the overall project duration will be delayed from 46
days.

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So, this is the way we can calculate the critical activities and we can find out the critical
path which will be the longest path of the network requiring with that will be the
minimum time required for completion of the project. So, we need to find out that it is a
longest path, but it is giving us the minimum time required for the completion of the
project. We will definitely take some other examples in our next session and try to
understand the concept of critical path method.

So, with this I conclude the today’s session.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 34
Critical Path Method: Problems – 1

Namaskar friends, welcome to session 34, in our course on operations management. And
currently we are discussing the project scheduling part in which we are trying to
understand the various network diagrams that are used for planning the time domain of a
project.

And if you remember in this particular week we are focusing on critical path method
which is one of the important techniques for planning related to activities which are
having a deterministic type of time estimates. I think I have used 2 3 different words
deterministic and time estimates. So, the basic point is that suppose we are constructing a
house and we hire a contractor for making this house he or she will be able to guide us
that for this much square feet of area making 3 bed rooms, double storey will require this
much of time. Foundation will require maybe x time, erection of valves will require
suppose y amount of time, flooring will require this much time, construction of room
will require roof will require sorry this much time. So, we have deterministically
determined time estimates for critical path method. So, we know that how much time is
going to be required for a particular activity.

I think this aspect I have missed in the beginning of this particular week must have been
explained there and now in the next week our focus will be on PERT. So, in I thought
that when we explain the difference between CPM and PERT at that point we must
emphasize on this point that CPM is deterministic in nature whereas PERT is a
probabilistic in nature. So, I will come to that again when we start our discussion for the
next week and when we will be discussing problems related to PERT. But today our idea
is to understand that how we can solve simple problems using critical path method. In
this week we have already engaged 3 sessions and we have seen that what is project
scheduling, we have seen how a Gantt chart can be used for scheduling the various
activities of a project, then we have also seen that what are the advantages of network
diagrams such as CPM and PERT over Gantt charts.

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Then we have also seen the role of dummy activities we have seen the Fulkerson’s rule
that is used for numbering of nodes of network. Then also we have seen if you remember
that we have two types of network diagrams, one is activity on arrow, another one is
activity on node. And we have seen different types of problems maybe two or 3 different
problems we have seen, in one case the activities were there on the arrow in the other
case when we have calculated the early time for a particular activity and the latest time
for a particular activity we have taken an example where we have taken activities on
nodes. So, all of the learners must keep this thing always in their mind that two different
methods are there for representing the overall project in the form of a network and these
methods are activity on arrow and activity on node.

But in today’s session we will see that we will be depicting the activity on the arrow and
we will try to see how to construct a network and what type of calculations can be done
based on the network. So, basically our target is that; once we draw the network our
main objective is to see; what are the different paths that we have to follow in order to
complete the project. The project may be having 10 activities; we have to represent these
10 activities based on the precedence relationship which is already known to us.

So, we have an information regarding the various activities their description, we know
we name the activities like A B C D E F H or we can name the activities like the first
node is node 1. So, from 1 to 2 is one activity 1 to 3 is another activity 1 to 4 is another
activity. So, we can name activity as 1-2, 1-3, 1-4. So, that is another nomenclature for
the activities. So, what is required for making a project network? First is the list of
activities must be known to us, the description of the individual activities must also be
known to us, the description I mean to say that making a foundation this is being
represented by the activity 1-2 maybe erection of walls this may activity may be
represented by 2-3. So, that is the way we have the activities and we have a description
of the activities.

Then we have the precedence relationship among the activities, that few activities may
definitely have some predecessor which has to be completed before this particular
activity may start. For example, erection of walls necessarily will be done once your
foundations are ready or the roof can always be laid once your pillars and the supporting
arrangement are in place. So, roofing is dependent on some other activities and that those
activities are the predecessors for the activity that is making of a roof. So, there will be a

564
precedence relationship among the activities. Finally, we required the time required for
each activity. So, if we have this information again I am summarizing the list of activities
the description of activities the predecessor relationship or precedence relationship
among the activities and the time required for individual activity. If we have this
information available with us we can construct the network and then do the calculations
based on this network.

So, first job is to construct the network once we have constructed the network then we
need to do the calculation. What we can do? We can see what are the different paths,
starting from the starting node to the end node already I have highlighted when we are
representing a project in the form of a network it must always have one start node and
one end node. Sometimes I see when the learner is learning to draw a network some of
the nodes with they will leave in between only they are not connected to the end node.
So, it is always advisable that you start the network from one node and you finish the
network at another node. If there is a node which has no activity coming out of it, you
can just draw a dummy activity to the end node to just represent the relationship that the
end node represents the completion of the project. So, once we have the activities the
precedence relationship that time we can construct the network. So, our first job is over
that is construction of the network.

Second stage is that we have to write down all the paths, starting from node one we can
write the either the node numbers as the path or we can write the activities as the path for
example, there are 10 activities, so A B D and F maybe on the critical path. So, we can
say a B D F is one path in the network or 1 2 5 7 numberings are nodes, 1 2 5 7
represents the activities on the critical path. So, we can represent the critical path in
anyway.

So, what we have to do? We have to list down all the possible paths of reaching the end
node starting from the starting node. So, suppose our starting node is 1 and our last node
is 10. So, we have to look in the network and see; what are the various paths that we can
follow in order to reach from the start node to the end node. Then we can list down all
these paths and we can calculate the time required for each path. So, the longest path will
represent the critical path for the network and it will represent the minimum possible
duration required to complete the project. So, these two statements must be clear earlier
in may be session 2 I have a little slip of tongue where we were not I was not able to

565
explain it properly. But today again I am emphasising that the critical path will be the
longest path in the network requiring the maximum amount of time, but it will represent
the minimum duration that is required to complete all the activities. So, if we go, if the
project is not completed in this duration the project deadline will get extended. So, we
have to do the calculations in order to find the longest path in the project network.

So, that is what we are going to do today. We are going to do the calculations today and
trying to find out that how we can mathematically calculate the critical path and finally,
we will try to understand what are the uses or what is the application of finding out the
critical path. So, already in the previous session if you remember we have seen
calculations related to the forward pass and the backward pass. Today we will try to see
how individually at various nodes how we can calculate because in the last session I was
myself not very satisfied or that very convinced that I have been able to explain the
forward and the backward pass in the best possible manner. Today we have tried to
maybe fine tune tweak the calculations in such a way that it is easier for the learners to
understand.

So, let us start quickly we will take two problems today.

(Refer Slide Time: 10:47)

This is a first problem a project schedule has the following characteristics as shown in
table. So, as I have already told you there are different ways of representing an activity
and here you see we have taken both ways we have taken both 1-2 and A. So, you can

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represent an activity by the alphabet A or you can represented by the start node and the
end node. So, 1 2 is our activity a which is the start node and the end node for activity A,
the time required for this activity in days or number of days is 4. Similarly, we see that
there are may be 12 activities here 1 2, 1 3, 2 4, 3 4, 3 5, 4 9. So, A to L we have 12
different activities here.

So, precedence relationship is not to be given in this because already is the node numbers
are known. So, if we construct the network based on the node numbers no precedence
relationship is required automatically the precedence relationship will be established
once you construct a network based on the node numbers given in this network.

(Refer Slide Time: 12:00)

So, we need to construct a network then we have to calculate TE and TL which we have
seen in the previous class that is the early time and the latest time for each activity and
finally, we have to calculate the critical path. The critical path will represent that path
where the activities for which we have calculated TE and TL the slack is 0, which means
that these activities cannot be delayed beyond their normal time otherwise that overall
project duration will get delayed. So, that is the purpose of finding out the critical path
that the activities that are lying on the critical path are very critical which cannot be
delayed or may be postponed otherwise the overall project duration will get delayed. So,
we have 3 tasks here task number one is to construct the network based on the
information provided to us.

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Now, instead of giving the node numbers the precedence relationship can also be given
and then accordingly we have to construct a network. So, fortunately in this example we
have taken that directly the node numbers are known to us. So, based on those node
numbers we can construct a network, so easier to construct a network when this type of
information is available.

Then we have to calculate TE and TL which we have already seen in the last session how
to calculate by using of forward pass and backward pass and then we have to find the
critical path for which the slack will be 0 or the activities for which the slack will be 0.
So, first stage is the solution is the network.

(Refer Slide Time: 13:42)

So, this is the network here you can see we have activity A B C D E F G H I J K and L.
So, one important thing that you can note here is that we have a starting node as 1 and
only one end node that is 10 and all the node numbers have been depicted properly. So,
activity is on arrow here. So, this is 1 2 is representing one activity A which will require
4 days to complete. Similarly, activity C will require one-day activity, B will require
one-day activity, D we will require one day. So, B C D all 3 activities will require one
day let us check whether our network is correct or not.

So, here you can see as per the information available activity B, C and D all are taking
one day each. E and F takes 6 and 5 days, on your screen you can see E is taking 6 days
and F is taking 5 days. So, 6 and 5 for E and F again you can check E, 6 and F 5. So,

568
similarly we have constructed this network representing all the activities. Now, you see
second stage is to see what are the number of paths available here. So, one path if we
start from here number one and the direction of arrows we follow 1 to 2, 2 to 4, 4 to 9, 9
to 10, this is one path. Then 1 3 4 9 and 10 second path, 1 3 5 7 8 10 another path, 1 3 5 8
sorry 6 8 and 10 another path, so we can in our notebook write down all these paths and
then we can calculate what is the time required for each path. And which time we have to
select? We have to select the shortest of the smaller number or the larger number.

So, I think all of you must be able to answer the longest path we have to take we will
take the largest number. So, in this case we can calculate for 4 paths and we can see what
is the longest duration required. Apart from that we also have to see what are the
activities lying on the critical path and what is the time that is available with us in order
to focus on the non critical activities in which we have a little bit of flexibility available.

As I have already told you we cannot reschedule the critical activities because the overall
project duration will get delayed. But we have the flexibility of modifying the time or for
rescheduling our non critical activities. Now, we have to find out that; what is the time
available with us for non critical activities that we can reschedule them so that the overall
project duration that we have calculated in the form of the critical path remains the same.
So, now, we will see that how we can calculate the time available for individual activity
which can be rescheduled.

And we will see that activities that are lying on the critical path we have no flexibility
available, we have to complete them on time otherwise the overall project duration will
get delayed. So, we will calculate the early start and late start for each activity similarly
early finish and late finish for each activity and we will see that there can be a difference
between the early start and the late start of an activity. If there is a difference; that means,
that it can start earliest maybe after day 4, but it is possible that even if we start it on day
6 still the project duration will remain whatever we have calculated as the critical path.

So, that is the flexibility we can calculate by calculating the early start, early finish, late
start, late finish for individual activity. And if we have the data we can make use of that
data for our scheduling operations for scheduling of the operations required for the
completion of the project. Let us quickly see which we have this information already I
have shared with you in the previous session where we have seen the forward pass and

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the backward pass. So, now, let us see for these two nodes, activity F when can it start at
the earliest and when can it start at the low latest. So, let us see for first 4 activities 4.

Let us do the forward pass we are starting from node 1 that is day 0. This is our day 0,
activity A and activity B are starting on day 0. Now, how much time activity A will take?
Already information is available with you, it will take 4 days, is it correct. Activity A
will take 4 days; activity B will take one day only. So, C activity at the earliest it can
start after activity A has been completed. So, C can start at the earliest on day 4 after day
4, after 4 days it can start. Now activity C is taking only one day. So, it will start after 4
days and it will take one day to complete. So, this activity F is dependent on the
completion of C and D, F is dependent on the completion of activity C and activity D.
So, when can its start at the earliest we have to calculate that F can start at the earliest on
which day.

Now activity A, will take 4 days C will take one day if we follow this path 1 to 4, F can
start after 5 days. But if we follow the path B and D, B will take one day, D can start on
second day it will also take one day. So, as per this path F can start on third day. So, F
can start either on third day or after two days or F can start after 5 days after the
completion of A and C. And as I have told you that in the forward pass we will take the
maximum value if there are two paths coming together at one particular node as is the
case with 4. A and C are also maybe leading to the node 4, and B and D are also leading
to the node 4 from fair activity F is starting.

So, F has a predecessor C and D which must be completed in order to calculate or in

order to start the activity F. So, both ways if we see 4 plus 1, 5 activity F can start on the
6th day or it can start on the third day. So, we will take the maximum value. So, activity
F will start on the 6th day, why because a will take 4 days C will take one day. So, 5
days will go for the completion of A and C and on the 6th day we can start F and that is
the maximum value of the two paths that are meeting at node 4.

Similarly, I may not explain that much in detail similarly we can calculate for 10 also.
So, if we see what are the paths leading to 10. So, first we have to calculate when can L
start at the earliest. So, L can start at the earliest F will take 5 days 4 plus 1, 5 plus, 10.
So, L can start at the latest on 11th day or maybe 4 plus 1, plus 5, yes it can start on 11th
day and similarly we can do the calculation and see that when can activity K start. So, we

570
have to take the maximum value of L and K and that we have tried to include in the next
slide.

(Refer Slide Time: 22:38)

So, here you can see in forward pass we have seen at here 4 you have to do the
calculation when can it start. So, here 4 plus 1 5, it can start after 5 days and from this
side 1 plus 1, 2. So, maximum of 5 and 2 we have to take. So, it can start after 5 days.
Activity F is starting at node 4 as we have seen here activity F is starting on node 4, so 4
plus 1, 5 and 1 plus 1 2. So, 5 is maximum here. So, it can only start after 5 days.

Forward pass
4+1=5
1+1=2 maximum value

10+7=17
17+5=22 maximum value

Similarly, we see for node 10 how much time it will take. So, we can see 9 how the value
10 is coming here 4 plus 1, 5 plus 5 10, so 10. So, it can start after 10 days L will start
after 10 days. So, therefore, the value 10 is coming and similarly calculating the different
paths there are two paths here at node 8 we can do the calculation, when can activity K
start or after how many days’ activity K can start. So, K can start after 17 days and it will
take 5 days. So, 17 plus 5 is 22 10 plus 7 is 17. So, we have to take the maximum value,
so maximum is 22 so we will take 17 plus 5, 22 as our final value. So, if from left hand
side to right hand side when we do the calculation we will be taking the maximum value

571
of time at any node. So, this way we have calculated at the last node that 22 days are
required for the completion of this project.

Now, what is the next thing that we have to calculate? We have to calculate the early
start and early finish for each activity. So, where here we can see we can make a table
like this may be this is a backward pass first and then we will make a final table where
we have calculated the early start, early finish, late start, late finish for each and every
activity.

(Refer Slide Time: 24:44)

So, let us try to understand first the backward pass because we have calculated into the
value of TE for each node, now we can calculate the value of TL for each node starting
from the right hand side. So, when we start from right hand side or the last node we that
is node number 10. So, here at node number 10 TE and TL will be same. So, this is 22
and 22, so TL becomes 22.

So, similarly when can 8 start at the latest 8 can start at the latest because this has to be
finished by 22 days. So, when can K start at the latest at the latest it can start it requires 5
days, so 22 minus 5 it can start at the latest by 17 days, that after 17 days K can start. So,
that we are able to meet the target of 22 days.

When can I start at the latest, at the latest it can start 22 minus 5, 17 minus 1 16, so
activity I must start after 16 days in order to complete the project in 22 days. Similarly

572
coming we have to do the calculation for each of the activity, when can activity L start at
the latest at the latest L can start 22 minus 7 that is 15. So, after 15 days L must start
otherwise the project will get delayed. So, this way we will do the backward pass
calculation starting from the end node moving towards the start node. And let us take
two examples here at 5 we have to take a decision because their two paths are closing
down. So, at 5 we have to take a decision similarly at one also two different paths are
coming. So, we have to take a decision. So, let us take an example of 5.

I will start my calculation from here 22 minus 5 17. So, 17 K must start after 17 days.
Similarly, when J must start 17 minus 2 15, so J must start after 15 days. Similarly, 22
minus 5, 17, I must start after 16 days 17 minus 1, 16. So, here we have 16 and here we
have 22 minus 5 minus 2, 15. So, 15 minus 8, 7, H must start after 7 days, 15 minus 8.
Similarly, 16 minus 4, 12, H must start after 12 days. And now we have two different
paths entering into 5. So, we have to take the minimum value of the 2. So, we can see
here for 5, again I am doing the calculation 22 minus 5, 17 minus 2, 15 minus 8 minus 15
minus 8 that is 7 and if we follow this path 22 minus 5, 17 minus 1, 16 minus 4, 12. So,
if we come from this path from this path we have it must start H must start after 12 days
and if we come from this path H we have to see that when can H start at the latest that we
have already calculated after 7 days.

(Refer Slide Time: 28:32)

573
So, here you can see 15 minus 8 and 16 minus 4. So, 16 minus 4 is 12 and 15 minus 8 is
7 and we have to take the minimum value that is in this case 7. So, for 5 during the
backward calculation we have to take the minimum of the 2. So, we have to take the
value 7. So, once we do the calculation of early start, early finish, late start, late finish for
each node we will get a table like this. So, these are the 12 activities that we have listed
and here the activity name normal time required, earliest time, latest time, total float and
we can see that the activities that are lying on the critical path the total float is 0, 0 here,
0 here for activity 3 5, 0 here for activity 5 7, 0 here for 7 8 and 8 10.

Backward pass
15-8=7
16-4=12 minimum value

9-4=5
1-1=0 minimum value

(Refer Slide Time: 29:15)

And based on this total float we can see this is going to be our critical path that is 1 3 5 7
8 and 10, and it will require 22 days to do the work or to complete the project.

574
(Refer Slide Time: 29:29)

But we can see wherever we have total float some values are there, this is the number of
days by which the activities can be rescheduled without affecting the overall project
duration. So, the overall project duration for this project comprising of 12 activities is 22
days and few activities we can count here 1 2 3 4 5 activities out of these 12 activities are
on the critical path, and the remaining 7 activities have some flexibility with them in
which they can be rescheduled in order to complete the project.

So, we will try to understand the importance of critical path in our next session. So, with
this I conclude the today’s session.

Thank you.

575
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 35
Critical Path Method: Problems – II

Namaskar friends. So, today we have the last session of week 7 that is session number 35
and in this week, we are focusing our attention on critical path method. So, by now, we
know; what is the importance of critical path method in project scheduling, what is a
critical path method, how to make a project network, what are nodes, what are the
different types of activities, how the network and be represented such as activity on node
and activity on arrow.

How the forward pass calculations can be done, how the backward pass calculations can
be done and how we can find out the critical path. So, with this background information
today we will try to further understand few networks and try to understand that; what is
the importance of the critical path before, we go to the examples, today the importance of
critical path, I want to highlight by pointing out that the activities that are lying on the
critical path cannot be delayed or cannot be rescheduled otherwise the overall project
duration will get delayed.

So, our focus must always be on the critical activities in a project network. So, that these
activities are completed as per their scheduled duration or as per their scheduled time if
these activities get delayed because of one reason or the other reason the overall project
duration will also get delayed or extended and there are penalty costs associated with the
delayed delivery of projects therefore, it is very important that we focus on these
activities which activities the critical activities. So, that we are able to complete the
project in time.

Where ever little bit of flexibility is available with us for the noncritical activities we can
reschedule them in order to make way for the critical activities sometimes it may so be
possible that we have a resource constraint of a machine or manpower. So, what we can
do; we can reschedule the noncritical activities and focus those resources or additional
resources on critical activities. So, that our project duration is remaining intact or our

576
project is completed by the deadline or as per the time calculated from the critical path
method.

Now, in the previous session we are calculated the 22 days are required for completing
the project. Now, there were 5 activities on the critical path. Now these 5 activities must
not be delayed otherwise the project duration will go beyond 22 days where as the other
7 activities have little flexibility that we have calculated in the form of total float.

So, we can reschedule those 7 activities in order to complete the project in 22 days. So,
now, we will try to understand the problems maybe few other problems and how to draw
the network and in the previous session if you remember the project network was the
first stage of learning where the nodes were directly given.

So, you have to directly plot them on a piece of paper 1-2, 1-3, 1-4, 2-4, 3-5, maybe that
way, it was easy to construct the network, but in most of the cases we may not get that
kind of information. So, today, we will try to see that how to construct a network when
node numbers are not given only the names of the activities are given or the alphabetic
representation of the activities are given or is given.

Now, how do can construct the networks again using the forward and the backward pass
we will calculate the early start, early finish, late start, late finish for each activity and
then we will see what is the critical path. In the next problem, we will try to understand
the use of dummy activities that why dummy activities are important and how they help
us to satisfy the logic of the network or to fully comply with the precedence relationship
of the network that we will try to understand and finally, we will try to see actual
problem in which a problem statement is given we have to construct network and find
out the critical path or the time required for the completion of the project.

Now, quickly we will go through this routine of this problems and I advise that all
learners must focus on different types of problems based on critical path method there
are number of good books available, you can focus on those books and then find out
different related problems to CPM and try to solve them on your own because this is
something which you can gain through practice you can look at different types of
problem we are trying to highlight the most simplest problems in order to explain the
concept of CPM, you can build on this concept and improve and hence or maybe in
increase your knowledge related to the critical path method.

577
(Refer Slide Time: 05:42)

So, coming onto the very first problem in the example 1 that we have seen in the
previous session, we have taken the node number as the activity names as 1 2, 1 3, but
here activities are given and their predecessors are given in the form of alphabets only
and the time required in days is also given.

So, for any CPM method you will get the information in this form the time is
deterministic here activity if fix time it that is 6 days are required to complete activity A.
So, once we have this type of relationship with pencil, we can try to construct satisfy the
different relationships. Now pre dis precedence relationship those of you who are only
attending this session maybe online H is dependent on E and F.

So, predecessor is E and F for the activity H which means that H cannot start until E and
F has been completed. Similarly, for activity A and activity B, there is no predecessor
which means they are the first activities of the project and lastly activity K is dependent
G and I which means that activity K cannot be completed unless G I and have been
completed. So, K is dependent on G and I, H is dependent on E and F, A and B are not
dependent on another activity and the time in days is also specified.

So, let us see the network based on this information. So, the information here as we have
seen is the predecessor are given for the various activities and based on that we can draw
the network.

578
(Refer Slide Time: 07:20)

This is the network based on the information available in the previous slide.

So, we can see that J is dependent upon D and H which means J will only start after D
and H have been completed. Similarly, K will only start after G and I have been
completed. Similarly, A is precedent or predecessor or is in precedence relationship with
3 activities, once A is completed D E and C. So, we can say C, E and D will start after A
has been completed. So, similarly a network can be constructed based on the information
and we can calculate the critical path. So, based on the information available, we will
calculate the early start, early finish, late start, late finish as explained in the previous
session and based on that information, we will get a float like this and we can calculate
the slack which is a given here.

579
(Refer Slide Time: 08:22)

So, we can see here late start minus early start 5 minus 0; 5 is given here. Similarly, here
we can see late start minus early start 20 minus 19; 1 is given. So, in this way we will see
that for which activity is slack is 0, those activities will fall on the critical path. So, I
think I will try to see here A, C, F, I and K are on the critical path.

(Refer Slide Time: 08:56)

So, let us see. So, 1, 2, 3, 4, 6, 7 are the nodes of the critical path. So, let us see now the
network 1, 2, 4, 5 and 7 is the critical path. So, we can see 1 2 A, 2 4 E, 4 5 and 5 7.

580
So, this is the critical path that is 6 plus 1; 7 plus 6; 13 plus 3; 16. So, maybe this is the
critical path as per 1, 2, 4, 5 and 7 is the critical path 1, 2, 3, 4, 6 and 7; sorry, 1, 2, 3, 4, 6
and 7 are the critical path again I will go. So, that there is no confusion 1, 2, 3, 4, 6 and 7
is the critical path.

So, let us calculate now 1, 2, 3, 4, 6 and 7. So, 1 to 2; 6 days, 2 to 3, 3 days or maybe it is

days only as far as I remember, yes it is days. So, 1 to 6 days; 2-3; 3 days, 6 plus 3; 9
plus 1, 2, 3, 4, 4 days so, 6 plus 3; 9 plus 4; 13 and then 5 days 13 plus 5; 18 and K that is
6-7, 5 days 23.

So, the longest path maybe in this network will be of 23 days duration and that will be
the minimum duration required to complete the project and if any of these activities that
are on the critical path that is activity A, activity C, activity F, activity I and activity K;
all these activities which are on the critical path if these activities get delayed the project
network will.

Or the project duration will get delayed. So, this is the critical path 1, 2, 3, 4, 6 and 7 that
is 1 2 A, 2 3 C, 3 4 F, 4 6 I and 6 7 K. So, we can identify the activities that are lying on
the critical path and focus on those activities. So, that the overall project duration is
achieved.

Now, this is example 3 similar type of example A B C D E F G H.

(Refer Slide Time: 11:28)

581
Activities and the immediate predecessor are given C A B. So, H can only start after
completion of F and G. Similarly, F can only start after E and D have been completed the
activity time for each activity is also given to let us quickly see this is the type of
network that has to be constructed and it explains the use of dummy activities is here 3 to
2 is the dummy activity.

(Refer Slide Time: 11:48)

Similarly, 5 to 6 is the dummy activity. Now why these dummy activities have been
used, now you see E is dependent on A and it is also dependent on B.

So, as per our rules for drawing the network no 2 activities can have the same start node
and the finish node or the end nodes. So, we cannot connect B directly from node 1 to
node 2. So, we cannot make node 1 and 2 as the starting points of activity A starting and
end points of activity A as well as starting and end point of activity B some of you may
say that we 1 and 2 we can connect also activity B like this. So, it is against the rules of
construction of project network. So, therefore, we are using a dummy activity here as E
is dependent on both A and B. Now let us see our information we can see activity E is
dependent on both A and B.

So, that has been depicted with the help of this dummy activity there is another dummy
activity we are using here the situation is slightly different you can see activity G is
dependent on D. So, as per the table available with us G has an immediate predecessor
D. So, G can only start once D has been completed, but F is also dependent on D and E.

582
So, that also, we can see F is dependent; F is dependent on activity E and activity D, F is
dependent on both.

Now, let us see; what are the alternatives available with us for drawing this network this
is the network. Now what we can do? We cannot have G and F as starting from the same
node why because G is not dependent on E now suppose we dont put this dummy
activity here, then F will also start from here. So, that is against the rule of drawings the
network. Now 2 activities that is activity G and activity F can start from the same node 5
and end at the same node 7.

So, therefore, we have to start them separately what can be the other option available
with us activity D directly comes to activity 2 node 6. So, week again from here we
cannot have 2 activities G and F starting from the same node 6 and ending at the same
node 7 and it will also make E as a predecessor of G which we do not want because E is
not a predecessor G only D is the predecessor of G, but E and D both are predecessor of
F therefore, this necessitates the use of the dummy activity, but the activity time for
dummy is always taken as a 0 which means the dummy activities are incorporated into
the network are put or used in the network in order to establish the precedence
relationship among the various activities, it does not take any resource, it does not take
any time.

But only is put into the network in order to establish the relationship. So, we can see
maybe forward and backward pass immediately or very quickly the calculations which
are not a being affected by the use of the dummy activities. So, let us see these 2 scenario
where dummy activities have been used we see a dummy activity here between node 5
and node 6 and dummy activity between node 3 and node 2.

583
(Refer Slide Time: 16:15)

Now, this is the situation 1 2 and 3 is as dummy activity is here. So, where we can see it
is taking 0 time. So, we have to take the maximum value while performing the forward
pass.

So, 6 plus 0 and 10 plus 0 so, 6 plus 0 is 6; 10 plus 0 is 10. So, we have to take the
maximum value in the forward pass. So, we will take the early start of the next activity
that starts from the node 2 as 10. Similarly, here also 10 plus 14 is 24 and 20 plus 0 is 20.
So, we take the maximum of 20 and 24 that is 24 that is all activities that are starting
from node 6 can start at the earliest on after day 24.

584
(Refer Slide Time: 17:05)

Similarly, for this network as we have seen earlier we can calculate the activity time this
is all already sorry not we will not calculate this, this is already given to us in the
problem statement we will calculate the earliest time the latest time the slack and
accordingly we will find out the critical path.

(Refer Slide Time: 17:24)

So, in this particular network the critical path is 1, 3, 2, 6, 7 and 8 which means that there
are 1, 2, 3, 4, 5 activities on the critical path now coming onto the last example that we
can take today a publisher has a contract.

585
(Refer Slide Time: 17:46)

With an author to publish a text book the simplified activities associated with the
production of a text book given below maybe in the next slide.

We will see what are the various activities required for publishing a book the author is
required to submit to the publisher hardcopy and a computer file of the article of the
book that he wants to publish develop their associated network for the project. Now here
only the broad guideline is given we need to first identify that what are the various
activities required for publishing the book what else we require on the based on the
previous experience, we require how much time will be required for each activity that
must be deterministically known to us that we must be confident that publishing or
maybe printing of the book will take this much time only.

So, we require the list of activities the time required for each activity and then the
precedence relationship among the various activities for example, the printing of book or
the final printing of book is not going to happen until the proofreading step has been
completed. So, there is a sequence of steps that have to be completed in order to ensure
the completion of the project and that comes from precedence relationship among the
various activities that have to be completed in order to ensure the completion of the
project and project in this case is the publication or publishing of a book. So, whatever is
the problem statement based on that the information required for making a project
network.

586
(Refer Slide Time: 19:40)

Now, we have a case at hand we have a project at hand we have to first divide the project
into the individual activities. So, we can see what are the individual activities manuscript
proofreading by the editor sample pages, preparation book cover design artwork
preparation the diagrams the figures the pictorial representation the schematics the flow
charts that is an artwork preparation authors approval of edited manuscript and sample
pages book formatting authors review of formatted pages authors review of artworks
production of printed plates and book production and binding. So, these are the various
steps involved for publication of a book.

Now, they are the predecessor relationship that is manuscript proofreading by editor and
sample pages preparation they do not have any predecessor they can start on any given
day, book cover design also has no predecessor can start on any given day, artwork
preparation also has no predecessor, but production of printing plates or printed plates H
G and H as the predecessor which means that the production of printed plates can only
start when authors review of the formatted pages is complete that is activity G is
complete and the activity H is complete that is authors review of the artwork is complete
which means the author has given a green signal based on the review of the formatted
pages as well as review of the artwork.

So, he has read all the text he has understood or he has tried to finalize the artwork
whatever a diagram figures are going to go into the books then only the production of the

587
printed plates will start. So, that the final publication or production of the book or
printing of the book can take place and that will depend upon the production of the
printed plates. So, which means J can only be done until I has been completed.

So, if I completed then only J can take place similarly it depends upon C also that is book
cover design. So, cover design is required production of printed plates is required then
only the book production and binding can take place.

So, we have a set of activities available with us we have predecessors available for each
activity and we have duration here we can see the duration is in terms of weeks where is
in previous examples we have seen that the duration was marked as days. So, we can
have our time in terms of days we can have time in terms of weeks and in many long
projects maybe one year which may be 2 years or 3 years project our time duration can
also be in terms of months also.

So, in this case for production of a book our duration is in terms of week. So, we have
tried to take a specific problem a specific project tried to divide it into its individual
activities tried to establish up precedence relationship among the various activities tried
to deterministically put the time required for each and every activity and once this
information has been compiled we can make a network based on the information and this
is the network available here we can see activity A to last activity J we have been able to
plot in this network.

(Refer Slide Time: 23:34)

588
So, we can see if our first activity is activity A and the last activity is activity J. So, A to
J we have been able to represent in this network and based on this network based on the
forward pass and the backward pass calculations based on the early start, early finish,
late start, late finish activities or for each an activity the times that is early start late start
early finish late finish times for each activity we can calculate the slack and based on the
slack we can find out the critical path and once we know the critical path we can see that
which are the activities which must not be delayed in order to achieve the launch date of
the book because it may involve coming up of the various dignitaries for the launch of
the book the date is already finalized.

So, we have to focus on the critical activities that the function which has been kept for
the launch of the book is going to be organised on the specific date only otherwise if the
critical activities get delayed the launch of the book will also get delayed and then the
overall project may be termed as a failure from the project management or project
scheduling point of view may the book may be an excellent book, but from project
management point of view we may say that we have not been able to plan our production
properly otherwise the book production must have been completed by the launch date.

So, that is the, we can say importance of CPM as a project management tools. So, here
based on the calculations we can see this is the critical path.

(Refer Slide Time: 25:39)

589
That is 1, 2, 3, 6, 7, 8, 4 and 9. So, this is the critical path in the network also we can see
1, 2, 3, 6, 7, 8, 4, 9, 1, 2, 3, 6, 7, 8, 4 and 9. So, this is our critical path and we can
calculate the number of days required for completion of this project.

So, I think we have tried to understand the concept of identifying a problem listing the
various activities related to the completion of the project setting that time for each and
every activity setting the precedence relationship among the various activities
constructing a network based on a specific set of rules numbering the nodes accordingly
doing the calculations for early start early finish late start late finish time for each
activities based on that finding out the critical path and then focusing our energies on the
critical path in order to achieve the project deadline.

So, this is the summary of the critical path method and in the next week we will start our
discussion on PERT which is slightly different from CPM and we will focus on the
calculations try to understand the problems that we have seen here and I must address
and emphasize and reiterate it again that all learners must try to do solve number of
problems related to CPM. So, that you become an expert in solving the problems.

So, this with practice will make you perfect in solving problems related to CPM in
whatever short duration we got we have tried to highlight the importance of the CPM try
to show one or 2 sample calculations for forward pass and backward pass and try to
introduce the concept of CPM as a tool for project management. Similarly, we will try to
emphasize the role of pert as a management tool for operations or for a management of
projects.

Thank you.

590
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 36
Program Evaluation and Review Technique (PERT)

Namaskar Friends, welcome to session 36 in our course on operations management. And

today we are going to start the discussion for the 8th week we have already completed 7
weeks of discussion and we have covered different topics. I must say diverse topics
related to operations management, starting from product design and development to
layout selection to location selection prior to layout selection. Then we have seen the
scheduling part using the project networks and the last week if you remember we were
discussing an important topic that is the critical path method for finding out the project
duration.

So, we were able to find out a critical path, which is the longest path in a network and it
gives us the minimum time required to complete the project. As we have seen that if we
are following the CPM method we have deterministic time estimates available with us;
which means, that for every activity we have fixed time that is available we know, that
this activity will require this much time for completion whereas, which may not be the
actual scenario. In actual scenario there can be an element of probability that the activity
may take a longer duration also or may be completed before the time that we have
decided or calculated.

So, in research type of projects for example, we plan to launch a space vehicle, we may
not be having the exact idea that which activity may take how much time. Specifically, in
research-based projects we are not aware or we are not sure with certainty that this
research will take this much time it may take a longer time also. If we are successful or if
we are lucky I must say with a project may be completed before the due deadline also.

So, there is an element of probability in terms of the time that an activity or a total
project will take. Similarly, as I have already told in an overall project there will be
number of activities that will sum up for the completion of the project. Now individual
activities will have different time estimates some activities may take longer time, some
activities may take shorter time and individual activity also sometimes may be completed

591
well in time may take longer than the expected time may be completed optimistically in a
shorter time as compared to the deterministic time that we have fixed for that activity.

So, in nutshell I must address that in critical path method whatever problems we have
seen the problems were with fixed time estimates. So, each activity or each task or each
job was given a specified time. Now in case of PERT that is program evaluation and
review technique, we will have different time estimates for each activity to be more
precise we will have 3 time estimates for each activity, one will be the most likely time
the most likely time I can draw an analogy with the CPM method that that is the
expected time for that activity that this is the time that the activity will take for
completion.

But in many cases if everything goes wrong the activity duration may be delayed the
activity may take take longer time as compared to the most likely time, and that time we
will call as the pessimistic time. On the other hand, or on the contrary there can be a
situation that; we are able to complete the activity in a shorter duration as compared to
the most likely time we are lucky everything was in the favor and we were able to
complete the project well in time or I must say before that time. So, that time is called as
the optimistic time.

So, in case of program evaluation and review technique we will be having 3 time
estimates for each activity that will be the optimistic time, the most likely time and the
pessimistic time. Now some of you may be wondering that what is the difference
between the CPM method and the PERT method. So, one is that for every activity we
have fixed time or deterministic time in case of CPM whereas, we have a probabilistic
time in case of PERT. We will have 3 time estimates for each activity in case of PERT
whereas, we will have single time estimate for each activity in case of CPM.

So, in nutshell we can summarize in single sentence or sentence that; CPM is

deterministic in nature PERT is probabilistic in nature. And the other difference is that
CPM is usually applied the critical path method is usually applied in those projects
where we know with certainty that this is going to be the time required for an individual
activity. For example, construction of a house we see so many multi story towers or
multi story buildings coming in. So, it is easy to figure out easy to predict that this is a
22-story building this much square fit area has to be covered.

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So, with the experience the builders, the contractors, the real state agents know that this
will require this much of time. Every story will require maybe this many months of
construction activity. So, already that data is available for every step for every activity
involved in construction sector the time can easily be deterministically known. So, one
example of CPM can be the construction of a house whereas, in case of PERT an
element of probability is always attached. For example, a student joins for a PhD
program there is an element of probability if he gets the results the project can be
completed or the PhD dissertation can be completed or the PhD thesis can be completed
in 3 years if he works for a longer time he may take 4 years’ time also.

Similarly, if you are doing a research for inventing a particular type of polymer you do
not know when you will be successful in that invention process. So, there is an element
of probability in these types of projects. So, research-based projects will be using PERT
and the construction sector-based project or those projects, where we have adequate
knowhow already available with us will be using CPM type of project network.

So now we have understood the difference between CPM and PERT and where which
technique will be applied must be clear by now to all the learners. So, with this
background we start our discussion for week 8 and today is the first session of week 8
and the first topic is program evaluation and review technique. We are just going to
cover the introductory part of this topic, and we will try to see that how we can calculate
the probability of completion of a project or we can find out that given a due date that;
suppose we say the project has to be completed by 25th of september 2017.

So, we can calculate based on the project network we will calculate what is the expected
time for the completion of the project, what is the deadline that is 25th september 2017,
what is the standard deviation for the activities on the critical path and thereby we can
calculate that what is going to be the probability of this project to be completed by
september 25th 2017. So, we will see that what is the formula related to that.

So, maybe this background if is clear to all the learners the other part that we are going to
cover today will not be that difficult for you to just assimilate in your knowledge base.
So, let us quickly start our discussion related to the topic that is program evaluation and
review technique.

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(Refer Slide Time: 09:16)

Now, it is a project management tool as same as critical path method and is used to
schedule organize and coordinate tasks within a project.

Now, there are 3 things schedule organize and coordinate. So, it is not only related to
time it is related to the other coordination activities also. We need to coordinate among
the various activities which have to be completed in order to ensure that the project is
completed well within the specified time. As we are going to find out the critical path all
the activities that are lying on the critical path cannot be delayed even by a single day
because it will lead to the extension of the project by one day.

Now, suppose we are focusing our attention on the critical path. The non-critical
activities have the flexibility they have the slack that we can readjust them reschedule
them and thereby we can release some of the resources by rescheduling these non-critical
activities and those resources can be used to reinforce the critical activities. So, that the
critical activities are completed as expected, as planned and the project is completed as
per the due date.

So, it is not only related to time that we are going to use the PERT network. We are
going to use it for our coordination purpose also for our other organizational decision-
making purposes also; that where how many people will be required and how many
people can be laid off other decisions can also be taken based on the project network. So,
PERT is a very important project management tool, which is not only used to schedule

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the various activity, but is also helpful in the overall organization and coordination
among the various activities. It is basically a method to analyze the tasks involved in
completion of a project or in completing a given project.

Especially the time needed to complete each task and to identify the minimum time
needed to complete the total project. As we have seen in CPM also we try to find out that
what is the minimum time required for the completion of the project. Similarly, in PERT
also we will try to find out that what is the minimum time required for completion of the
project. How we will find that? That we are going to understand today because in pert we
will have 3 different time estimates, which will be pessimistic, optimistic and most likely
time based on that we will calculate and try to find out the critical path, which will be the
longest path in the network and will give us the minimum time required for the
completion of the project.

(Refer Slide Time: 12:30)

Now, PERT is based on the assumption that an activities duration follows a probability
distribution instead of being a single value. So, on your screen you can see we have
highlighted the term single value. Now single value basically is deterministic time which
we use in the CPM method. So, PERT is basically based on the assumption that the
activities duration follows a probability distribution, which means that if you do the same
activity again and again you will not be able to complete it in the same given time.
Sometimes you will be completing it before the average value sometimes you may be

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delayed from the average value. So, you may be able to complete the activity after the
average time taken.

So, there is a probability that the activity may be completed in the average time it may be
completed before the average time it may be completed after the average time. So,
therefore, there is a probability of completion of activity. In case of PERT in specifically
in terms of the time of completion of an activity with respect to the duration of the
overall project. So, because the overall project will have some overall project duration
time and individual activity also has a probability that it may be completed early it may
be delayed or it may be taking an average time.

So, 3-time estimates are required as I have already highlighted to compute the
parameters of an activities duration. Now an activity duration can have 3 values or this
variable can take 3 values. First value is the pessimistic time which is the longest time
the activity may require for completion. Then the most likely time depicted by tm which
is we can say a kind of an average value which can be used for calculating the expected
time for completion of an activity. And finally, the optimistic time that everything goes
well we are able to complete the activity well in given time or maybe well before the
most likely time.

So, most likely time is a central value on one side we have the pessimistic time on other
side we have the optimistic time. And these 3-time estimates will be used for the
calculation of the expected time for the completion of the activity. So, these 3-time
estimates that we are using here, many times the learners are a bit confused that these are
for the project or for the activity. Now these 3-time estimates are for each and every
individual activity or task which has to be completed for the completion of the project.
For example, a project has 10 different activities. So, we will have 10 different
pessimistic times, 10 different most likely times and 10 different optimistic times.

So, for every activity we will have a pessimistic optimistic and the most likely time. And
then for the project we will calculate the project variance and the project standard
deviation, but for every activity we will have these 3 time estimates. I think all these 3
points I have all explained.

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(Refer Slide Time: 15:57)

So, quickly we can read that what are the 3 time estimates in case of pert. First one is the
pessimistic time depicted by t with subscript p, it is the longest time taking into
consideration all the odds away all the odds in the activity that everything is going wrong
or maybe it is being delayed everything related to the activity is delayed. So, this is a
time estimate if everything goes wrong.

So, we are taking much more time as compared to an average time that must have been
taken for the completion of that activity. So, that time estimate we usually call as the
pessimistic time. Then opposite to the pessimistic time we have the optimistic time. Now
optimistic time is the shortest possible time if everything goes perfectly without any
complications.

So, in the pessimistic time we have lot of complications involved therefore, the time
duration for that activity gets delayed whereas, in optimistic time there is no
complication as such without any complication everything goes on well and we are able
to complete the activity well within time maybe even less than the most likely time. And
the most likely time is the best time estimate of the activity time this lies between the
pessimistic time and the optimistic time estimates.

So, basically for every activity now the engineer may not be giving a single time
estimate with these experience or her experience an engineer will specify the 3 time

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estimates for each activity. Now these 3-time estimates will be the pessimistic time, the
pessimistic time the optimistic, pessimistic and most likely time.

(Refer Slide Time: 17:55)

Now, this graph is a very simple graph which is showing the 3 time estimates of PERT
which we have seen in the previous slide. And on y axis we have the frequency and on x
axis we have the time estimate.

So, we can see the optimistic time the frequency is lower similarly for the pessimistic
time the frequency is again lower, but the most likely time has got the maximum
frequency. So, this means or this shows that suppose we conduct a particular activity of a
project 100 times. I think I have been able to make it clear that in the overall project we
pick one activity and that activity we perform 100 times.

We will get maybe maximum times the time required for conducting or for organizing
that activity or for completing that activity will be maybe 60 times out of 100. And
maybe 25 times we may complete it before the most likely time and then maybe
remaining maybe 15 times we may complete it after the most likely time. So, if we fix
the time estimates. So, most likely time we will have the maximum frequency and
pessimistic and optimistic time we will have lesser frequency.

So, out of 100 60 times we are completing it at an average value of most likely and 25
times as per my example in optimistic and 15 times in pessimistic time estimate. So, we

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can see that the time is following a distribution or the time required for completion of an
activity is following a distribution here whereas, in case of CPM it was one single time
estimate which was used for the calculation of the critical path. So, that is one may be
major difference between the CPM and the pert technique.

(Refer Slide Time: 20:14)

Now, we will try to understand that how to perform the calculations. Now one method
can be that in case of PERT we have 3-time estimates.

Mean (Expected time):

te = to + 4 tm + tp/6
where
Pessimistic time =tp
Most likely time =tm
Optimistic time =to

Variance: Vt =  2 = (tp - to/6)2

So, we can calculate the project duration by only considering the most likely time and
we can say ok. This is going to be my project duration, but things may not go as we have
assumed. So, that assumption part has to be minimized and scientific logic part has to be
maximized. So, that we are able to complete the project as per the deadline or as per the
schedule.

So, in case of only using most likely time we may not be able to find out the exact time
required for the completion of the project. And therefore, we use another value which is

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going to give us a better estimate of our project duration and that we usually call as the
expected time denoted by te. And that is dependent upon all the 3-time estimates that we
have seen till now that is the optimistic time, the most likely time and the pessimistic
time.

So, the expected time is calculated based on these 3-time estimates. And then expected
time is used, as we use the deterministic time in case of CPM to calculate the critical
path. So, the formula for expected time is given on your screen you can see te is equal to
to that is the optimistic time plus 4 times the most likely time plus the pessimistic time
divided by 6. So, for every activity we have to calculate the expected time in terms of te,
which is a single time estimate now for that particular activity. And then we calculate the
variance that is given by sigma square is equal to tp minus to that is the pessimistic time
minus the optimistic time divided by 6 and then the whole square of this value.

So, we can calculate the variance for each activity, we can calculate the expected time
for each activity. So, in nutshell in order to summarize or in order to explain to a layman
without going much into the mathematics involved in that; we can say that we are trying
to convert a probabilistic type of problem into a deterministic type of problem that is
CPM.

So, the 3-time estimates that we had for each and every activity of the project we are
bringing these 3 time estimates into one-time estimate, which will be further used for our
calculation of the overall project duration. Also, we are calculating the variance for each
activity and then adding up the variance of the activities that will lie on the critical path.
We can calculate the overall project variance also and try to figure out that what is the
probability of completion of the project as per the scheduled date.

So, these are the 2 values that we will calculate for each and every activity. Now for
calculating the critical path we have already seen a problem in the last session or in the
last week we have seen in CPM different types of problems at least 2-3 problems. We
have seen there in which we have calculated the critical path here also we will have to
calculate the critical path and identify our critical activities as well as the non-critical
activities.

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(Refer Slide Time: 24:25)

Now, we can mathematically find out the probability to complete a project within the
specified time. Now what is the difference in case of CPM we had defined time estimates
for each activity and we were able to find out the early start and late start for each and
every activity and from there calculating the slag we were able to find out the critical
path, but here since there is probability involved in each and every activity. So, the
overall project duration is also probabilistic in nature therefore, we can determine the
probability to complete a project within the specified time using this mathematical
formula on your screen. We usually calculate the value Z which is equal to x minus mu
divided by the standard deviation.

 = √Ɛ² (critical path)

net

where  = te = Project mean time

network = Project standard mean time
x = (Proposed) specified time

Now, x is what x is the proposed or the specified time now if we fix up a date we can
calculate how many days. So, suppose we say a first of October. So, we can calculate

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first of October from today how many days are there, then we can calculate mu which is
the project mean time which will also be a number in terms of number of days. So, it can
be the project mean time calculated from the te values. So now, in a pert network instead
of 3 time estimates we will use one-time estimate that is te that is the expected time. Now
this based on this expected time we will get one value that is being given as µ that is the
project mean time.

So, using te we have calculated mu that is the project mean time which is which has been
found out from the critical path of the network. We know the date by which we want the
project to be completed. So, the difference between the 2 the deadline the time required
for the completion of the project and it is divided by the standard deviation we will get
one value. The value is given as the Z statistic. And that Z statistics a will be found out
from the tabular data which is already available with us. And corresponding to the Z
value we can see that what is the probability of completion of a project within the
specified time.

So, mathematically we have to find out the Z value and from that Z value just we have to
look at the table which is available in almost all books related to operations management
related to CPM and PERT from there we from z we can correlate what is the probability
of completion of the project. So, this is simple statistics we will try to use this formula in
our calculations and find out and learn that how the values come from the network and
how we use them using this formula. Sigma is you can say summation of the variants for
each activity and then square root of that will be giving us the standard deviation.

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(Refer Slide Time: 27:41)

Now, probability how we will calculate this data is available Z equal to 0 probability 50
percent and accordingly we can see based on the value of Z. We can get the probability
we will use it in our calculations when we solve the problems for PERT.

(Refer Slide Time: 27:59)

Now, this is one simple example just to end today’s session, how to draw the network is
known to all of the learners now here we see there are 1 2 3 4 5 and 6, 6 nodes are there
1 2 3 4 5 6 activities we have here. So, you can see activity 1 2 there are 3-time

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estimates. The pessimistic time is 1 the most likely time is 2 and the pessimistic time is 3
and we can calculate for this activity that what is the expected time using a formula.

(Refer Slide Time: 28:31)

Now, expected time for activity 1 2 is the optimistic time plus 4 times the most likely
time plus pessimistic time divided by 6 it comes out to be 2. And the standard deviation
can be calculated by the pessimistic time minus the optimistic time divided by 6; that is
0.33.

te 1-2 = to + 4 tm + tp/6 = 2
 = tp - to/6 = = 2/6 = 0.33

to = 1
tm =2
tp = 3

So, we have calculated the standard deviation for one particular activity we have
calculated the expected time based on the 3-probabilistic time estimates for one activity.

Similar, calculations will be done for all the other activities then we will calculate the
standard deviation summing up all the activities that lie on the critical path and finally,
we can calculate the Z statistics and then from the table we can see that what is the
probability of completion of a project within the specified time.

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So, with this we conclude today’s session in next session we will discuss the problems
related to the PERT technique of project scheduling.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 37
PERT Problems-I

Namaskar friends. So, we are currently in the 8th week of our discussion on the topic
Operations Management, and today is 37 sessions in which we are going to cover the
PERT problems.

In our 8th week our focus is on project scheduling or project management using the
concept of PERT. In last week we focused on critical path method usually we call it is
CPM and we try to solve different problems using the critical path method. We have
seen that how to construct a network based on the information available with us. We
have also seen what is the Fulkerson rule for numbering of nodes. We have seen that
how are critical path can be calculated, how the early start late start at every node can be
calculated, how early finish late finish early start late start can be calculated, how we
undergo or how we perform a forward pass, how we perform a backward pass, what is a
critical path, what is the importance of critical path. So, with all that background we are
now trying to understand the problem where an element of probability is also introduced.

So, the overall objective of using a network is the same. In CPM also our objective is to
find out that how much time this project will require which are the critical activities in
the project on which we need to focus our energy as well as our attention then, how we
can manage our resources, how we can allocate our resources in order to complete the
project well within the stipulated time. So, same objectives we have in case of PERT
also. In PERT also we construct a network we try to find out the critical path, we focus
on the critical activities, we try to find out the probability of completion of the project
because now here there is an element of probability.

Every activity as we have seen in the previous session has got 3 time estimates. We have
got a pessimistic time for each activity which is the largest time estimate for that activity,
we have a most likely time and we have optimistic time that is the minimum time that we
feel, that we foresee that the activity may take. So, every activity has got 3 time estimates
and overall project duration will also have a variance because some of you may say that

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if we calculate the overall project duration based on the optimistic time of each activity
we will get smaller project duration. If we calculate the project duration calculating the
only considering the pessimistic time of each activity, we will get a different project
duration. If we focus on the most likely time of each activity and calculate accordingly
we will get different time duration for the project.

So, therefore, there is a variance in the completion of the project time or the project
completion time therefore, we calculate the variance for each activity the standard
deviation is calculated and based on that we find out that what is the probability that the
project will be completed within maybe 2 days of the estimated time or before time or
after time.

Another term that we usually consider in case of PERT is the criticality index. In
criticality index we run the simulations maybe number of times considering different
time estimate for each activity, and then we try to figure out that what all are the
activities that are going to lie on the critical path. Now, suppose we run a 1000 times
simulation program and out of 1000 times there is an activity which is always falling on
the critical path. So, we can say that the criticality index of that activity is one because
1000 times the simulation has been run and all 1000 times that that particular activity has
fallen on the critical path.

So, one maybe to explain that I can just draw one diagram based on which you will be
able to appreciate this concept of criticality index.

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(Refer Slide Time: 04:57)

So, suppose we have a network like this, so in this network if you see we can number the
nodes as. So, if we calculate there are if we see that what are the number of paths
available from the start note to the end node. You can see we start from here and this is
the last node for this project network, and how many activities are there suppose we
number the activities as A B C D E and F. So, we have on this project we have 5
activities, that have to be completed in order to ensure that the project is completed.

Now, we can have time for each activity in case of PERT we will have 3 time estimates
for each activity. For A we will have 3 time estimates one will be the pessimistic time,
then the most likely time and then the optimistic time. So, we will have 3 time estimates
for each activity similarly we will have for B C D and E as well as F, you can see 3 time
estimates for each activity 5 different activities how many combinations are possible
there are a number of combinations that are possible.

So, we can run a program and taking individual time for each activity and find out that
what is the critical path and then we can find out that which activity is lying always on
the critical path. And in this network if you see we can just see the number of paths in
the network we have one path A C E and F we can write it as A C E and F. Another path
can be A D and F, another path can be B E and F. So, I think these are the 3 paths that
are available in this network if we start from A D and F, A C E and F, and B E and F. So,
there are 3 paths only available in this network and you can see that activity F is on all

608
the paths. So, we can say that if we do the simulation using different time estimates for
each activity if we done maybe 500 simulations activity F will always fall on the critical
path. So, the criticality index for activity F can come in the simulation as one or the
highest and the highest criticality index activity we have always to consider we have to
always focus on that activity because any delay in this activity will delay the overall
completion of the project.

So, whenever there is an element of probability involved in each and every activity of the
network it is very difficult to calculate the overall project duration and that is why
sometimes we take help of the computational tools to run the programs and try to see that
which all activities are lying on the critical path, or in other words we can say that what
are the activities which have the maximum probability of falling on the critical path. So,
that we focus only on those activities in order to ensure the completion of the project
well within the stipulated time. So, this is just one example to emphasize the importance
of these 3-time domain or these 3 time estimates that we take in case of PERT for each
and every activity.

So, similar type of problem we will try to cover today in our discussion and try to figure
out that how we can calculate the probability of the completion of a project within a
fixed time domain. We can see that the probability will keep on changing as you keep on
changing your expected duration of completion of project. So, first we will calculate the
estimated duration of completion of project that will be based upon the estimated time
for each activity.

If you remember in the last session we have seen that based on these 3 time estimates
that is t pessimistic, t most likely and t optimistic. So, the where 3 time estimates t
optimistic most likely and t pessimistically calculate unexpected time for each activity
and based on the expected time for each activity as we do in deterministic time estimates
in case of CPM we will calculate. What we are going to calculate? We are going to
calculate the overall project duration and based on that we will then further find out the
probability of completion of the project maybe 2 weeks prior to or 2 months prior to or 2
days prior to or 2 hours prior to whatever is the time unit we have taken completion of
the project. For example, the estimated time for completion of the project is 24 days.

609
So, we will we can calculate as we have seen in the last session what is the probability of
completion of the project within 22 days or what is the probability of completion of a
project within 26 days. So, that probability we can very easily calculate because PERT as
I have told earlier his probabilistic in nature. So, with this background and the emphasis
on free time estimates and the element of probability involved in estimating the overall
project duration I think the concept of criticality is very important at that I have tried to
explain today. Rest the mathematical part of the calculations are easy and can be done
and by all the learners. And why do we need to do this type of calculation because
always we need to focus on the critical activities to in order to ensure the timely
completion of the project.

So, let us know run through our presentation for today and try to understand one simple
problem related to PERT.

(Refer Slide Time: 12:20)

Friends let us take an example on your screen you have one example in which it is a
small project that is composed of the following activities whose time estimates are given.
So, you can see the easiest way of drawing any network is that we know the nodes the
start node and end node for every activity. So, this is an easiest way as in case of critical
path method also. We have seen this way of representing our network.

Also we have seen that there are 2 major ways of representing any network, one is
activity is on the arrow, another one is activity is on the node. So, here in this case 1-2

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this is 1 2 is the activity, the 1 and 2 represent the node that 1 is the start node, 2 is the
end node for the first activity. Similarly, 1-3 is another activity starting at 1 and finishing
at node 3. This is one easiest representation because when we have the precedence
relationship given we have to first construct the network satisfying all the precedence
relationships. So, that additional job is added for constructing the network and
sometimes we have to use the dummy activities also in order to ensure the logic of
precedence relationships. But this is a simplest way of representing network and it is
easy to construct the network as in this case.

So, how many activities are there we can count? You can see that there are 7 activities in
this project. So, we have the optimistic time, the most likely time and the pessimistic
time for each and every activity and these 3 time estimates we are going to make use of
when we are going to calculate the estimated time for each activity. And if you
remember in the previous session we have taken that estimated time te is equal to to plus
4 times tm plus tp divided by 6 where to is the optimistic time, tm is the most likely time
and tp is the pessimistic time, so to plus 4 times tm plus tp divided by 6. So, these 3 time
estimates we are going to convert into the estimated time for each and every activity and
based on that we will calculate the critical path for the activity and then we will see that
what is the probability of completion of the project within that stipulated or calculated
time which we have calculated from the critical path.

(Refer Slide Time: 15:07)

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So, we will have a problem at hand now, now what is the problem. One is the
information that is available with us in order to explain it in the most simplified manners
we have taken a network in which the node numbers are already given the activities are
being represented by the start node and end node.

So, there is no problem, but so ever in constructing the network it is easy to construct the
network. Similarly, the 3 time estimates are also given. So, based on that what is desired,
but we need to calculate. So, we need to calculate 3 things here. What is the probability
that the project will be completed under 3 different conditions? So, first is at least 4
weeks earlier than the expected time. So, friends from where we will get the expected
time, expected time as I have already told you we have 3 time estimates from these 3
time estimates for each activity we will calculate the expected time.

So, now we will have 7 time estimates only because our project consists of 7 activities.
So, for each activity we will calculate the expected time. How we will calculate? All of
you know the formula. for calculating the expected time. Now, once we have calculated
the expected time for each activity now for 7 activities we have 7 expected time, now we
will see what are the different paths in the networks based on that we will calculate the
critical path. And once we know the critical path we can very easily find out or we will
be very easily able to establish that what is the expected time. So, our first job will be to
calculate the expected time now the first question is that what is the probability that the
project will be completed at least 4 weeks prior to or earlier than the expected time that
we have calculated from the critical path.

Second problem, not more than 4 weeks later than the expected time. So, we have
expected time. We wish to calculate that what is the probability that the project will be
complete 4 weeks before the expected times. What is the probability that the project will
be completed at least 4 weeks after the expected time? And the third problem at hand is
that find the project duration at 95 percent probability, that how many weeks will or how
many hours it will required in order to in this case our problem is in weeks. So, here we
are dealing with week sorry I initially mentioned hour. So, we have to see that how many
weeks are required in order to ensure that 95 percent probability is there for completion
of the project.

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So, we can see that now we can calculate different things related to the project duration
and why means another thing that comes to my mind is what is so important about the
project duration. Mathematically it is easy all of you have understood that we can we
have a piece of information a tabular form of data available with us based on that we
draw a network, based on the network we do some arithmetic or mathematical
calculations and we find out that what is the critical path. Then in case of PERT as I have
drawn the diagram this network and shown that there are a number of permutations and
combinations possible, there is variance, there is standard deviation related to the
completion of the project because here we are not having deterministic time estimates for
each and every activity we have probabilistic time for each and every activity. So,
therefore, we need to calculate that what is maybe probability of completion of the
project.

So, mathematical whatever I have stated is absolutely correct, but as a decision maker as
a strategist how I can make use of all this mathematical calculation that is the most
important thing. Once I know the critical path first and foremost thing is all my energies
must be focused on that critical path or the activities that are lying on the critical paths.
The second most important decision is that when you are in business you will be focused
on both the ends, you have to deal with your raw material suppliers with your vendors on
the other side you have your customers, you have your dealers, you have your retailers,
so you are pressed from both sides.

So, in overall business cycle we must know that what is going to be our project duration.
And once we know that we can negotiate, we can do hard negotiations with our vendors,
we can be very confident with our customers with our dealers with our warehouse
managers because we know that as per my calculation as per my mathematics the project
must be completed there is 100 percent probability that the project will be completed
within this many number of weeks or this many number of months.

So, it is not just a number it is basically going to help us in formulating our strategy
related to management of our overall operations within the organisation. So, we must not
just see that some mathematical calculations we are doing and how these are going to
affect the operations. So, we must address and we must understand that this is not purely
mathematics that is this is going to help us in our decision making related to the
operations management.

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So, here I have tried to emphasize on the importance of these probabilities that is what is
the probability of completing the project 4 weeks before the expected time, what is the
probability of completion of the project 4 weeks after the expected time or estimated
time. Then if we want to ensure that I have to be 100 percent sure that the project has to
be completed what is the duration for ensuring maybe 98, 99, 100 percent completion of
the project. So, that number of weeks, number of months we can also calculate
mathematically.

So, here we have a problem at hand where we have 3 different calculations to be done.
So, first and foremost when you have a project data available with you, you have to
construct a network.

(Refer Slide Time: 22:06)

So, here, this is first stage because as we have seen each and every activity in case of
PERT will have 3-time estimate, based on those 3 time estimates we will calculate the
expected time for each and every activity based on the formulation of formula that we
have seen in the previous session. So, that formula is being used here that is tp plus 4
times tm plus to divided by 6. So, based on that we calculate the expected time for each
activity and similarly we calculate the standard deviation for each activity. So, this table
is showing you expected time and standard deviation for each activity.

And why standard deviation is being calculated? Because if you remember in the
previous session we have scenes in order to calculate the Z statistics, we require the

614
standard deviation, we require the expected time of project completion and we require
the expected time plus we also require that the time for which we want the project to be
compared that what is the probability that the project will be completed within 28 weeks
or 30 weeks as in our case we have to first calculate that what is the expected time for the
completion of this project.

So, first and foremost we have to calculate the expected time for each activity, standard
deviation for each activity, then we have to network we have to construct this is a most
simple form of the network as the node numbers are already known to you 1-2, 1-3, 1-4,
3-5, 5-6.

(Refer Slide Time: 23:45)

So, this is we can calculate and then we can very simply see is like the easiest method of
finding out the critical path if we do not want to go into the calculations of early start,
early finish, late start, late finish, we can calculate for the different path what is the time
required, so 1 to 5 and 6, 2 plus 1, 3 plus 7 10, 1-3-5 and 6, 6 plus 4 10 plus 7, 17; 1-4 6
3 plus 5, 8. So, we see 1-3-5 and 6, 4 plus 6 plus 7, that is 17 is a longest path, 1 3 5 and
6 does becomes the critical path and expected time for completion of this project is 17
weeks.

So, first thing we have already done what we have done first we have calculated the
estimated time or expected time for each activity, then we have constructed to the

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network based on the expected time for each activity we have calculated the critical path
and our critical path has been highlighted here 1 3 5 and 6 and the time is 17 weeks.

(Refer Slide Time: 25:00)

So, this is our critical path 1 3 5 and 6.

(Refer Slide Time: 26:03)

Now, this formulation we have seen in the previous class Z statistic is equal to x minus
mu divided by the standard deviation, x and mu you know. So, we calculate the sigma
net which is a summation of maybe the standard deviation of the activities that are lying
on the critical path. So, for a first problem was that we have to calculate that 4 weeks

616
prior to the completion or prior to the expected time. So, 4 weeks prior to the expected
time of project completion of project completion as per our critical path we have seen the
expected time is 17 weeks. So, 4 weeks prior to that is 13. So, 13 minus 17 divided by
the standard deviation of the project of the activities submission of standard deviation of
the activities lying on the critical path which comes out to be 3, so 13 minus 17 divided
by 3. So, the Z statistic, that is Z, x minus mu divided by standard deviation.

net = √Ɛ² = 3
Z = x - / network

So,  is our expected time, x is our variables which we have taken 4 weeks prior to the
expected time that is 17th. So, 13 minus 17 divided by 3 comes out in minus 1.33. So,
hence the value of Z from the distribution curve from the data table is 0.0918 percent.
So, the probability of completion of project in 13 weeks is 9.18 percent only. So, we
have calculated that expected time is 17 weeks, we are calculating the probability for
completion of the project in 13 weeks which is 9.18 percent only.

Now, suppose we have to calculate 4 weeks after the expected time, expected time
remains same that is 17, 4 weeks after mean 17 plus 4, 21 weeks, so 21 minus 17 divided
by 3, it comes out to be 1.33.

(Refer Slide Time: 27:08)

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(a) 13-17/3 = -1.33
(b) 21-17/3 = 1.33

And I must say that is divided by 3 is for overall 21 minus 17, it is not 21 minus 17
divided by 3, this is 21 minus 17 that is equal to 4 divided by 3 which comes out to be
1.33, as you can see in this formulation here x minus mu divided by the standard
deviation.

So, the x minus mu value has to be divided by the standard deviation. So, here 21 minus
17, 4 divided by 3, 1.33. Hence the value of Z from normal distribution curve is 0.908
corresponding to the Z value of 1.33. So, probability of completion of project in 21 is
90.82. So, you can see that once we are trying to shorten the duration from 17 weeks to
13 weeks we are getting 9.18 probability only, but when we are extending the project
duration from 17 weeks to 21 weeks we are getting a higher probability of completion of
the project that is 90.82.

(Refer Slide Time: 28:24)

And the last problem is we have to calculate that, what is the duration, what is the
expected duration of the project so that 95 percent probability is there for the completion
of the project. So, for 95 percent from the normal distribution curve we can calculate Z
value must be 1.65. So, in the previous to A and B problems we were actually calculating
Z and then seeing in the table that corresponding to that Z value that we have calculated
what is the probability. Now, here probability is given to us we are doing the back

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calculation based on 95 percent probability we are doing the reverse calculation what is
the value of Z.

Hence value of Z from normal distribution curve for 95% probability = 1.65

1.65 = (X – 17)/3, X = 22 weeks

So, in this case that is known to us the expected time that we have calculated from the
critical path, 17 is known to us standard deviation, for the activities on the critical path is
known to have summation of standard deviation. So, we have out of the 4 things Z, x,
mu, and the standard deviation; in this case Z is known to us we have to calculate the
value of x because mu and standard deviation is already known to us. So, from here we
can very easily calculate x, x minus mu that is expected time 17 days divided by 3 here it
is correctly represented bracket is there, x minus 17 divided by standard deviation equal
to corresponding to 95 percent probability that Z value is 1.65. And from here we can
calculate the x is equal to 22 weeks. That there is a probability that if we are given 22
weeks we will be able to complete the project 95 percent probability is there that a
project will be completed in 22 weeks.

So, you see that when we are reducing the project duration we are seeing what is change
in probability, when we are giving more time than the expected time the probability of
completion is increasing. And further x is increasing, so last calculation that we have
seen for x is equal to 21 days we have seen the probabilities, approximately 90 percent.
But here we are seeing that is further one additional week we spend the probability
increases to 95 percent. So, PERT can give us a probabilistic estimate of completion of
the project and this can be helpful for the managers of an organisation to plan their
operations accordingly.

So, with this become to the end of today’s sessions. In next session we will try to address
a different problem based on PERT.

Thank you.

619
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 38
PERT Problems-II

Namaskar friends, welcome to session 38 in our course on Operations Management and

in the 8th week of our discussion our focus is on solving the PERT problems. So, as all
of us have understood by now that CPM and PERT are two important networking tools
that are used for project planning and control. So, we will see today that how we can
solve a PERT problem.

In the last class or in the last session if you remember we have taken fairly simple
problems in which there was a network the node numbers were already specified and the
activities can be easily drawn with the help of the start node and the end node. Today our
focus will be to look at a different type of a network in which there is a list of activities
and then there is a precedent relationship or the immediate predecessors of the activities
are given, the time is given we have to construct a network first and then we have to see
that how we can do the calculations. I will show the problem statement and then maybe
take a little bit break in order to see that how all of your able to draw the network. We
have to do lot of practice and rough drafts have to be made may be by pencil we can
draw number of times and try to see that whether all the constraints in terms of
precedence relationship are satisfied.

Initially we can be liberal with the use of dummy activities, but at later stage we have to
minimise the use of dummy activities and still established the precedence relationship or
the logic in the network. So, we will see that how the network has to be constructed.

Once the network is ready then the calculations are the simple calculations as we have
seen in the previous class also. And if you remember I have emphasized an important
point of criticality index again I am emphasising that in case of PERT because we have 3
different time estimates for each and every activity that is the optimistic time, the most
likely time and the pessimistic time therefore, there is a variance involved in the
completion of the project. Just to reiterate the point that I have already discussed in the
previous session that if we take the optimistic time estimate for each and every activity

620
consisting of a network we will get one project completion time which is based on only
the optimistic time of each activity.

On the opposite side suppose we take the pessimistic time of each activity and then we
add this pessimistic times of all the activities on the critical path we will get the project
duration for a network which will or for the project which will be entirely different from
the optimistic time calculations. Therefore, we calculate a expected time based on a
formula which all of you by now might have memorized that is t expected is equal to t
pessimistic plus 4 times t most likely plus t optimistic divided by 6. So, we try to convert
a PERT problem into CPM problem maybe that is an analogy that I am drawing by
bringing down these 3-time estimate into a single time estimate which can be used for
calculation of the project duration or to find out the longest path in the network.

So, the point here is that since there are 3 time estimates involved for each activity we
have got a variation in the project completion time and how and what decisions we can
take based on this network or what is the overall objective of drawing this network. So,
the overall objective is to find out that which activity is dependent on which other
activity or what other activity that is one thing already that is known to us in the form of
the problem statement. But other important information that we deduce from a network
is that when how maybe at what particular duration the activity will start when it will end
when the two activities can start which are starting from the same node so that kind of
information we can deduce.

But the most important information as far as may be networking is concerned is that we
are able to focus on the critical path which is very very important. We have to focus on
the critical path again and again I am emphasising the same thing that if we linger on the
critical path if we delay any activity, if we are not able to complete the activities that are
lying on the critical path as per the planned time duration of the normal time duration for
that activities the project will get delayed and if the project will get delayed we may have
to incur the penalty cost or we may have to pay the penalty cost which none of the
companies want to pay.

One thing is that it may lead to escalation of the project costs the other thing is the brand
of the company may be is also tarnished or has to be taken for a beating. So, may be the
brand also, the brand name also gets some beating and then otherwise also you have to

621
enter heavy penalty cost. So, why a company would like to overall delay up delivery of
the project of the overall delay the completion time of the project. None of the company
wants that and there is the importance of the critical path that these activities that are
lying on the critical path cannot be delayed otherwise the overall project duration will get
delayed that is the summary that we get from a network. Other things also maybe
secondary things also we can deduce that is what are the activities which we can
rescheduled. So non critical activities can be rescheduled as per the requirement. So,
number of decisions can be taken based on the network.

Therefore, whenever there is a variance, whenever there is a range in which the project
may get completed we try to figure out the criticality index of each and every activity
and by running the iterations maybe if it is construction project thousands of activities
may be involved. So, we cannot do manual calculation. So, we can run a program which
can see based on take the random times for different activities to suppose there are 570
activities, each activity having 3 time durations that is the pessimistic time, the optimistic
time and the most likely time.

Now, the software can randomly pick and choose the times estimates for various
activities and draw the critical path and then it can be seen that there may be a few
activities which are always lying on the critical path. So, we as managers, as decision
makers, as strategist have to focus on those critical activities that are falling on the
critical path most of the time because if these activities get delayed our overall project
duration will get delayed or our overall project duration will increase and the completion
date will get delayed and that is what we think we must be able to avoid.

Therefore, we these days we are taking help with taking the help of high end
computational systems for running, these types of simulations to see that what are the
activities that are lying on the critical path. And if you see the previous session that is
session number 37 we have drawn one network on the white board and seen that one
activity is there that is always going to be critical for the completion of the project. There
maybe 2 or 3 parts in that simple project, but one activity is very critical and it will
always lie on the critical path. So, as a project manager or as a project scheduler I must
focus on that activity. So, that the overall project is completed within the defined
stipulated time.

622
So, I think today again I have revised the important concept of critical path and we will
see one simple problem today in which the activities are given the precedence
relationship or the immediate predecessors for the activities are given the pessimistic
most likely and finally, the optimistic time is given. And we have to draw a network
based on the precedence relationship and then do the calculations to find out that what is
the probability that a project will be completed within a specified time.

So, let us start the discussion now and see the problem. So, we have a problem statement
here. So, I will read the problem statement for you.

(Refer Slide Time: 10:39)

Find out the probability of completion of this project in A 24 hours in B 22 hours. So, we
have two time durations mentioned here and we have to see that what is the probability
that this project will be completed in 24 hours or what is the probability that this project
will be completed in 22 hours.

The project statement is mentioned you can see we have here eleven activities A B C D
E F G H I J K. So, 11 activities have got their immediate predecessor also. A and B has
no predecessor I am reading it for you I wish that all of you have a pencil and a white
paper and you are trying to draw this network. So, we can see A and B can start from the
same node because they do not have any predecessor or precedence relationship.

623
Now, A and B can start from the same node and you can see C and D both are dependent
on A. So, wherever is ending from that node we have to start two activities that is
activity C and activity D as well as activity E also, C D and E we can draw a network
and we can do the practice of drawing this network that A B no precedence relationship.
So, A and B can start from node 1. Now 3 next 3 activity C D and E must start when A
has been completed. So, they can start from A end node of activity A. Similarly, F
depends upon B and C. So, from second node we have drawn activity C where ever C is
ending we can take the activity B to that node and from there activity F can start because
F can only start once B and C are completed or have been completed.

Similarly, from the same node G can also start because G is also dependent upon B and
C, and similarly H and I can be taken into account because both are dependent upon E
and F activity. I am reading this with this notion that the learners who are listening to this
session will be drawing the network simultaneously. So, you can just do little bit of
practice of drawing this network and if you are able to draw it successfully it is good for
you and me as well as a teacher that whatever we are discussing. The learners are
attending to that and they are able to draw the network or to convert this information into
a network. So, based on whatever precedence relationship is mentioned on this side all of
the learners must be able to draw a network. If you are not able to draw a network it is
not that you will never be able to draw a network, it requires practice and we are in this
short duration of 2 3 4 hours may not be able to take lot many problems, but what you
can do you can take any good book on project management and try to practice maybe 8
to 10 different problems and try to construct a network.

Specifically, with the precedence relationship and specifying the logic in the network
that specific activities are dependent on their predecessor activities or proceeding
activities. So, based on that information you must be able to draw a network. So, by now
I think looking at the information available most of you might have been able to draw the
network. So, once we are able to construct the network as is clear to all of you that in
case of PERT we have 3 time estimates, we have times pessimistic time, most likely time
and optimistic time.

So, let us take at least one example for activity E the optimistic time is 2 hours the most
likely time is 4 hours and the pessimistic time is 6 hours. Similarly, for activity K the
optimistic time is 3 hours, the most likely time is 5 hours and the pessimistic time is 7

624
hours. So, I am not here again going to define the optimistic most likely and pessimistic
time because the terms have already been defined in our earlier sessions when we started
our discussion on PERT. So, this is the basic slide or basic questions that you will find in
the question paper or in the industry when you have to sort out our problem.

In industries one more column will be added here that will be the description of a
activity. If you are using PERT or CPM on industrial scale, there will be another column
that will be giving you the description of the activity. The description can be, suppose we
are constructing a house. So, A can be the purchase of land or it can be A can be suppose
the land is already available as datum condition as a basic condition is already known.
So, what we can do? A can be the construction or we can say the starting point for laying
the foundation for the house.

Next, B can be erection of wall. So, there will be some precedence relationship among
the activities, description is already known to you, the name of the activity is known the
predecessor relationship is also known the time estimates because we are constructing a
house let me ask you a question which type of network will be used for constructing a
house, it will be a CPM or a PERT network. Just think over it. So, if you have been able
to differentiate between CPM and PERT all of you must be able to answer that wherever
the times are deterministically known, wherever we have prior experience of executing
similar type of project times can be ascertained with certainty.

So, we know that the erection of walls of this much height, with this much thickness will
require this much time. So, time is known with certainty in those types of situations we
will be going to focus on CPM. But wherever there is a probability we are not sure about
the time estimates in those cases we will go for PERT. So, if you see the example that I
have taken that is the description is given for construction of a house all of you must be
able to answer that it will take we will make use of a CPM method for doing the
calculation because time can be estimated with fair degree of certainty or with fair
degree of confidence.

So, but here today we are discussing a PERT problem. So, this is the basic structure of a
problem that will be known to you what you have to calculate the 24 hours what is the
probability of completing this project and in 22 hours what is the probability of
completing this project. So, I think I have taken a fair amount of time to allow all of you

625
to just drop this network. So, if you have been able to construct the network, you can see
this is the network that must be constructed.

(Refer Slide Time: 19:11)

You can see the activity A is the predecessor for 3 activities, it is predecessor for D. So,
you can see after node 2 D is starting, similarly it is predecessor for E. So, you can see
from node two E is starting it is predecessor for C. So, you can see from node 2, C is also
starting. So, C D and E all these are successors of activity A, and A and B have no
predecessor. So, you can see A and B there is no predecessor for activity A and B. And B
and C are predecessors for activity F and G which is known to you and for H and I your
E and F are the predecessors you can see for H and I, E and F are the predecessor.

So, I think we have been able to construct the network successfully and now we can
calculate, what we have to calculate? The critical path. So, what we need to do? We need
to calculate as we have seen in case of CPM first we need to see that what is the expected
time for each activity.

626
(Refer Slide Time: 20:34)

So, we can calculate the expected time for each activity by using the formula which we I
have already said in today’s session also tp plus 4 times tm plus to divided by 6; to is the
optimistic time, tp is a pessimistic time, tm is the most likely time. So, using this formula
we can calculate the expected time and we can calculate the standard deviation and
variance for each and every activity. So, we can first calculate the various and
accordingly calculate the standard deviation which is simple mathematics. So, we can
calculate for each activity the expected time and the standard deviation and variance.

Network already we know and then we can do the calculations we can perform a forward
pass we can perform a backward pass for each node we can calculate the early start time,
the late start time and from there we can calculate that where which are the activities for
which there is no slack available which cannot be rescheduled or for which the slack is 0,
we can calculate the critical path. The other method can be we can list down all the paths
that are there or that exist in the network from the starting node as I have already told in
one of our previous sessions that most of the students commits this mistake that they
leave the network incomplete. So, for a complete network we have to ensure that there is
single start node and there is a single completion node or the last nodes.

So in our network if you see the start node is node number 1 and the ending node is node
number 7. So, within 1 and 7 between 1 and 7 we can see that what are the paths that are
available. So, you can see 1 2 5 and 7 is one path, 1 2 4 5 and 7 is another path, 1 2 4 6

627
and 7 is another path, then 1 3 4 5 and 7 is another path, then 1 3 4 6 and 7 is another
path. So, we can write down all the paths and do the calculation, calculate the number of
days required for the completion of each path and the maximum value will give us the
longest path and which will be the time required for the completion of the project or the
minimum time required for the completion of the project. So, that also we can calculate.

So, here we can see our expected duration for the project is coming out to be 23 hours.
So, let us see that how we can arrive at this value. We can arrive at this value if we see
the path 1 2 5 and 7 it is 6 days plus 5 days plus 3 days that is 6 plus 5 11 plus 3 14.
Similarly, 1 2 4 5 and 7, 6 plus 4 10 plus 6 16 plus 3, 19, so 1 2 4 6 and 7 6 plus 4 10
plus 5 10 plus 5 plus 5, 15 plus 5 20, so if you see 1 2 3 4 5 7 6 plus 3, 9 plus 4, 13 plus
6, 19 plus 3, 22.

So, if we calculate for each and every path we can find out that which path is giving us
the maximum duration. So, maximum duration can be in number of hours, it can be
number of days, it can be number of weeks, it can be number of months whatever is the
time unit that we have selected for constructing our network. So, in our case our critical
path is coming out to be 1 2 3 4 6 and 7, so activities A C F I K.

(Refer Slide Time: 24:45)

So, I will again go back to the network A C F I and K. So, we can see activity A 6 days,
activity C 3 days, 6 plus 3, 9, F is 4 days. So, it is 6 plus 3 9 plus 4 13, activity I is 5
days, 13 plus 5, 18 plus K is 5 days 23. So, this is A C F I K is the longest path. So, we

628
can see A C F I and K is giving us the critical path that is 23 hours sorry I think I have
said days. So, our current project is in hours. So, it is 23 hours, 6 plus 3 plus 4 plus 5 plus
5 activities A C F I and K is our critical path in this network.

And similarly if we do the calculation in the tabular form early start, early finish for each
and every activity we can see activity A, slack 0 C, slack is 0 F Slack is 0 H, sorry I slack
is 0 and K slack is 0. So, A C F I and K is our critical path so that path for which our
slack is 0.

(Refer Slide Time: 26:07)

This is a critical path. So, now, as we have seen this formulation in the previous class
also we have to calculate that what is the probability of completion of this project in 24
hours, what is the probability of completion in 22 hours.

629
(Refer Slide Time: 26:22)

So, using the standard formulation on your screen you can see first we have to calculate
the Z statistics, this is Z statistics x is going to be our expected duration, mu is giving us
the duration that we have calculated from the network, x is what is the problem statement
that whether it is 24 or it is 22 or it is 28 hours or it is 30 hours. So, whatever is given to
us for which we want to check the probability x is going to give us that value. Mu is
what we have calculated from the network and this is a standard deviation of the network
that is for the critical path we will calculate that what is the summation of the standard
deviation for the activities lying on the critical path.

So, in this problem this sigma square, square root of this summation of sigma square
sigma net is coming out to 1.414. So, we have to check for 24 hours. So, 24 hours minus
our expected duration is coming from the critical path that we have drawn the network
and done the calculation, so 24 minus 23 whole divided by our standard deviation of the
network. So, it is 1.414 and that network I mean to say the critical path of the network
that is coming out to be 0.71. So, the first we have to calculate the Z statistic and from
there the value of Z when we see in the table we see corresponding to Z equal to 0.71, we
get a value of 0.7611 which means the probability of completion of a project in 24 days,
sorry 24 hours is 76.11 percent.

net = √Ɛ² = 1.414

Z = x - / network

630
 (a) (24 – 23)/1.414 = 0.71
(b) (22 - 23)/1.414 = -0.71

(Refer Slide Time: 28:50)

So, similarly just we have to change the value of x which is now 22 hours in our next
case. So, when we put this value x is equal to 22 we get a value of minus 0.71 which is
giving us 23.89 percent probability which shows that if we extend the duration by one
day our expected time is 23 days that we have calculated from our network using the
critical path method means the using the calculations based on the critical path. We can
see that the duration when is being extended from 23 we are our probability is higher. If
you are reducing the duration from 23 to 22 the probability of completion of the project
is less.

So, this way we can judge, we can calculate, we can estimate, the probability of
completion of a project by just fine tweaking our expected duration that is we can see
that our as per our network we are getting 23 hours for completing the project; what if
we try to increase the duration what is the increase in the probability or what is a change
in the probability or if we try to reduce the duration what is a change in the probability
and accordingly we can take our decision.

So, with this I think most of you must have been able to know understand and maybe
draw the networks and do the basic calculations based on the networks and at least see

631
that what is the critical path and how we can make use of this information of the critical
path for a specific network.

So, our focus till today has been on time only because in most of the networks you see
we have time based on that time we have done the calculations and figured out, what we
have found out? We have found out the project completion time. In our next session we
will focus on another important that is the cost because every project will involve some
cost and we will focus on the cost calculations related to the project networks.

Thank you.

632
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 39
Time Cost Trade Off (Crashing)

Namaskar friends, welcome to session 39 in our course on Operations Management. And

in the 8th week of our discussion our focus is on PERT and today our focus will be on
time cost tradeoffs which is an important aspect of projects project management.

If you remember in the last 2 weeks our focus has been on project management or
operations management in the form of a project. So, once you define a project we can do
the calculations, as we have seen in our previous sessions in the terms of time as well as
in the terms of cost also. So, whatever examples we have taken till today they were all
related to the time management only. So, in operations management we were considering
project management, in project management we were focussing on time management
only. We have seen that the overall project has to be divided into number of activities
each activity will required certain resources. Now resources can be in terms of
manpower, in terms of money, in terms of cost, in terms of time and whatever
calculations we have done were related to time.

Now, suppose a project as you remember in the previous session we have taken a PERT
problem the project consisted of 11 different activities and each activity had 3-time
estimate, from these 3 time estimates we calculated one expected time for each and every
activity and then we constructed a network and did the calculations and found out the
critical path has the 23 hours. So, that is the calculation related to time that how much
time will be required for the successful completion of this project. Then we identified a
critical path, we also learnt how to calculate the probability of completion of a project
beyond the expected duration of 23 hours or prior to the expected duration of 23 hours.
So, most of the calculations that was done for related to or in terms of the time domain
only.

Today we will focus on slightly different domain that is a cost domain. So, our focus will
be on cost. that what is a time cost trade off. Now what is the requirement of a time cost
trade off, we will try to understand today also we will try to understand that up to what

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duration we can go for a project duration by saving the cost for our organisation and
saving the cost means that there is going to be an optimum duration for which the overall
project cost will be minimum and we will focus on identifying finding calculating
establishing that optimum project duration for which the overall project cost is minimum.

So, there are two things to be clear about is duration in terms of time. So, our focus will
be on finding out how many day, how many hours, how many years, how many months,
is the optimum duration for this project for which the overall project cost will be
minimum. And project cost will consist of the direct cost and indirect cost. So, before
understanding the problem of crashing, now let us first understand the direct cost and
indirect cost and how they vary with the project duration. So, let us first quickly have a
theoretical understanding of the term crashing and then I will try to explain it with the
help of diagrams.

Every activity of the network or project consume certain resources which I have already
explained and it also requires time. So, time is also an important resource hence cost is
associated with it. Now, suppose we are constructing a house we need laying a
foundation we need erection of walls we need flooring we know need roofing. So, for
each and every activity we require cost we require time we require manpower. So,
everything we can be may be taken into one important parameter that can be cost. Now
cost can include the cost of manpower, the cost of equipment or machines the cost of
consultants, the cost of architects, the cost involved in taking the approvals. So,
everything can be added up in the form of a term called cost. So, every activity will have
certain cost involved with it.

Now cost of an activity can be divided into 2 categories. So, we can see direct cost or
indirect cost. So, why we are now focussing on cost because already I have explained in
the discussion part today in our session that we have to find out the optimum duration,
optimum duration or optimum time for a project for which our overall project cost will
be minimum. So, how we can find out that duration is dependent upon establishment of
cost for each and every activity. Now, for every activity we have seen that there is a
direct cost and indirect cost. So, the total cost of the project will be the summation of the
direct cost and the indirect cost.

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Now, in time cost trade off or in crashing, what we are going to do? We are first going to
focus on the direct cost. So, the direct cost it is the cost associated with an activity which
is directly dependent on the amount of resources and time it is the cost of the material
equipment and labour associated with the particular activity.

(Refer Slide Time: 06:42)

So, we can see that direct cost is directly related to the activity. So, direct cost is for an
activity for example, in our previous session we have seen that there are eleven activities
in a project starting from A to I, J and K finally. So, we have seen that we have eleven
activities. So, our direct cost I must address here will be for each and every activity and it
will include the labour cost involve, it will include the machine cost involved, it will
include the material cost involved. So, direct cost is related to each and every activity
and includes for example, materials equipment and labour involved in the project or in
the activity sorry.

Then the indirect cost now we have seen there are total project cost is going to be made
up of the direct cost and the indirect cost. Direct cost is related to each and every activity
and each activity will have a direct cost which will include the cost involved in labour.
material and equipment or the director resources that are being used for the completion
of that activity. Now indirect cost this is a cost associated with an activity which
represent the indirect overhead expenses. So, it is maybe always related to the project
duration and it is calculated usually on per day basis is required to perform the activity

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the expenses may variable or fixed. So, you can see fixed expenses are independent of
time for example, administrative and general expenses the variable or indirect expenses
are time dependent expenses. So, you can have direct or fixed expenses or indirect or
variable expenses.

So, indirect expenses are time dependent expenses. For example, depreciation of
machine or resources interest on capital that we have raised from the market. So, there
are in broad sense we can say two types of costs involved in a project one is a direct cost
of the activity and another one is the indirect cost and we add up these two costs, in order
to calculate the overall cost of the project. So, indirect cost is usually calculated and is
specified in terms of number of days for example, rupees 10,000 per day is the indirect
cost of the project where as for a cost of an activity we will see that if the activity is
completed in normal duration this is going to be the cost. If the activity is going to be
done in a hurried manner or is in a crashed manner, then we will say the cost will
escalate cost will increase. I will draw the diagrams and try to explain this direct and
indirect cost. But right now first question we must be able to address is that what is the
classification between direct and indirect cost and what are the constituents of a direct
cost and what add up to make the indirect cost.

So, in indirect cost just to summarize administrative and general expenses make up the
indirect cost depreciation of machine or resources for the interest that we have to pay on
the capital of the loan that we have taken from the bank. All these will add up to the
indirect cost. For example, suppose we are manufacturing a pencil. So, direct cost for
manufacturing the pencil maybe the wood that we are using, the graphite that we are
using, the shaping of the wood that we are doing the process involved the material
involved the labour involved maybe the direct cost. The indirect cost maybe general and
administrative cost involved it maybe the interest on the loan that we have to pay for
buying the raw materials that we have done that will be the indirect cost. Similarly, the
depreciation of the equipment and machine will also be the indirect cost.

So, again I am emphasising indirect cost is usually represent it some amount or amount
of money per day maybe 10,000 rupees per day is the indirect cost and for every activity
we will have a normal cost and crash cost because we are now studying the concept of
crashing. The crashing means that when we have to reduce the duration of the project we
will have to spend some extra amount of money that basically will be called as the crash

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cost. And the process of reducing the overall project duration is called the crashing
activity in case of project management.

Now, this is a very good depiction of the indirect cost and the direct cost.

(Refer Slide Time: 12:02)

You can see on x axis we have duration of the project and on y axis we have the cost. So,
the indirect cost you can see on your screen is continuously increasing. So, if suppose
optimum is 10 days. So, 10 days this is my indirect cost. But suppose here I have 20
days. So, for 20 days the cost is higher than that 10 days. So, as I have already told it is
given on per day basis. So, if suppose it is 200 rupees per day for 10 days it will be 200
into 10 for 20 days it will be 20 into 10. So, if it is 10 rupees per day 10 into 10 and 20
into 10. So, maybe very easily we can calculate it is suppose x rupees per day. So, for 10
days 10 x, for 20 days 20 x, it is higher as we increase the duration of the project.

But indirect costs if you see suppose here on 10 days this is the indirect cost, but if we
reduce the duration because direct cost we will be incurring for reducing the duration of
the crashing when we are doing we are trying to reduce the activity duration the direct
cost will keep on increasing. So, you can see the direct cost for normal duration is this
much and if we reduce the duration of the activity it is going to increase. So, we have to
focus on our total cost and wherever our total cost will be minimum that duration we will
call as the optimum duration. So, this is optimisation of the construction time, this is time
cost trade off analysis using genetic algorithm, this article the authors name is also given.

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Optimisation of construction time cost trade off analysis using genetic algorithms. So,
this is basically the summary.

(Refer Slide Time: 14:08)

Now, let me just try to explain the concept of the direct cost and indirect cost.

(Refer Slide Time: 14:21)

So, you can see this is cost and this is the activity duration. Now, suppose this is the
normal duration I called it as tn let us take it as small tn this is a normal duration for the
activity and this is suppose the crash duration for the activity and this is the cost on the y
axis. So, suppose this is the normal cost related to the activity and this is suppose crash

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cost related to the activity this point crash cost. So, we can see, normal time, normal cost
this is the point crash time which is certainly less than the normal time and we have to
pay extra crash cost this is the cost this is the point, crash time duration and the crash
cost.

So, what we have where is that when you have to complete in activity in the normal time
you have to spend less, but if you reduce the duration of the time now you have to
complete it in the crash duration. Now, suppose normal duration for that activity is 4
days and crash duration is 2 days. So, you have a gap here of two days available with
you, you can reduce the normal duration by 2 days, but what you have to do you have to
spend more money. So, you could have completed within 4 days using this much this
cost that is a normal cost, but now you are trying to do it in 2 days, but you are doing it at
the additional cost that is a difference between Cc and Cn. So, your direct cost graph
comes like this.

So, here we are assuming that there is a linear relationship for this time cost trade off. So,
this is supposed for activity A, similar type of graphs we will get for all the activities. So,
this type of graph will be possible for each and every activity that we are going to have
in our network. So, for every activity we must now have 4 important data points, that is
for every activity like here we have activity A we must have the normal duration that we
normally have in case of CPM for every activity we have got a normal duration. I think it
is clear to everybody. But in addition to that we must have a crash duration also that
what is the possibility of reducing the duration of that activity.

Similarly, we must have the cost data also that is the normal cost involved for
completing the activity in normal time and the crash cost involved for completing the
activity in the crash duration, why do we want to do crashing that we will see in our
subsequent slide.

So, this representation of the direct cost for activity A now similar types of analysis or
similar types of plots or graphs you can draw for activities B C D and E. Then the other
part is, the other cost element for the project is all of you must be able to prompt now we
have seen the direct cost for activity A now we have to see the indirect cost. So, this is
direct cost for activity you know it is activity A now this is the indirect cost and in this
case here we have the project duration and this is our cost.

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Now, how this will vary? As I have already told you its start from day one and it will be
varying like this. So, maybe for any particular day that is we say tn for the project we can
calculate it suppose it is x per day. So, on the 10th day it will be 10 x, for a 20th day the
indirect cost will be 20 x, x per day is already calculated. So, we can see that we have
direct cost for each activity we have indirect cost, the indirect cost is varying with the
project duration if the at the project duration if you see in our previous session 23 hours
was the project duration. So, here if we do this for hourly basis we can say this much is
the indirect cost per hour, if you do it on a daily basis it can be this much cost per day, if
you do on monthly basis it can be indirect cost is rupees x per month. So, this is related
to the project duration. So, the total cost will be that cost direct cost plus the indirect
cost.

Now, what is our target? Our target is to find out the optimal duration. So, we will see
the optimal duration how we can calculate the optimum duration, optimum duration can
be calculated by plotting a graph like this.

(Refer Slide Time: 21:35)

Now, suppose this is our total cost and this is our project duration how it can be
calculated now. Suppose this is our expected duration of completion of the project. So,
suppose this comes out to be 24 days this value is 24. So, for 24 days we will do this
calculation this point is giving us the summation the total or sum total of the direct cost
and the indirect cost for 24 days. Now, we will see what all activities we can crash

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because the graph that I have drawn here earlier similar graph will be drawn for each and
every activity no need to draw the graph we can directly do the calculation we will see in
our problem that how we can calculate when we have all these 4 values a normal
duration crash duration normal cost crash cost for every activity we can calculate the cost
slope for each and every activity.

Now, what all activities we have to focus? We have to focus on the critical activities only
of the activities that lie on the critical path because that is the longest path. So, if we
want to reduce the duration of our project we have to focus on the critical path so that
when the duration of the critical path will reduce the overall project duration will reduce.
So, now, in our case our critical path is of 24 days for example, now suppose you want to
complete the project in 23 days we will crash any activity that is lying on the critical
path.

Now, suppose we reduce the duration of activity A by one day this is my cost, because
now my earlier suppose this was the cost involved for 24 days indirect cost now I am
able to complete the project in 23 days. So, the project cost will automate the indirect
cost of the project is being reduced, but if you remember the direct cost will increase as
we have drawn a graph earlier. So, there is an increase in the direct cost of the project,
but there is a reduction in the indirect cost of the project. So, what we have to do? The
word trade off, we have to do a trade off we have to see that whether the overall project
cost this is a total cost overall project total cost is a total cost is reducing we will crash
the activity. But in case the total cost is increasing suppose we reduce from 24 to 23 days
and this is my cost over project cost then there is no need of going for this crashing
activity.

So, we will crash the activity only if there is a reduction in the overall project cost we are
doing a trade-off between the reduction in the indirect cost at the cost of increase in the
direct cost. So, if you remember the previous graph that I have drawn for the direct cost
all of you must remember that there was a normal duration the cost was less the crash
duration the cost was more. So, if a crashing activity A, we have to spend more money,
but by reducing the duration of the project by one day we are saving some money here.
So, we will do a trade off between the two, we will see that the overall project cost is
reducing. So, we will go for that crashing activity may be further we can come down to

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22 days also and then this graph may take this form. So, we will say this is my optimal
project duration after that the cost of the project has started to again increase.

So, what is my focus area? My focus area is the optimum duration of the project for
which the total cost is minimum. So, this is the duration that we have to calculate. So,
maybe why crashing is required quickly we can go through that project completion times
may need to be shortened because of different situations that different deadlines, we have
to change the deadlines because of certain problems. There are penalty clauses involved,
so we are delayed in the completion of the project because of some miss happening or
because of some accidents or because of some inevitable delays so the penalty clause is
kind of threatening us.

So, what we need to do? We need to crash we need to do the activities quickly, we need
to spend more money increase the direct cost or cost of crashing, but at the same time we
save some money from the indirect cost also. So, the penalty clause also sometimes leads
to the crashing of the activities and sometimes we need to put resources on a new project.
So, that is again one reason for which crashing may be required promised completion
dates we have a commitment to a company that we will be able to deliver the product by
a specific stipulated date and we have to meet the deadline and therefore, sometimes we
may need to go for the crashing activities that is the reduction in the project duration
time. So, the process of reducing the project completion time is often called as crashing.

So, I think I have been able to explain the concept of crashing in today’s class. And in
next session which will be the last session for week 8 our focus will be on the numerical
problems related to crashing because it is difficult to understand the concept, but it is
easier to understand it with the help of a numerical or a mathematical problem.

So, next session our focus will be on two mathematical problems of different types and
we will try to understand this concept of crashing.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 40
Project Network: Crashing Problems

Namaskar friends. So, finally, today we are at the end of eighth week of discussion and
the last session today is focused on the problems or the numerical problems associated
with crashing of the networks. Just to have a brief preview of what we have already
covered we have seen the different types of network, we have seen critical path method,
we have seen PERT that is program evaluation and review technique, we have seen the
difference between CPM and PERT.

We have seen how to construct a PERT network we have seen that there are probabilistic
time estimates in case of PERT and therefore, there is a variance associated with the
project completion time, we have also calculated the probability of project completion
time in context of the time duration of the project that is expected time duration that can
be calculated from the critical path that if we extend the duration; what is the probability.
If we reduce the duration, what is the probability of completion of the project network?
In the last session, I think I have tried to explain the concept of crashing.

So, crashing is the process of reducing the duration of the network in case of exigencies
or in case of special circumstances in many cases, we need to reduce the project duration
because of number of issues the one of the issues can be the penalty clause the other
issue can be that project being delayed because of some inevitable circumstances. So, if
our overall project is getting delayed we try to bring the project on track by reducing the
normal duration of the various activities we have seen that for each activity we must
have 4 data points. Now as for the previous networks that we have drawn where our
focus was primarily on time, we needed to have only one-time estimate for an activity or
only that time data for activity in case of PERT we had 3 time estimates for an activity

But now we are focusing our attention on the time cost trade off of a project network. So,
we require time also as well as we required the cost data also in order to do our analysis.
So, from time point of view we require the normal time for each activity, we require the
crashed or the crash duration for each activity. Similarly, we require the cost involved for

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completing the activity in normal duration and the cost involved for completing the
activity in crash duration. So, now, for time cost trade off in case of network for every
activity we require normal time, crash time, normal cost, crash cost see also we require
the indirect cost also for the project duration which I have shown is given in x per day
your x per month or rupees x per year.

So, depending upon our time domain usually we see the project in terms of weeks or
days. So, it can be rupees x per day or rupees x per week. So, that is the indirect cost in
the previous session we have seen that the indirect cost and the direct cost add up to
calculate the complete cost of the overall cost of the project and we have to find out the
optimum duration of the project in terms of days or weeks for which our overall project
cost is minimum and how we calculate the project cost by adding the direct cost and the
indirect cost our focus today will be to see some of the problems that how we actually do
the calculations in order to calculate the overall project cost.

So, first we will try to understand the concept of crashing with the help of a simple
problem and then we will solve a problem in which all the data points are known to us
and we try to reduce the duration of the project by crashing the various activities and
must I tell you that this requires practice all learners must at least try to solve 5 problems
related to the CPM, PERT and the time cost trade off in order to become maybe
acquainted with the technique and then only you can use it in industry whenever you join
a particular industry.

So, within the time allocated for this particular topic of project management I think we
have been able to understand the concept of networks, project networks how to construct
a network how to do the calculations for the critical path and how to make use of the
critical path. So, let us know quickly see the problem statement. So, as I have already
told in previous class we have seen that for each and every activity there is a cost slope
involved.

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(Refer Slide Time: 05:48)

So, how we will calculate the cost slope you can see, it will be the number, it will be cost
per unit time. Now per unit time can be in days or it can be in weeks. So, cost slope is
delta C by delta T that is the crash cost minus the normal cost divided by the normal time
minus the crash time.

Cost slope = ∆C/∆T = (Cc - Cn) / (Tn – Tc)

where Cc = crashing cost
Cn = normal cost
Tn = normal time
Tc = crashing time

So, this way we can calculate the slope and which activity, we will choose for crashing.
Now, suppose, we have a project network and in the previous session, if you see, if the
previous session, we have calculated one critical path and there were 5 activities on the
critical path. Now out of the 5 which activity you will choose. So, first thing that
everyone must remember is that in order to reduce the duration of the project, we have to
focus on the critical path because if we focus on a non-critical activities or a noncritical
path.

The overall project duration will not reduce why because the longest path is the critical
path even if we reduce the duration of the noncritical activity still our project duration
will remain same, therefore, our first focus must always be to focus on the critical path.
Now, suppose on the critical path we have 5 different activities which one we will
choose

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So, this cost slope will help us to identify that which activity we must choose. Now first
and foremost, we must know that the crashing is possible for that activity or not many
times it may so happens that the crash duration is equal to the normal duration which
means that you cannot crash that activity you cannot reduce the duration of that activity
even by pumping in more resources even by spending more money on that activity you
cannot reduce it is the process which requires that much of time. So, cannot reduce that
duration. So, there is no crashing possible for that activity. So, your cost slope; you
cannot calculate because this is your Tn is equal to Tc that is your normal duration is
equal to the crash duration cost then becomes immaterial.

So, out of the 5 activities suppose our 2 activities crashing is not possible because the
normal duration is equal to the crash duration now for the remaining 3 activities we have
to see the cost slope that we will choose that activity for which the cost slope is
maximum or minimum, you can just see we want to spend the minimum money for the
project completion. So, we will go where the slope is minimum. So, we will focus goes
the cost slope if you see delta, C is in the numerator. So, we will try to minimize it. So,
we will focus on the activity for which the slope is less.

So, now as per this slide for every activity we must have 4 data points that is the crashing
cost normal cost normal time and crashing time let us take first example most simple
network we have tried to construct. So, that everybody is able to understand the source is
also given Bernard W chapter 8 crashing introduction to management science.

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(Refer Slide Time: 09:27)

The Pearson education book; now you can see most simple network on your screen there
are 3 nodes only 1, 2 and 3 and there are 3 activities. So, this activity is representing
node 1 and 2 the start node is one and end node is 2 normal time is 5 weeks maximum
weeks that can be crushed is only one week. So, this activity cannot be crashed beyond 4
weeks. So, minimum time required for the completion of activity 1; 2 is 4 weeks, it can
only be crashed by 1 week from its normal duration of 5 weeks. So, similarly activity
second that is 2 3 6 weeks is the normal duration can be crashed by 3 weeks.

The critical path is 1-2-3, the completion time =11

Path: 1-2-3 = 5+6=11 weeks
Path: 1-3 = 5 weeks

So, minimum duration for activity 2, 3 is 3 weeks cannot be crashed beyond that point.
Similarly, activity 1, 3, 5 weeks is the duration normal duration cannot be crashed at all
because this is 0. So, there is no crashing possible for activity 5. Now, let us see if we
want to reduce the duration of this project we want to release the resources from this
project and put these resources is some other project we want to reduce the duration from
the critical path if we see what is the critical path add the normal durations for all the
activity. So, 5 plus 6 that is 11 weeks are required for the completion of this project
whereas, the other path only 5 weeks; 1, 2, 3, 5. So, the longest path is 6 plus 5; 11. So,
the critical path is 1, 2, 3, the completion time is 11 weeks.

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Now, we have to crash the activities our focus will primarily be on the critical path non
critical path activities 1, 2 and 3 are there. So, what we can do we can crash activity 6 by
3 weeks and we can crash activity 5 by 1 week. So, it becomes 4 weeks and it becomes 3
weeks. So, it will be 7 days that the project can be completed. So, path 1, 2 and 3 is 11
weeks path 1 and 3 is 5 weeks. Now how many days we can we crashed this. So, if we
will focus on this duration crash duration possible for activity 1, 2; 1 week of crashing is
possible for activity 2-3; 3 weeks of crashing is possible.

So, what we can do we can completed in 4 days, we can completed in 3 days. So, we can
complete the project in 7 days; 4 plus 3; 7. So, here we can see the maximum time that
can be crashed for is one that is for activity 1, 2 and 3 for activity 2 3. So, 1 plus 3; 4
weeks the project can be crashed in path one 3 no crashing is possible.

(Refer Slide Time: 12:35)

So, it is given 0. So, we can see that we can crash the project by 4 weeks.

The maximum time that can be crashed for:

Path 1-2-3 = 1 + 3 = 4
Path 1-3 = 0

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(Refer Slide Time: 12:49)

And therefore, the project can now be completed in 7 weeks now here we can see path 1,
2, 3 has been crashed by 4 weeks. So, now, it is 4 no further crashing possible 3 weeks
no further crashing possible. So, 4 plus 3; 7 and from this path 1, 3, 5 weeks still our 1, 2,
3 remains the critical path. So, 7 weeks for the completion of the project.

Path 1-2-3 has crashed by 4 weeks

(5-1) + (6-3) = 7 weeks for completion

So, the completion time for path 1, 2, 3 cannot be less than 7 weeks why because now no
crashing is possible for activity 1, 2 similarly no crashing is possible for activity 2, 3 and
no crashing was always not possible for path 1, 3 or the activity 1 3. So, the project
cannot be completed in 7 weeks, but here we have not considered the concept of cost we
have just seen the time only that whether the activities can be crashed or they cannot be
crashed. The basic concept of crashing has been explained here, but when we are
reducing the duration of the project from 11 weeks to 7 weeks we are reducing the
overall project duration by 4 weeks and these 4 weeks’ reductions in the overall project
duration will cost us handsomely.

So, we will have to spend additional resources additional man power we have to spend in
nutshell additional cost to accomplish this objective of reducing the project duration
from 11 weeks to 7 weeks. So, we are able to maybe shorten the duration by 4 weeks, but
at a cost, but what we are saving we are saving 4 weeks and analogous to that we are

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saving the indirect cost which is on weekly basis, suppose, if you remember in the
previous session I have drawn 2 or 3 graphs to explain the concept of crashing and if you
remember the indirect cost increase linearly with the increase in the project duration.

So, for 11 weeks we will multiply the weekly cost by 11 in order to calculate the total
cost of the project, but now in the change circumstances we are now been able to
complete the project in 7 weeks only. So, we will multiply the weekly cost by 7 only in
this case and we will not multiply it by 11 because now we have been able to reduce our
project duration from 11 to 7. So, indirect cost per week will be indirect cost per week
that is suppose x multiplied by 7 plus the direct cost now direct cost for 11 weeks will be
less because the cost corresponding to the normal duration is less the cost maybe
analogous to our corresponding to the crash duration is more.

So, we are spending more money in the direct cost we are spending now less money in
the indirect cost and the total cost will be made up of the direct cost plus the indirect
cost. So, accordingly we will see that whether our overall project cost is reducing or it is
not reducing it may be many cases be increasing also, but still we are able to release
certain resources from this project for some other maybe more important project and then
our other project may be running well in time.

So, we are what we have been able to achieve we have been able to reduce the duration
of our project by slightly spending some more money, but our other projects where these
resources have been committed are running well in time. So, this type of calculations we
have to do in industry in order to meet our deadlines for the various projects. Now there
is a question from mathematical calculation point of view what if the path one 3 has see
8 weeks’ completion time very logical question here activity 1 3 we have taken as 5
weeks without any crashing possible.

But suppose this is 8 now what is happening we have reduced the duration of activity 2-
3; 2-3 weeks, we have reduced the duration of activity 1, 2 to 4 weeks. So, our critical
path in this network is 1, 2 and 3 that is 7 weeks, but suppose this is 8 weeks what we
will do then our path 1-3 will become a critical path and the project will require 8 weeks
for completion because the other path is for 7 weeks.

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(Refer Slide Time: 18:17)

So, this is now the other problem 5 weeks one week crashing possible 6 weeks 3 weeks
crashing possible and 8 weeks no crashing possible. So crashing of all 4 weeks is not
possible because path 1, 2, 3 will not be critical path anymore as path 1-3 would now has
the longest time to finish. So, if we crash all these duration 6 we bring 2-3 weeks by
crashing it by 3 weeks 5, we bring to 4 weeks by crashing it by one week.

So, 4 plus 3; 7 still our project will be completed in 8 weeks only because activity 1-3,
then becomes the most critical activity involving 8 weeks. So, path 1-3 would now has
the longest time to finish. So, we can only reduce the path 1, 2, 3 completion time to the
same time as path one and 3. So, we can bring this path 1, 2 and 3 to 8 weeks first.

Now, we have 2 critical path here path 1, 2 and 3; 8 weeks after crashing activity 1, 2
and 2 3 and path 1-3 again of 8 weeks. Now further crashing is also possible, but what
we need to do now we need to reduce the duration of both the critical path 1, 2 and 3 and
path 1-3; both these we need to reduce by one more day.

So, we will do a trade off we will see how much money, we have to further spent to
reduce this duration and how much money we are saving from the indirect cost because
whenever we reduce the project duration by one day our indirect cost is saved at the cost
of direct cost that we are spending in order to reduce the duration. So, direct cost
increases when we reduce the duration of the project indirect cost reduces when we are
reducing.

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So, direct cost will increase when we reduce the project duration indirect cost will reduce
when we reduce the project duration. So, accordingly we have to do a trade off that the
overall project cost that is the addition of the direct and the indirect cost is reduced.

Now, here we can see the total time for path 1, 2 and 3 is equal to the path one and 3 that
we have seen that if we reduce the path 1, 2, 3, 2, 8 weeks path 1-3 is also 8 weeks. So,
now, we have to critical path that is 8-weeks duration. So, if the cost for path 1-2 and
path 2-3 is the same then pick any path randomly and crash. Now, suppose we want to
further reduce the duration to 7 weeks in 5 we have the flexibility.

(Refer Slide Time: 21:18)

Here also activity 2-3 we have a flexibility because we have to reduce it by further one
day suppose whatever 3 days reduction we have done we have done here. So, one day is
possible with five. So, we will focus on the path five, but in this particular network the
point that is to be addressed from this slide is that if we have the option to choose from
activity 1-2 and 2-3 we will choose that activity for which the cost slope is minimum.

But in this specific case the activities cannot be crashed beyond a particular point that is
project duration will be 8 only because activity 1-3; we cannot further crash it is our
limitation because there is no crashing possible here. So, the project duration remains at
8 weeks there is possibility to bring this 1, 2, 3 path to 7 days, but it is of no use because
we cannot crash activity 1-3 because 8 weeks are definitely required for the completion
of activity 1-3.

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(Refer Slide Time: 22:39)

Now, here we can see now path 1-2-3 and 1-3 are both critical again that is shown that
we have reduced the project duration by crashing activity 2-3 by 3 days. So, now, this is
3 and this is 5 still we have the liberty to crash activity 1-2 by 1 day still we can do that,
but there is no use why because activity 8 cannot be crashed. So, the minimum project
time required for completion of this project is 8 weeks. So, we can reduce it by one more
week, but there is no use because still the project duration remains 8 weeks only.

(Refer Slide Time: 23:26)

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Now, let us take one more example here and in this example we can see that we have 4
data points for each activity now activity is 1, 2 normal time is 8 crash time is 6 that is it
is in days.

Now, the cost also is given the normal cost is rupees 100 and the crash cost is rupees
200. So, very easily you can calculate the cost slope that is the cost will be in the
numerator 200 minus 100 divided by 8 minus 6. So, you are hundred divided by 2 is
equal to 50. So, very easily we can calculate the cost slope and this will help us in
making a decision that which activity we must focus on and the activity which has the
minimum cost slope we will focus on that activity first. So, for direct cost calculation
point of view we have here 1, 2, 3, 4, 5 and 6. So, we have 6 activities and for each
activity we have the normal time we have the crash time we are the normal cost we have
the crash cost.

So, 4 data points are available for each activity and from these 4 data points we have
calculated the cost slope this is our first stage of calculation and for calculating the
overall project cost we require indirect cost also and the indirect cost is given here as
rupees 70 per day. So, we have normal time crash time normal cost crash cost and the
indirect cost data available with us indirect cost is available in the form of rupees 70 per
day and the normal and crash data is available in terms of every activity.

Indirect cost = Rs.70 per day

Cost slope = ∆C/∆T

Now this is the first calculation that we require to do second is as we have tried to put the
node numbers here it is very easy to draw the network.

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(Refer Slide Time: 25:45)

Now, this is our network 1, 2, 5 is one path which is the critical path as per our
calculation then 1, 2, 4, 5 is another path 1, 3, 4, 5 is another path. So, we can see here
that our critical path is 10 plus 8 18. So, week see here 10 plus 8; 18 is a critical path, we
have 2 other paths in this network that is 1, 2, 4 and 5 that is 8 plus 2 10 plus 3 thirteen
and we have another path 1, 3, 4 and 5 that is 5 plus 4; 9 plus 3; 12.

So, we are 3 paths from the start node to the end node 18, 13 and 12. So, if we want to
reduce the duration from 18 days what must be our focus our focus will be the critical
path. So, there are only 2 activities on the critical path that is activity 1, 2 and 2-5 now
we have to reduce this duration in order to reduce this duration we have to look at the
cost slope of these 2 activities now let us look at the cost slope. So, for 1, 2 it is rupees
50 per day and the other activity is 2-5.

So, for activity 2-5, it is rupees 60 per day. So, 1, 2 is rupees 50 per day and 2-5 is rupees
60 per day. So, what will be our focus our focus will be the minimum slope that is rupees
50. So, activity 1-2 can be crashed first in order to reduce the duration of the project
moreover if we reduce the duration of the project by one day we are spending 50 rupees
more because direct cost is increasing, but we are saving 70 rupees per day as the
indirect cost.

So, what we will do we will go for forward and do the crashing.

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(Refer Slide Time: 27:51)

So, direct cost of the project by adding the direct cost of each activity is rupees 580
indirect cost because we have seen here 10 plus 8; 18 is the critical path. So, 18 days are
required. So, 18 into rupees 70 per day; so, 1260 rupees of 580 plus 1260 the total cost of
the project as per the critical path is rupees 1840 now we can reduce it as I have already
explained.

Te= 18 days
Direct cost of project = 580
Indirect cost = 70*18 = 1260
Total cost = 1840

(Refer Slide Time: 28:28)

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So, minimum cost slope is associated with activity 1, 2 which is rupees 50 per day, it can
be crashed by 2 days.

Minimum cost slope associated with 1-2, it can be crashed by 2 days

Direct cost = 580 + 2* 50 = 680
Indirect cost = 70*16 = 1120
Total cost = 680+1120 = 1800

So, if we crash it by 2 days, we have to spend 50 into 2 that is 100 rupees more, but we
are saving 40 rupees how because now the indirect cost we have to multiplied by 16 days
only instead of 18 days which was over critical duration or the maybe the overall
duration of the project under normal circumstances under crashing we are reducing the
overall project duration by 2 days.

So, 16 has to multiplied by 70. So, we can see indirect cost is rupees 70 per day, but now
the project will be completed in 16 days. So, we are multiplying it by 16 direct cost was
580 plus now the direct cost is increasing because we are crashing activity 1-2 by 2 days
and the cost of crashing is rupees 50 per day. So, 50 into 2; so, it becomes 680 plus the
indirect cost is 1120.

So, we added; so, we get a value of 1800 here. So, our project cost total cost associated
with 18 days of project one 8 days of project was rupees 1840, but now we have done the
project cost calculation by reducing the duration of 2 days for of activity one two. So,
our overall project cost is coming out as 1800. So, we are able to save some money and
the duration of the project also is getting shot and so, in both cases, we are at an
advantages position.

(Refer Slide Time: 30:11)

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Now the next further crashing can be; so, we have seen that the now the overall project is
can be completed in 16 days.

Now, further crashing is possible whatever was possible with 1-2, we have done that
now for 2-5 also crashing is possible and our other networks are now 6 plus 2; 8 and 3;
11 and 5 plus 4; 9 plus 3; 12 and 10 plus 1; 16. So, there are 3 path; one is requiring 16
days another is requiring 11 days another one is requiring 12 days. So, we can go now to
12 days and see that what is the cost involved.

(Refer Slide Time: 30:49)

Next crash activity is 2-5, it can be crashed by 4 days

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and it will lead to TWO critical paths,
therefore 2-5 can be crashed by 4 days.

Direct cost = 680 + 4* 60 = 920

Indirect cost = 70*12 = 840
Total cost = 980 + 840 = 1760

So, for next crash activity 2-5, it can be crash by 4 days although possibility is therefore,
5 days, but the other critical path is also then there is no point in crashing from 16 by 5
days and bringing the project duration to 11 because we know that there is another path
which is for 12 days. So, let us first go to 12 days duration only.

So, we can crash it by 4 days and it will lead to 2 critical path, then because the other
path is also requiring 12 days completion time. So, if we crash it by 4 days. So, direct
cost earlier we have seen it is 680 plus 4 into 60 because the crashing cost for activity for
a 2-5 is rupees 60 per day to 60 into 4 overall cost direct cost is 920 indirect cost. Now
because the project will now be complete after crashing in 12 days.

So, 70 is the indirect cost per day 70 into 12 it is 840. So, if we add this up we are getting
1760 which is till lesser than the starting cost of 1840. So, now, our overall project
duration is 12 days and we are spending less money for the completion of the project
because we are saving money on account of reducing the project duration in terms of the
indirect cost although the direct costs are increasing, but the indirect costs are reducing.

So, we are able to save the money now what happens beyond this point. Now we have 3
paths 12; 11 and 12. Now, in order to reduce further we need to focus on 2 paths of 12
days each. So, we have to reduce the activities on both these paths in order to bring the
activity or the project duration to 11 days, now our focus are 2 paths. Now if we see
these are the 2 critical paths; 6 plus 6; 12, 5 plus 4; 9 plus 3; 12 and 6 plus 2; 8 plus 3;
11.

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(Refer Slide Time: 32:54)

So, we are focusing known these 2 paths. So, we can see this; we cannot crash further
because already, we have crashed it by 2 days if you see our activity 1, 2 initial was
normal duration was 8 days crash duration in 6 days already we have crash it to 6 days.
So, not possible our activity 2-5; 10 days we can crash it to 5 days duration 4 days
already we have crush. So, we can crash it further by one day, but it requires rupees 60
per day.

So, we can further reduce this activity by one day. So, this path will become 11, this is
already 11. So, in order to reduce this path 1, 3, 4 and 5 by 1 day, we have to look at this
3 activities 1-3, 3-4 and 4-5 and if we see the minimum slope is coming out for activity
4-5 that is rupees 10. So, we will focus on 4-5 that is we can crash it and whether the
crashing is possible we can see yes crashing is possible normal is 3 days crashes one day.
So, we can reduce it by 2 days, but should we go for it.

So, if you see that 10 rupees spent here for reducing one day 60 rupees spent here for
reducing one day 70 rupees spent for reducing the duration by one day at what we are
saving 70 rupees in the indirect cost. So, 70 is equal to 70 our overall project cost
remains same. So, we may not like to go for crashing any further because it is not going
to help us to further reduce the duration. So, in this way we can do the crashing step by
step by step by step we can make a table and put crashing one which activities we are

660
focusing what is the cost slope for that activity what is the direct cost what is the indirect
cost and what is the total cost.

So, we can make a tabular from and step by step we can do the crashing, but what is the
point up till which we have to do the crashing we have to go to that point up to which our
total project cost is reducing beyond a particular point whatever savings we are getting in
terms of indirect cost by reducing the project duration our direct cost that we are
spending on the activities for doing them quickly maybe more than the indirect cost.

So, our indirect cost savings may not compensate for the direct cost that we are spending
for reducing duration of the activities. So, we have to settled down we have to trade off
at a point up to which our overall project duration is giving us the minimum total cost or
minimum total project cost and this will help us in figuring out that how we can plan the
various activities.

So, that the total project cost is minimum. So, with this we come to the end of our
discussion for week 8 and we will start a new topic in our discussion in week 9 in case of
any problems anything that you are you have not been able to comprehend in CPM and
PERT you can write to me on the discussion board and we will try to answer to your
queries to the best of our capabilities.

Thank you.

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 Operations Management
Dr. Indedeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 41
Production Control

Namaskar Friends, welcome to the week 9 discussion on our topic on Operations

Management. We have already discussed 8 weeks regarding the various aspects of
operations management; and if you remember we have covered the product, design and
development. We have covered sales forecasting, we have covered the facilities
planning, we have covered the layout, then we have covered the project scheduling in
terms of CPM and PERT. And now, our focus will be on production control.

By the time we know that what we have to produce and how much quantity we have to
produce? We know that how to schedule the operations; how to divide the complete
project into its individual jobs or activities, how to establish a precedence relationship
among the various jobs and activities.

So, we know by now that a product has to be made the quantity in which it has to be
made where it has to be made we have already discussed, where the facility or the
factory or the organization must be located. What should be the layout of the machines
within the organization? That also we have seen, then the scheduling part may be a little
bit of the project management part also; we have seen that the project or the
manufacturing activity will consist of number of operations and these operations have to
be sequenced in such a way that we are able to meet the delivery schedule or the
deadline.

So, these days’ project based output is desirable project based approach is more relevant,
because for a particular product. There is a project team which works on that project
right from the conceptualization stage to the final may be manufacturing of the product.
So, the project based team or we can also call it as a product based team is formed. So,
the concept of project management is also equally important.

So, with this information now we have to enter into the next domain, that is; the
production control domain. We have to see that whatever we have planned, we have to

662
put that plan into action and then compare that how we are faring? How we are doing
whether we are able to meet our intermittent targets or intermediate targets or are we
lacking behind if we are lacking behind. How to expedite the operations in such a way
that we are able to meet our delivery schedule?

So, the control part is related to control of materials control of manpower control of
machines. In order to be able to satisfy the time delivery time or the scheduled time
which has been agreed upon, because whatever manufacturing is being done whatever
product we are producing has to be used by the customer and whatever time has been
decided for the delivery has to be honored by the organization; in order to have a good
maybe rapport in the business scenario or in the business world.

And therefore, it is very very important to focus on the control part that; whatever is the
planned progress and what is the actual progress? What is the difference between the
two? If our actual progress is equal to the planned progress, there is no need to worry,
but if our actual progress is lacking behind the planned progress. In that case we have to
see the level of deviation the difference between the two and then try to pull off over
socks try to expedite the operations in such a way that we are able to meet the target.

Now, if you remember in our 8th week of discussion the last two sessions were on
crashing. So, that was related to the control part only that if we realize, that we are
lacking behind the schedule what we will do? We will thrust additional resources we will
put additional manpower. We will put may be additional machines and equipment in
order to bring the overall project in schedule. So, we will crash some of the activities we
will try to reduce the duration of some of the activities. So, that our overall project
completion time remains same.

So, similar is the case here also, but that is the last resort. When we are exercising
control our focus would primarily be we will wish that whatever we have planned at all
milestones, we are matching our planned progress what whatever we are actually doing
is the same as we have planned.

In case there is an emergent situation; we are delayed then only we will focus on
expediting our progress. So, the main four functions of production control; basically are
the loading, sequencing, scheduling and expediting. So, we will try to understand these
functions and try to maybe see that, how we can focus on these functions how we can

663
implement these four functions. In order to achieve our overall objective of operations
management, that is to supply to deliver the right quality of product at right time in right
quantity with right may be cost that is the last part is the cost.

So, four words are important I think I have emphasized these four words earlier also in
number of sessions the quantity quality time and cost. So, we have to ensure the overall
objective is met that we are able to supply the right quality of product in right quantity at
right time and in reasonable cost. So, this control function will help us in achieving our
target.

Now, let us see maybe with the help of definitions with the help of presentation that;
what is the concept of production control? Now production control provides the
foundation.

(Refer Slide Time: 06:43)

On which most of the other controls are based. Control is described as the constraining
the activities to follow the path.

For example, now we are driving on a road. So, the vehicle must maneuver or move on
the road only suppose the vehicle tends to go out of the road, that is the time where we
have to exercise, we have to restrained and we have to constrained the steering in such a
way that we move on the road only. So, this is the control that is being exercised.

664
We are having a planned progress that; we must be able to produce 500 products in a
week. What is control? Now, maybe after 3 days we will check, what is our actual
production? We say we will suppose if we see it is 100 only after 3 days of
manufacturing, we see that our actual production is 100 only and we have to satisfy a
target of 500 in a week and in day in 3 days we have produced only 100.

So, what does that mean? That we are slow we have to pull up. So, the control basically
is checking at intermediate level comparing our planned progress with the actual
progress. And, then if required then expediting the operations in such a way, that we are
able to meet the target and in this example of a target is 500 products in a week.

(Refer Slide Time: 08:20)

Now, what is the definition; the definition can be, “Production control is the function of
management which plans, directs and controls the material supply and the processing
activities of an enterprise, why plans, directs and control? Why the planning, directing,
controlling is required. So, that the specified products are produced by the specified
method to meet an approved sales programme”. So, we have this information already
available with us that what has to be produced therefore, the specified products have to
be produced the method also is well known to us.

So, we have to follow the two things whatever are the design specifications or the
product that has to be produced, that is fixed the method also is fixed and we have agreed

665
upon a specific sales program, that is we have already entered into an agreement with our
customers. So, we have to honor that agreement.

So, basically production control will focus on planning, directing and controlling the
material supply and the processing activity. So, it is basically controlling the operations,
in such a way that the right product is produced in right quantity by the right method. In
order to be able to deliver the product at right time; So, the right product and right
method is already well known to the management.

Now, the right methods can be it can be combination of operations like; casting, welding
or maybe some time soldering, brazing, forging. So, there can be number of
manufacturing operations, but in our course our focus is not on manufacturing
technology our focus is on managing the operations. So, in your UG or PG curriculum,
there is a maybe clear distinction that there will be courses dedicated to the
manufacturing technology only where you will be learning.

All these process mechanisms, what are the inputs to these processes? What are the
outputs that you can generate? What are conventional methods of manufacturing? What
are unconventional methods of manufacturing? So, basically all that is well known to the
management that this is a sequence of operations to be followed to create this product.

So, the production control will focus on managing the operations in such a way
controlling the operations in such a way that the right product is processed by the right
method in right quantity. And the time is honored for which the contract has been signed.

So, these activities being carried out in such a manner that the labor plant and capital
available are used to get the best advantage; So, we have to plan and control in such a
way that we make use of the available resources to the fullest; that is the optimal
utilization of the resources is ensured. So, that we are able to derive advantage by
making use of the resources at our disposal.

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(Refer Slide Time: 11:33).

The production control specifies three levels: first is programming plans, the production
output of product. So, we know that how many products have to be produced in a given.
Time ordering it plans the output of components from the suppliers and departments
which is necessary to meet the program. So, already we know that what is the number of
products how they have to be produced that is known and when they have to be
delivered. So, that is an overall program.

Then the ordering is another function in order to satisfy that demand or satisfy that
number, that we have to deliver we need to have raw materials parts equipments sub
assemblies whatever is required. So, ordering plans the components from the suppliers
and departments which is necessary to meet the program which is our first level of
production control and finally, the dispatching considers each department in turn and
plans the output from machines and work centers necessary to carry out the order.

So, now dispatching means giving the orders so, that the manufacturing can start at the
individual work centers and output of one work center can be the input to the next work
center. So, it considers each department and in turn plans the output from the machines
and work centers necessary to carry out the order.

So, basically planning is done materials are ordered and finally, the orders are issued to
each and every work center to start the manufacturing activity. So, that the final output is
produced now outline of production control the first may be loading and scheduling.

667
(Refer Slide Time: 13:33)

The sales department will issue work orders which will authorize manufacture of a
product or group of product. So, there is an order with the sales department which will
authorize the manufacturing department to start the manufacturing activity.

This order is the starting point for all the activities of production control department
concerned with the manufacturing of products. So, basically the order will come to the
sales department, it may not be a direct order. It may be the forecast by the sales
department also that they have forecasted the demand using any of the methods that we
have studied earlier in this course. So, whatever is the number that has to be produced
that will be issued as an order that this is what is required and this is the number of
products to be processed by such and such date. So, the time is also fixed the number of
products is also fixed.

And, now the orders have to be issued to start the manufacturing and then with certain
time domains or within certain time intervals the checking also has to be done; that
whether we are moving on the right track; whether our actual progress is meeting with
the planned progress or not.

So, loading and scheduling the sales department will issue work orders which will
authorize the manufacture of a product or group of products, this order is the starting
point for all the activities of the production control department concerned with the
manufacturing of products. So, there will be different activities which the production

668
control department has to undertake, but the sales department has ordered or issued an
order to the production control department to start the manufacturing process.

(Refer Slide Time: 15:30)

The master production schedule is prepared which involves assessing the labor and
material requirements and availability and determining the dates by which major
functions must be completed. In this week of our discussion the last session will focus on
the master production schedule, we will see that what is the master production schedule?
How it is prepared? What are the inputs required for preparing a master production
schedule and how we can use the master production schedule?

So, in a production control section our focus will be first we to see the master production
schedule that which machine which men or a group of men and which particular product
has to be focused as per the orders given by the sales department. So, the master
production schedule is prepared which involved the labor, that is which group of people
or which department or which manufacturing department will focus on which particular
product, and what are the material requirements for satisfying the order that has been
issued by the sales department.

And the availability of different types of machines will be seen and then even if there is
some conflict among the utilization of machines; that will be resolved in order to meet
the deadline of the product delivery and availability determining the date by which the

669
major functions must be completed. So, as the word schedule is coming in master
production schedule.

So, we will see that if suppose we have to deliver a product by 15th of October 2017. So,
in master production schedule we will set the time deadlines that the final delivery is on
15th October 2017. So, what are the important operations that must be completed before
the product is delivered on the said date.

So, we will fix timely deadlines that the assembly will start on 10th October the
subassemblies must be completed by 9th October, then we will say the subassemblies are
5 in number. So, each sub assembly we will see how much time it will take. Now,
suppose one sub assembly takes 10 days of time.

So, we will see that the sub assembling process for this particular sub assembly which
takes 10 days’ time must start on October first. So, that it is finished by October 10 and
after October 10 all the 5 sub assemblies are assembled into the final product in 5 days
and we are able to supply our order by October of 15th or 15th of October 2017.

That is the way we will work on the master production schedule. So, that we are able to
see that when which operation must be starting and be completing. So, that our overall
due delivery date is honored or is met. So, the loading of various work centers then is
carried out the various machines are allocated the work as per the master production
schedule.

Then the materials control also because the machines will work on materials to produce
the products our focus will also be on the materials control. The function of material
control section of production control is assessing the need for material and then taking
appropriate actions to meet these requirements.

And in our discussion of this course on operations management we will have discussion
on one week clear on materials management aspects only. So, we will focus on that
scope objectives needs of materials management the classification of materials such as
ABC classification, VED classification. The economy order quantity model the
production quantity model. So, all these topics we are going to cover in our subsequent
week on materials management.

670
So, the materials control part will be taken care as a complete one week discussion. So,
here there are few things that are mentioned taking appropriate action to meet these
requirements that is we have to order the materials to our vendors who are going to
supply these raw materials to us assessing the need of the required material that is also.

(Refer Slide Time: 19:58)

One function of materials management; So, it is an important concept or aspect of

operations management. So, we will be discussing it in much more detail.

(Refer Slide Time: 20:12)

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Then the dispatch and progress first we know that what has to be done the master
production schedule requirement of materials. And then we will see that the dispatch is
kind of an authorization, that the process must start a manufacturing is actually initiated
at an appropriate time which collects all the relevant documents together verifies the
availability of each of the factors of production and authorize the start of production
activities by issuing of authorizing documents. So, the dispatch is basically that
everything has been planned and finally, the manufacturing activity has to start.

The progress section will monitor the performance and verifies that requirements of
master production are being fulfilled. So, progress may be we will check match the
progress with the planned activity or with the planning that we have already carried out
and try to see if there are certain deviations.

(Refer Slide Time: 21:13).

Any deviations from the schedule are brought to the notice of the concerned persons and
corrective actions are advised to keep the deviation at the minimum. So, now, the actual
manufacturing process or actual operations are being planned and executed in order to
meet the delivery schedule.

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(Refer Slide Time: 21:37)

Now, this is an outline of functions of production control the source is industrial

engineering and production management by Martand Telsang. So, this is a diagram
adopted from this book. So, we can see here we have a sales program where we get the
number or the forecast? What has to be produced based on that? A master production
schedule is prepared based on that dispatch, that is the order is issued or authorization to
start the manufacturing activity.

Then material control the raw materials have to be managed the materials have to be
ordered they have to be accounted for they have to be checked for quality, then the labor
control how many people are required? What is the workforce requirement? Whether, the
people need to be hired, in case, of higher demand or higher number of orders. So, all
that control has to be exercised. So, this is an input to dispatch and dispatch is finally,
authorizing the actual manufacturing and then once the manufacturing is done it will go
to the customer.

And the progress has to be evaluated at all these levels that whether we are able to match
up to our planning or not. If we are lacking then the deviation has to be reported and
appropriate actions have to be initiated, that is the action of expediting our activities in
such a way that we are able to meet the delivery schedule.

Then the loading sequencing and scheduling are other functions of the production control
the output plans.

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(Refer Slide Time: 23:08)

Specify when products are needed, but these specifications must be transformed into
operational terms to be implemented on the shop floor. So, we know that what has to be
produced is known the sales department may give us an idea that may be 500, 5000,
1000 or 500,000 parts have to be produced by such and such date. So, we have a number
available with us, but how that number has to be executed on the shop floor has to be
executed on our manufacturing plant that has to be planned properly and then assessed
that whatever is the planning whether it is helping us to achieve our due date or not.

So, the output plans specify, when products are needed how many are needed and when
they are needed is known to us, but these specifications must be efficiently effectively
transformed into operational terms to be implemented on the shop floor, that is basically,
we can understand it this way that suppose the target is 500 products in a week. This 500
may be divided, then further into on daily basis then within the day also on shift basis.

Then we have to see who are the people who are going to produce this product; which
person will be responsible for which activity, which machine will be allocated, how
many machines will be used for a particular operation, how many manners will be used
for a particular operation; all that has to be actually calculated in operational terms. So,
that the overall of our sales program or sales commitment is honored and we are able to
satisfy the time where that has been set for the delivery of the orders.

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So, all this will come under the loading sequencing and scheduling. So, loading maybe
we have to calculate the requirements how many machines how many man or how many
number of man hours are required, then we have to see the sequence of operations
finally, we have to see the time also that, when which particular activity or operation
must end when the new operation must start. So, that we are able to finalize our product
by the due date. So, all these three words are important functions of production control in
order to achieve our targets.

(Refer Slide Time: 25:43)

Now, we can see here I think already I have explained the words or the meaning of the
words, but once again let us see them output plan we have a master schedule and
material requirement plan. So, there is a term called materials requirement planning;
which we will cover in our section or in our week on materials management in which we
will see I have already highlighted the various aspects related to materials management.
So, we need to have these two things ready we must have our master production
schedule ready we must have our materials requirement plan ready in our production
control section.

Then, we have to first go for loading assigning specific jobs to each work center for the
planning period. Suppose the planning period is 2 months of within those 2 months, we
will assign the specific jobs to each work center, then sequencing determining the order
of processing of all jobs at each work center. So, sequence is prepared then scheduling

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establishing start and finish times of all jobs at each work center we have to clarify this
to each work center that what is the time available with them to complete the work
assigned to that center.

Then expediting so, we will monitor the progress taking corrective action to minimize
the deviation. So, to speed up pulling up of the socks is at the expediting stage. So, we
have to do all these functions as these are the production control functions in order to
meet our targets.

(Refer Slide Time: 27:26)

Now, Gantt chart is one tool which is used it is a tool used for both loading and
scheduling. The chart was originated by the American Engineer, Henry L. Gantt and
therefore, the name also Gantt chart and consists of a simple rectangular grid, divided by
a series of parallel horizontal and vertical lines.

So, we can see one Gantt chart, because maybe reading this theoretically or verbatim is
not that clear looking at the chart will give an idea; now this is a Gantt chart here we can
see the cumulative.

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(Refer Slide Time: 27:55)

Load is there the days x axis represents the time domain, y axis represent the activity or
the work center. So, there are four jobs which are to be processed on three work centers.
So, work centers are sheet metal, electric work center and the painting work center job
A, B, C, D requires sheet metal and paint work A, C and D requires electrical and these
are presented in the form of a load chart that sheet metal on what particular day it will
process component A. So, work center sheet metal on day zero suppose it will start
working on component A that is job A.

So, there are 4 jobs which are to be processed on 3 work center job A, B, C and D
require sheet metal and paintwork you can see A, B, C and D, A, B, C and D both
require sheet metal and paintwork and A, C, D jobs require electrical operations these are
represented in this chart. So, we can see job A requires sheet metal operations or goes to
sheet metal work center on the beginning days a goes to paint also electrical also. This
way we can represent the operations being conducted on the shop floor in the form of a
graphical output. So, we know we can look at this and plan our activity accordingly.

So, with this we come to the end of today’s session. So, in our next session in this week
our focus will be on the other aspects that is sequencing and scheduling. So, we will start
with the basic discussion on loading here, we can see that this is a load chart where we
know that which center is going to perform on which particular product on which
particular day. So, this is; what is the basic objective of our loading function?

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So, in this chart I think it is clear that job a will go to sheet metal in the beginning day
these numbers are not given, but at least we can make 1, 2, 3, 4, 5, 6-day wise schedule
can be worked out. So, job A goes to sheet metal job A goes to electrical also job A goes
to paint also in on the very first day.

So, accordingly we know that which particular work center is going to work on which
particular job on which particular day. So, that is basically the loading requirement. So,
in the next session we will start with loading we have try to understand it in a much
clearer manner. And then we will shift to sequencing and scheduling in the subsequent
sections or the subsequent sessions during this week.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 42
Sequencing

Namaskar Friends, welcome to session 42 in our course on Operations Management and

in the current week. We started our discussion in the last session on the production
control as the major focus and we know that in production control. There are four
important functions of operations management that have to be covered and in production
control. We start with loading, then we have sequencing, scheduling and finally, the
expediting operation or expediting function.

So, basically what exactly is production control? Once the orders are finalized, what has
to be produced or the product that needs the manufacturing is identified the numbers are
identified that this many number of products have to be produced.

We start the manufacturing activity with our planning of time; that is the scheduling part.
The sequencing we have to do the loading that which particular machine will work on
which particular product. For how long; who are the people? Who will be responsible for
a particular product development process or product I must say product manufacturing
process or job manufacturing process. So, calculating the people calculating the
machines calculating the time and then putting everything into action on the shop floor
will come under the production control.

So, we have to plan we have to execute as well as we have to cross check or verify
whether our planning is going, as per schedule, as per requirement, as per the due date or
not if we are lacking behind the additional function of expediting will come into picture.
So, now, on we will try to answer these four words or try to understand these four words;
that is loading sequencing scheduling as well as expediting.

So, expediting is comparing the performance and then pushing the effort. So, that we are
able to match up with the due date or to catch up with the due date which is going to be
effective or which is going to be critical for the delivery of the products; otherwise the
penalty clause may come into action or come into force.

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So, today our focus will be sequencing; now in sequencing our target is that the waiting
time of the jobs can be minimized the mean flow time can be minimized. I will try to
explain the waiting time and the mean flow time and we are able to justify the time that
has been set for a particular set of jobs or we are able to meet the due date which has
been set for a particular job or activity. So, our target will be to sequence the jobs in such
a way that we are able to meet the due deadline for each and every job. Now, suppose a
company is manufacturing 5 or 6 or 7 different products.

Now, for each product there may be certain requirements that product A is required in
five hundred numbers product B is required in eight hundred numbers. So, we have
different products different quantities to be produced and these have to be produced on
different machines. So, all that operational may be management has to be taken into
account the proper sequencing means the first the proper rooting that what will be the
route chart for a particular product and for the product.

When the process starts whenever there is a decision to be taken that how to sequence
the jobs in such a way where we are able to effectively match the due date for each and
every product with each and every quantity; that is, what is the objective? Where we
would like to focus our attention on?

So, today we will study sequencing we will try to see that what is the criteria based upon
which we can sequence the jobs, but prior to that if you remember in the previous
session. I have just shown one Gantt chart towards the end which is also the loading
chart many times different types of Gantt charts you can see in which we can have
different workers or we can have different machines which job is scheduled on that
machine for how long all that can be represented, then that can be called as a loading
chart and we will start our discussion today with the loading or the concept of loading.

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(Refer Slide Time: 05:11)

So, as you can see on your screen each job may have a unique product specification and
has a unique routing through various work centers. So, if you remember in production
planning and control or in the very beginning of our operations management course. We
have seen that there are different functions, that have to be achieved and routing is one of
the important functions; each product which has to be manufactured in an organization
has to follow a particular route.

So, the route may be the different departments or the different sections or the different
shops that the batch of product has to follow in order to be processed into the final
product.

So, that route chart may be different for the different products, when the job orders are
released which means that we have now two things available with us that which product
has to be produced and, in what quantity it has to be produced? So, once we have this
information it is allocated to the work centers where the actual manufacturing will take
place; thus establishing the quantity of load each work center should carry during the
specified planned period is called loading.

So, we have to decide on the loading of that various machines depending upon the
capacity of each and every work center that, how much work should be allocated to a
particular machine, to take advantage of the capacity of that machine or to take
advantage of the full capacity of that machine and that is basically the calculation that we

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do and when the work is assigned to a particular machine we call it loading of the
machine.

Similarly, maybe in any educational institute, suppose 20 different courses have to be

offered to the students and there are maybe 20 faculty members. So, there will be a load
distribution of each course to one faculty member. So, one faculty member one course
so, we call it as a load allocation of teaching among the various faculty members.

Similarly, on a shop floor we have to allocate the complete load or the complete
requirement that has occurred or that has come to their department in the form of a
purchase orders. So, that has to be distributed among the machines and similarly the
work can also be distributed among the workforce or the manpower that is available on
the shop floor. So, that will also be called as loading only.

So, the establishing the quantity of load each work center must carry during the specified
planned period is called loading. Loading is the study of relationship between the load
and the capacity of the work center. So, we will try to take advantage of the maximum
capacity of each and every work center that is available at our disposal Gantt load charts
visual load profiles are helpful for evaluating the loading.

So, in the previous session if you remember the last slide was on a Gantt load chart only.
So, similar type of Gantt load charts you can see on different sources in different books
and you can see that how a pictorial representation? How graphical representation can
help us to do better planning of our operations on the shop floor.

So, this is the basic understanding of the loading process. Now, coming on to the
sequencing part so, what is sequencing? So, when a job compete for work centers.

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(Refer Slide Time: 08:48)

Capacity which job should be done next now for example, there are three different jobs
which have arrived at work center A, the jobs are P, Q and R. So, we have three different
jobs P, Q and R each has to be processed on work center a. How to identify? How to
select that which job must be sent to the work center? A first either, it should be P or Q
or R. So, there has to be certain criteria based on which it will be decided that how these
three jobs will be sequenced it can be P, Q, R it can be R, P, Q it can be any sequence.

So, that sequence has to be decided and there is a set criteria there is a list of criteria,
which is usually followed to sequence these jobs on to the work center. Now priority
sequencing rules are applied to all jobs waiting in the queue. For example, if we take an
example of a bank and there is a queue there. So, the customers are served as per their
sequence. So, first come first serve the person who is standing in the queue first will be
served first and then the next person followed by the next person.

So, similarly that can be one logic one criteria of allocating the jobs to the machines, but
we will see what can be the other criteria that criterion that can be used, because the
problem is not so simple here the problem is of multiple products waiting for processing
on a single machine or multiple products waiting for processing on multiple machines
each product. As I have told may have different quantity each product may have different
due dates. So, if some of the products may be delayed then there can be some products
which require emergency processing.

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So, the criterion for deciding the sequence depends upon. So, many parameters and
accordingly; we have to have different criteria which we will try to understand today, in
our session when the work center opens for the job the one with the highest priority is
assigned. Now, how to assign the priorities to the jobs for sequencing on a particular
work center is? What we are going to consider in today’s session? Now sequencing is a
systematic procedure for assigning priorities to the waiting jobs.

(Refer Slide Time: 11:21)

So, that is what as I have taken an example of a queue in a bank. So, that is one example,
where the sequence is followed and one after the other the customers are served by the
banking official.

Similarly, there can be a series of jobs waiting to be processed on a work center it can be
first come first serve criteria, but there are a number of similar criteria which is followed
for giving priority for sequencing to the jobs sequencing or priority sequencing the
process of determining which job is started first on some machine or a work center by
priority rules. So, that is another term that is commonly you will find when you discuss
or maybe when you read about sequencing that is priority sequencing priority rule the
rule used for obtaining job sequencing.

So, we will see some of the priority rules which can be used for sequencing the jobs on
the machines.

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(Refer Slide Time: 12:20)

Now, the important criteria which can be followed is the set-up cost, in process
inventory, idle times, maybe there are four components waiting to be processed and there
are two machines on which these four components can be sent both machines are of the
same type. Now, the machine which is idle for the longer time can be chosen as a priority
for sequencing the next job. So, idle time can be one criteria average time to complete
the job can be another criteria that, we can sequence the jobs which have lower
processing time first and then focus on the jobs which have the longest or longer
processing times.

Similarly, average number of jobs waiting in the queue can also be a criteria which will
help us to decide the priority for jobs to be sequenced on the different machines. Now,
we can see priority rule evaluation criteria in the previous slide, we have seen that
choosing criteria for sequencing will focus on all these parameters then priority rule
evaluation criteria we can see the common standard measures are.

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(Refer Slide Time: 13:33)

Now, there can be number of priority rules. So, we have to see that which particular rule
we may follow.

So, first common standard measures for evaluation criteria for priority rules can be:
meeting due date of customers or downstream operations. So, first thing is that due date
is very important. So, the criteria must focus on the due date minimizing the flow time
that is a time a job spends on the shop flow. So, that is another criteria minimizing work
in process. We do not want that lot of work or a lot of components or parts are waiting to
be processed in front of the different machines or different work centers in the shop
floor.

So, we want to minimize or reduce our working process. So, that is also kind of a criteria
which can be followed or which can be taken into account, when we are deciding a
priority rule and minimizing the idle times of the machines and worker, that is we have
to ensure the maximum utilization of the available resources in order to be productive
and in order to be profitable. So, we can see all these four points are very very important
and based on these evaluation criteria. We can have a set of priority rules which can be
used for sequencing the jobs on the various machines.

So, again this is important, I am emphasizing it once again first thing is meeting due date
of customers or downstream operations. So, one thing can be the products that we are
processing is directly going to the customer. So, we have already agreed upon with the

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customer that this is going to be the due date for this batch of products. So, we have to
honor that due date or the product that we are producing is a maybe a sub assembly or a
sub part of the final product which is being processed by some other company.

So, therefore, we have an agreement that we will be able to supply this many number of
sub-assemblies by such and such date. So, they have to be sent as per the deadline for the
downstream operation. So, we have to meet the due date. So, that is one of the important
criteria, then the flow time has to be minimized.

We have to minimize the time the job spends on the shop floor many times it will be
waiting to be processed. So, that time has to be minimized, and then the work in process
inventory has to be minimized our floor must not be cluttered with a lot of work in
process inventory and the idle times of machines and worker also has to be minimized.

So, that based on this we can frame a set of rules or criteria which can help us to achieve
our major objectives. Now, elements of the job shop scheduling we can see an assembly
line is an example of the flow.

(Refer Slide Time: 16:30)

Shop where maybe; we are starting our assembly from one end of our assembly line, that
the final product comes out from the other end of the assembly line. So, an assembly line
is a classic example of a flow shop. So, we can see every car go through all the stations
one by one in the same sequence.

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So, as I have already discussed the raw material may be enters into the one end of the
production flow line, and then it moves in a particular sequence which is well laid out
and well defined and finally, the product comes out from the other end of the line. So,
every car goes through all the stations one by one in the same sequence same tasks are
performed on each car in each station it is operation scheduling is simplified as assembly
line is balanced or as assembly line balancing can be easily carried out.

An assembly balancing problem is to determine the number of stations and to allocate

tasks to each station. So, we have to balance the assembly line that the sequence the
sequence is very clear the product has to move from one end to the other end and during
this movement of the product the all assembly has to be built on top of the product or on
top of the chassis. In case of an automobile if it enters on one side all assembly
operations have to be done and the final product comes out. So, the line can be balanced
by assigning different tasks at different workstation.

So, maybe the product is moving in this case on the assembly line therefore, the mean
flow time will be less in this particular case moreover the scheduling will be easier in
this particular case, because we have different workstations each workstation is assigned
a particular task. So, the flow will be well regulated, well controlled, well balanced and
continuous in nature and the product or the overall production rate will be quite
satisfactory or on the other hand I can say the production rate will be very high in case of
an assembly line type of flow shop.

Now, we can have another concept of parallel processing versus sequential processing in
sequential processing the M machines are distinguishable, and different operations are
performed by different machines.

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(Refer Slide Time: 19:07)

So, if you take the example, the previous example that we have taken of a flow line or a
maybe an assembly line it will be sequential processing only, because there are M
different machines or M different workstations in the line and each one of them is
performing a different task. So, M machines are distinguishable all machines are
different and different operations are performed by different machines. So, that can one
example of sequential processing, then the parallel processing is the machines are
identical and any job can be processed on any machine.

So, you have maybe 5 machines in one row each machine is of same type and then
hundred parts are coming suppose. So, these 100 parts have to be processed on 5
different machines each machine is of same type all may be lathe machines each lathe
machine having same maybe swing diameters same distance between the centers, I mean
to say all lathe machines are same dimensions everything same.

So, these 100 components can be processed on any one of these lathe machines or maybe
distributed among these 5 lathe machines. For example, whenever we travel by air we go
to an aircraft maybe there is a long queue of the passengers to take the boarding passes
and there are a 10 to 15 different centers each official can book or give you the boarding
pass or book your luggage.

So, the queue the first person will just see that which table is vacant. So, the person can
walk to that table the next person will see that which table is vacant or which center is

689
vacant and go to that particular table. So, similarly all machines are of same type there
can be number of parts which have to process. So, the first part that has to go can go to
any of these machines maybe three of them are working 2 or idle. So, it will go to the
idle machines only among the idle machines the sequence can be that the machine which
has been idle for a longer time can be chosen for this component to be processed.

Now, 4 are working 1 is idle. So, the next one can go to the next machine all machines
are of same type. So, that we can say as the parallel processing sequential, as I have
already told previous example we have taken it is a flow line or it is an assembly line
each work center is assigned a particular task. Now this is just an example we can see
here.

(Refer Slide Time: 21:54)

These are four machines M1, M2, M3 and M4 and all four machines are of different types.
This is an example of sequential processing M1, M2, M3, M4 are different job A has two
operations which should be processed on different machines M1 and M2. So, job A goes
to M1 and M2and finally, goes to the next level.

Similarly, job B has three operations which should be processed on different machines
M3, M2, M4. So, job B goes to M3 first, then it goes to M2, then it goes to M4 and finally,
goes to the next station. So, all four machines are different in case of sequential
processing whereas, in parallel processing we can see M1, M2, M3, M4 are identical jobs
A and B can be processed on any of the four machines depending upon the operations

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required. So, we can see that we can either have a parallel processing unit we can have a
sequential processing and accordingly our priority rules will be decided.

Two more terms that will be that we will be quite oftenly; using in our discussion will be
tardiness and lateness. So, lateness all of us know if I am engaging a class and four
students are coming late. I will definitely say that they are late students. So, they are
coming late similarly there is a due date identified for a batch of products to be ready and
if we are not able to deliver those products as per the due date it means, that we are late
and that difference between the due date and the actual delivery date. We can say is the
lateness whether it is 5 days delayed or it is 10 days delayed. So, that is lateness.

And tardiness is somewhat similar to lateness only, but tardiness is always given in the
positive sign only. So, tardiness is the positive difference.

(Refer Slide Time: 23:59)

Between, the completion time and the due date of a job so, we always we will see the
positive difference only; negative difference we will eliminate or we will not report
lateness refers to difference between job completion time. And it is due date and that and
it differs from the tardiness is the in that the lateness can either be positive or negative.

So, lateness can be positive or negative tardiness will always be positive. So, you can see
that if lateness is positive. So, lateness you can see, what is lateness? It is a difference
between a job completion times. Now, suppose job completion time is September 30th

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and it is due date due date was September 21st. So, September 30 minus September 21st
it is 9 it is on the positive side. So, 9 is the lateness, but suppose we say that the due date
was September 21st and we have been able to job complete the job on September 15th.

So, September 15th minus the due date; that is September 21st it comes out to be 6. So,
that is minus 6. So, it is negative. So, our lateness can be both positive and negative. So,
negative lateness automatically, we will call it as the earliness. So, if the lateness is
positive it is tardiness and when it is negative it is earliness, because tardiness will be
always positive sequencing rules. Now, we can see that how we can give the priority to
the jobs which have to be undertaken or which have to be processed on different
machines.

(Refer Slide Time: 25:58)

Let us see the sequencing rules first rule there are of rules which are followed and we are
just going to cover maybe 3 or 4 important rules.

But, if you go by the literature if you read good books on this topic of sequencing and
scheduling, you will be able to see that there are number of rules which can be followed
for allocating jobs to the machines we are going to take simpler rules only the first one is
first come first serve. So, jobs are processed in the sequence in which they entered the
shop. So, the job which entered the shop first will be served first or will be processed,
first on the machine and then followed by the 2nd, the 3rd, the 4th, the 5th, as and when

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the job come they are given a sequence and each job is processed by the time it is
entering.

So, if you enter first you will be served first as the simplest and natural way of
sequencing as in the queue in case of a bank. So, usually we see wherever we have a
queuing system for example, we are standing in a queue to board a bus. So, the first
person will board the bus first the second person after the first person the sequence will
be followed. So, that is the first come first serve simplest method, then the second one is
a shortest processing time the jobs are sequenced in increasing order of their processing
time, that is; first we will sequence a job which requires less processing time, then we
will sequence which is having slightly higher processing time and then in the similarly
ascending or increasing order.

The job with the shortest processing time is done first one with the next shortest
processing time is second and so on in the increasing order of the processing time, the
third one can be the earliest due date as we have seen that one of the important criteria
for deciding the priority rules is the due date. We do not want to delay our due date or we
do not want to invoke the penalty clause. So, therefore, we would definitely like to honor
the due date and we can focus on those jobs for which the early due date is approaching
fast. So, jobs are sequenced in increasing order of their due date.

So, may be whichever job is having the earliest due date we will do it first and whichever
is having the latest due date we will do it later. So, we are arranging it in an increasing
order of the due dates and in previous slide we have.

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(Refer Slide Time: 28:32)

Seen that from the shortest processing time also we arrange them in an increasing order
the shortest time first and the longest time later similarly the due dates.

(Refer Slide Time: 28:44)

Also the shortest due date we will try to focus first those jobs, which are having the
earlier due date and the jobs which are having a delayed or a later due date we will focus
on those jobs later.

The jobs with the earliest due date is done first, the one with the next earliest due date is
second, and the one with the latest due date or which has and a may be number of days

694
for it is due date we will focus on it or we will sequence that job later then the next
criteria is critical ratio. So, critical ratio is the remaining time until due date divided by
the processing time.

CRi = Remaining time of Job I /Processing time of Job I

= (Due date of Job I - Current time)/Processing time of Job I

Now, let us take an example. Now, suppose the processing time is 10 days and today is
suppose September 10th and the due date is September 20th. So, today is September 10th
due date is September 20th. So, what is the difference 10 days divided by the processing
time? That is 10. So, the critical ratio is equal to 1.

So, the we can see that the critical ratio is 1, if the critical ratio is more than 1 which
means the today’s date and the due date the difference between the 2 is greater than the
processing time. So, if the critical ratio is more than 1, which means that we have still
have time to complete the project whereas, if we see the critical ratio is less than 1 or
very less than 1 which means that the today’s date and the due date the difference
between the 2 is may be much less as compared to the actual time processing time
required for that job. For example, the actual processing required for the job is 10 days
and the difference between today’s date and the due date is 5.

So, today’s date minus the due date, that is; today’s date and due date difference is 5
divided by the processing time as 10. So, 5 divided by 10 0.5; So, which is less than 1.
So, we will focus on those jobs for which the critical ratio is less than 1. So, that we try
to expedite the things and meet the due date as far as possible. So, that is due date of the
job as we have taken an example maybe September 10 minus the current time may be
September maybe 1. So, 10 minus September 1, 10 days divided by divided the
processing time that is 10 days for the job.

So, 10 divided by 10 our critical ratio comes as 1. So, means we are on target. So,
accordingly, we can see focus on those jobs for which the critical ratio is much much less
or less than 1. So, with this I conclude the today’s session and in this session we have
tried to see the different types of sequencing rules that can be followed while assigning
the jobs to the various machines. When the jobs are waiting to be processed we have also
tried to understand, the basic concept of sequencing and in the next session we will try to
understand these various rules with the help of numerical examples.

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Thank you.

696
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 43
Sequencing Problems – I

Namaskar Friends, welcome to session 43 in our course on Operations Management and

currently we are in the ninth week of discussion and in ninth week our focuses on
production control. And as all of you are well aware by now that in production control
we have four important functions that have to be met or achieved and in these four
functions we have to focus on loading, we have to focus on scheduling sequencing and
expediting.

So, we have to follow these four functions in order to have a smooth manufacturing of
our products and we are able to meet the deadline or the due date. And in that context we
must be having all the requisite planning ready with us that which particular component
or a part is going to be processed on which particular machine.

And for how long and which work center is assigned to which particular product or a
product line that decisions have to be taken well in advance so, that when the actual
product is processed on the shop floor we are able to meet the deadlines which have been
identified or which have been contracted with the customers. And in that context if you
remember we started our discussion in this week with a focus on production control. And
we focused on the four important functions of loading, scheduling, sequencing and
expediting it try to understand what is the meaning of all these terms.

In our previous session if you remember we focused on loading which means that once
we have received an order suppose for producing 1000 components. So, we have to
allocate these 1000 components to the various workstations depending upon the
sequence of operations that have to be done on these components.

Accordingly, we have to load the workstations properly. So, that we are able to take
advantage of the overall capacity of the workstations that is one important point that we
have to focus on loading. Also if you remember we have seen that loading has to be in
terms of manpower also in many cases where we have to allocate the manpower to the

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respective workstations in order to ensure the smooth production of the product or the
components for which we are doing our manufacturing activity.

In the next session, our focus was primarily on trying to understand maybe the second
session only the next part of the second session our focus was primarily to understand
that what do we mean by sequencing we have tried to explain it with the help of a queue
in a bank where the customers are served one by one. The first customer who stands in
the queue is served first followed by the next and the sequence continues like that.

So, we have tried to understand that if there are ten or 15 different products or a our
components that are waiting to be processed on a particular machine in which priority or
in what priority they may be sequenced to be processed on that machine. And in that
context we have tried to understand that what can be the factors, what can be the criteria
which must be kept in mind while deciding the appropriate priority sequencing.

And we have tried and we have seen 3 or 4 important priority criteria or priority methods
which are used; the first one was the first come first serve then the earliest due date
shortest processing time and the critical ratio of method. So, four different criteria we
have seen and today we will try to understand the criteria with the help of certain
numerical problems.

Also we will try to understand the problem of number of jobs being assigned to 2
machines and try to see how the jobs needs to be sequenced in order to optimize or
minimize the total time spent for processing these two parts or in order to minimize the
idle time of either of the machines our focus will primarily be to understand this type of
simple problem in which maybe n jobs maybe 1, 2, 3, 4, 5 jobs have to be sequenced on
machine 1 and a machine 2. So, that we are able to optimally you complete the process
as well as minimize the time required for this overall activity or manufacturing activity.

So, with this we start today’s session and on your screen we can see the title for today’s
session is sequencing problems. And today is the first session focusing on problems and
in next session also we will try to look at certain advanced problems related to the
problem of sequencing.

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(Refer Slide Time: 05:27)

The first example on your screen you can see which is on sequencing rules. So, the
example is a machine center in a job shop for a local fabrication company has 5
unprocessed jobs remaining at a particular point in time. So, there are 5 jobs which still
need processing the jobs are labeled as 1, 2, 3, 4, 5 in the order of that they entered the
shop.

Now this sentence is very important that is they are labeled as 1, 2, 3, 4, 5 token numbers
are given based on the order in which they entered the shop. So, I request all learners to
remember this sentence that 1, 2, 3, 4, 5 is based on the order in which they arrived at the
shop.

So, basically these first two three sentences mean that there are 5 jobs that need to be
processed and there is a machining center in a job shop type of fabrication company. So,
there is one machine and there are 5 jobs that need to be processed. The respective
processing times and due dates are given in the table.

So, we can see the table on your screen we have job numbers 1, 2, 3, 4, 5 in the order
they arrived at the shop floor processing time is 11, 29, 31, 1 and 2 and due date is 61,
45, 31, 33 and 32. So, basically the date it is not exactly the date it is the time which is
remaining or which is the due time for delivery which can be in number of hours. So, we
can see the time is the due time by which the jobs must be completed.

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Now, what is the problem? The problem is that we have to sequence these 5 jobs by
three rules. Now three rules we have covered if you remember in the previous session
that is first come first serve FCFS, shortest processing time SPT, earliest due date EDD
and compare results based on mean flow time, average tardiness and number of tardy
jobs. So, tardiness also we have covered in the previous session it is a positive value and
gives a difference between the two important dates that is the completion date of the
project or the job as well as the due date of the job. So, the difference between the two
the positive difference between the two is considered as tardiness.

So, we know what is tardiness? We know when once we have a value for a particular job
a positive value for that job we will called as a tardy job. So, if the value of tardiness is
0; so, the job is not tardy job. So, we have to calculate the tardiness for each job, we have
to calculate the average tardiness value based on that we can see which are the tardy jobs
and which are the due the jobs which are completed early or on due date and finally, we
have to calculate the mean flow time.

Now, mean flow time basically is the time that a job spends on the shop floor by from
the time of its arrival to the time when the processing is finished on that job the. For
example, a job arrives in a particular shop floor on September 21 and it leaves the shop
floor after finishing on September 28. So, we can see the flow time for that for that job
particular job is the difference between September 28; when it is finished from the day
when it arrived that is September 21 that is the flow time for that machine for that job.

Now, it may so, happen that the job is in the shop floor for 2 days and no processing has
happened on that job. So, for 2 days it is in the shop, but no processing has taken place
on that job. So, the processing has taken place for maybe 3 days or 5 days on that job.
So, the total times spent by the job on the shop floor when the order has been received.
And by the time the job is finished by the last machine which has to work on it. So, that
basically we call as the flow time.

And our overall objective is to minimize the average flow time of the various job. So,
that is very important if the flow time or the average flow time is less; it means our
system our machines are very responsive and the jobs need not wait for a longer period
for processing. So, we can see that if we are able to minimize the flow time; we are
trying to make our system more and more responsive. So, here the problem at hand is

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that we have to complete 5 jobs processing time is given for each of the job and the due
time or the due date is also given.

(Refer Slide Time: 10:43)

Now, let us see sequencing rules first rule that we are covering is first come first serve.
So, in the problem statement if you remember we have seen the jobs are numbered based
on the time they arrived at the shop floor. So, the first job arrived at the shop floor first
and the fifth job came to the shop floor in the end. So, 1, 2, 3, 4, 5 is arranged in that
sequence.

So, the first job will be served first because first come first serve rule we are using. So,
the processing time is 11 days here. So, job one starts on a machine one completion time
will be 11 and due date is 61. So, the tardiness value is 0.

Now, for job 2 which has to be sequenced because it arrived at the shop floor and second
in number. So, the machine will start or the machining center will start processing after
11 days the processing time is 29 days because for the first 11 days or the 11 hours
suppose we take the time as hours.

So, the job one is being processed on the machining center. So, 11 the time unit 11 is
spent their 29 units of time are spent for job 2. So, we add 29 plus 11 completion time for
job 2 is 40 time units due date is 45 time unit. So, we can see it is not a tardy job
tardiness value is 0

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Similarly, then third job will be sequenced processing time is 31 completion time will be
it starts after 40 time units 40 plus 31 is 71 time units, but the due date is 31 time unit.
So, we can see the tardiness is 40 similarly we can sequence all the 5 jobs one after the
another and calculate the start time the finish time and based on the due date we can
calculate the value of tardiness as we have seen in the previous session.

And therefore, finally, we can calculate the mean flow time which is based on the
completion time 268 divided by 5 jobs average is 53.6 average tardiness value 40 plus 39
plus 40 two that is 121 divided by 5 which is 24.2 and then the number of tardy jobs in
this case is 3.

Sequencing Rules: First Come First Serve (FCFS)

Mean Flow time = 268/5 = 53.6
Average tardiness = 121/5 = 24.2
No. of tardy jobs = 3

Sequencing Rules: Shortest Processing Time (SPT)

Mean Flow time =135/5 = 27
Average tardiness = 43/5 = 8.6
No. of tardy jobs = 1.

Sequencing Rules: Earliest Due Date (EDD)

Mean Flow time = 235/5 = 47
Average tardiness = 33/5 = 6.6
No. of tardy jobs = 4

So, that is we can say the general calculations for the first come first serve rule. Now
here we can see the second rule that is a shortest processing time. So, we have arranged
all the jobs based on the shortest processing time in the increasing order. So, job four
requires one time unit job 5 requires two time units and the maximum time required for
processing is by job 3 that is 31 time units.

So, similarly we will see first we will sequence job number 4 it will require one-time unit
completion time it starts on day 0. So, the completion time is one time unit due date is 33
time unit. So, the tardiness is 0 in this case now the job 5 will start after one time unit it
will require 2 time unit. So, 2 plus 1, 3 completion time is 3 time units due date is 32. So,
tardiness is again 0.

So, in this way step by step we will calculate and finally, we see that 4 jobs have a
tardiness value of 0 only job three has a tardiness value of 43 and the completion time is

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135 time units accordingly we can calculate the mean flow time the average tardiness
value and the number of tardy jobs in this case.

And finally, the third rule that we are going to follow is earliest due date. So, earliest due
date as we know here we can arrange it in increasing order. So, the earliest due date is
for job number 3; the latest due date is for job number 1 and accordingly the processing
time is given for each job. So, for job number three processing time is 31 time units
completion time is 31 because this is a first job to be sequenced due date is also 31. So,
we can say the tardiness value is 0 here the next sequenced job is job number 5
processing time is 2 unit it will start after 31 time units. So, 31 plus 2 is 33 and the due
date is 32. So, we can say tardiness value is 1.

So, similarly we can calculate the difference between the due date and the completion
date and calculate the tardiness for each and every job. And the average tardiness value
we can calculate mean flow time we can calculate and the number of tardy jobs in this
case is 4.

(Refer Slide Time: 15:38)

So, we can see this is a summary the first come first serve method mean flow time is
53.6 time units earliest due date is 47 time units. Similarly, the number of tardy jobs if
we see is maximum in case of earliest due date and minimum in case of shortest
processing time the average tardiness is 8.6 in case of shortest processing time.

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So, we can see we have taken three different rules for sequencing the jobs on a single
workstation and try to calculate the response criteria or we can say try to calculate the
measures based on which we can compare. So, these measurements or calculated values
are of mean flow time average tardiness and the number of tardy jobs.

In certain scenarios it may so, happen that we cannot afford to delay the delivery of our
jobs. So, we will focus on the number of tardy jobs in that scenario that there should be
no job which is delayed. So, in this case in each of the three rules whatever rule we
follow at least one job is delayed. So, we can focus on maybe shortest processing time
rule because only one job is delayed here in case of earliest due date 4 jobs are tardy jobs
and in case of first come first serve 3 jobs are tardy jobs.

So, if our due date is very crucial very important and religiously we have to follow the
due date; we can go for shortest processing time the sequencing rule because only one
job is tardy in this case. And also if we want to see the responsiveness of the system the
shortest processing time the mean flow time is less or may be the minimum out of the 3
sequencing rules.

So, if you can see mean flow time is 27 time units in case of shortest processing time. So,
the system is also more responsive number of tardy jobs is also less moreover the
average tardiness value is also reasonable and is less than first come first serve basis. So,
we can say that based on these values, these values will help us to find out that which
sequencing rule we must follow for our jobs so, that we are able to meet our deadlines.

Now, the next stage of problems is a sequencing problem where we can have different
number of machines different number of jobs. So, no machine can process more than one
job at a time.

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(Refer Slide Time: 18:16)

This is assumption of our sequencing problem processing times are independent of

processing of jobs; each job once started on one machine is continued till completion not
of on that machine. We cannot change may be cannot stop the process in between
suppose a job has to be processed on a particular machine for maybe 5 hours. So, we
cannot stop it after 2 hours and then give a gap and then again start after some time and
then finish it for another 3 hours that is not possible time involved in moving a job from
one machine to another is negligibly small.

(Refer Slide Time: 18:54)

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So, these are certain assumptions based on which we are we can try to solve the
sequencing problems.

Now different types of problems can be considered when we are doing the sequencing of
jobs on machines or on the machining centers or the work centers. Now the problem can
be that we have N jobs for example, in the previous case that we have taken or the
previous example that we have taken there were 5 jobs. So, N jobs and there are two
machines; in our previous case if you see we had only one machining center or one work
center.

Here the problem can be N number of jobs to be sequenced on 2 machines then N

number of jobs can be sequenced on 3 machines; then 2 jobs and M number of machines
are there then N jobs and M number of machines that is a very general problem N
number of jobs which is a variable and M number of machines which is again a variable.

So, we have try to highlight two particular scenarios here within the limited time that is
available with us. We will try to address these two sequencing issues in our sessions. So,
today now onwards I will cover the first issue that is N jobs have to be sequenced on 2
machines and in the next session our focus will be N jobs to be sequenced on 3
machines.

Now, let us see now N jobs on 2 machines how to solve this problem? So, we will try to
explain it from two points of view; first one is the steps that need to be followed in a
general problem and then taking a data and trying to solve that problem.

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(Refer Slide Time: 20:43)

So, the step one is first we have to prepare the process time table for N jobs on two
machines. Now we can see jobs we have to arrange in a tabular form N number of jobs
we can take 4 jobs eight jobs twelve jobs whatever the number of jobs then machine A as
we have taking n jobs and 2 machines.

So, 2 machines machine A and machine B or it can be machine 1 and machine 2. So, we
are two different machines and A1, A2, A3 to An and B1, B2, B3 to Bn represents the
processing time that is required for job 1 on machine 1 and machine 2 or machine A and
machine B. So, this A1, A2, A3 and B1, B2, B3 represent the processing times.

Now, what do we have in this problem? We have number of jobs we have 2 different
machines and we have the processing time required for each job on machine 1 and
machine 2 identify the given technical order. So, that can be basically the sequence that
has to be followed for example, the simplest can be that first the operation has to be done
on a machine 1 followed by the operation on machine 2.

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(Refer Slide Time: 21:55)

Examine the columns for processing time on machines A and B and find out the
minimum that is Ai and Bi. Now we have two problems we can see again these are the
two columns machine A and machine B and these represent the processing times for
different jobs on machine 1 or machine A and processing times on machine 2 for the
different jobs. For example, job 1 may require A1 as the machining time or process time
on machine A and B 1 as the machining or the processing time on machine B.

Now, we have to look at these two columns and try to figure out the minimum
processing time in column for machine A and in column for machine B. So, that we can
call as Ai and Bi; so, in this column first we have to identify the minimum value or the
minimum processing time and then here also we have to check what is the minimum
processing time.

Now, suppose examine the columns for processing time on machines A and B and find
out the minimum values Ai and Bi certainly we will get one value Ai which can be
common also make a 2 machines may 2 jobs may have the same time. So, we have to
look at that time which is the minimum time in column for machine A and minimum
time for column for machine B and this time is the processing time for various jobs.

Now, prepare an array for either machine A or B this type of an array we can produce I
think it is clear on the screen; however, we have 5 jobs here or maybe 10 jobs here. So,
accordingly we can prepare an array like this n boxes because we are talking of n jobs to

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be scheduled or sequenced on 2 different machines. So, for either of the machine we can
make this type of array.

(Refer Slide Time: 23:55)

Now, the important thing is we know the minimum processing time on machine A, we
know the minimum processing time on machine B for the various jobs. If the minimum
processing time identified in step three belongs to column A schedule that job first in
sequence table and crossed that job from the table. So, if for example, our minimum
processing time is for machine A in column 1 or the column for processing times for
machine A we will select that particular job for which we have the minimum processing
time and we will schedule that job on machine 1 and cut that from the table also from the
machine 2 also.

Then if the minimum processing time belongs to the column B that is for machine B; the
value of minimum processing time we can find out. We have to look at all the values and
try to figure out which is the minimum processing time; it can be in column A or it can
be in column B. So, if it is in for machine column A then we have to schedule it from the
left hand side. Suppose the minimum time comes out to be in the processing times for
machine B; so, we have to schedule it from the end that is from the right hand side.

So, if the minimum processing time belongs to the machine B schedule this job last in
the sequence table and cross that job from the table. Now once we have done this step
has to be done again and again crossing the jobs which have been scheduled, and we can

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then fill our sequence table and that sequence we have to follow and then calculate
further that what is the total time elapsed for completing these N number of jobs in these
2 machines. So, sequence we can find out using these steps; further calculations we can
do and find out that what is the total elapsed time, what is the idle time for machine A,
what is the idle time for machine B?

So, we will try to understand this with the help of an example.

(Refer Slide Time: 26:12)

Now here we can see 5 jobs are to be processed on two machines M1 and M2 and in the
order M1 M2. So, all the jobs first will go to M1 and then after completing or completion
on M1, the job will move to M2.

Processing times in hours are given below we can see the table gives the processing time
job one on machine 1 it requires 5 hours and on machine 2 it requires 2 hours. So, what
we have to do? The table is given there are 5 jobs which you have to be sequenced on 2
different machines the processing time for each job on each machine is given and what
we have to find out we have to find the sequence that minimizes the total elapsed time
and find out the total elapsed time and idle time on a machine 2. So, first is we have to
find out the sequence, after that we have to find out the total elapsed time and then we
have to see that which are the idle jobs.

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Now, here we can see the minimum processing time we can find in this column in a
machine 1; it is 1. So, that is for job 2 and in this table we will put since it is for machine
1. So, we will start from this end and we will schedule or sequence job 2 first.

(Refer Slide Time: 27:38)

So, we can see job 2 minimum time processing time is 1 hour. So, we will schedule and
we will cross this line here.

So, this is cut now then again we will look that which is the minimum processing time.
So, now, you can see the table the minimum processing time now is 2. So, we will
schedule now job 1 and it is in column 2; that is for machine 2. So, job 1 will be
sequenced from the right hand side if I go back. And maybe just we can see this if the
minimum processing time belongs to column B schedule this job last in the sequence
table and cross their job. So, we have to schedule this job last in the sequence table since
it is in the second column or for machine 2.

So, here up to this we have seen now 2 is the minimum time or so, 2 is the minimum
time. So, we will sequence it the job 1; the minimum time is 2 hours. The job 1 is
corresponding to that minimum time.

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(Refer Slide Time: 28:27)

So, we will sequence the job one here and initially we have already seen that the
minimum time initially was for job 2 which we have sequenced in the beginning of the
sequence table we have started with that sequence. Now we can see we have already
scheduled two jobs we have scheduled job 2 we have scheduled or sequenced job 1.

Now three are remaining let us see the minimum time minimum time is 3 hours here and
the job is job 4. So, we will since it is in the first column we will put the value 4 here
because that is a second job to be schedule starting from the left hand side.

(Refer Slide Time: 29:19)

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So, this is 2 and 4 and now we can see we have to cross this and finally, see the
minimum is 4 processing time corresponding to job number 5. So, 5 will be scheduled
from the end side.

(Refer Slide Time: 29:34)

5 is schedule now the minimum value is 7 only 3 is remaining; so, we will schedule 3
also.

So, the first step or the first job that was at our hand was to find out the sequence of jobs.
So, sequence of jobs is 2 4 3 5 and 1; so, the technical order we know that first all jobs
have to be processed on machine 1 and then they have to be processed on machine 2.

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(Refer Slide Time: 30:05)

So, similarly we can see that once we have decided on the sequence we will see that
machine 1 job 1 job 2 goes to If you see sorry.

(Refer Slide Time: 30:14)

If you see the sequence optimal sequence 2 4 3 5 and 1; so, first job 2 has to be
sequenced. So, job 2 it will be in at time 0 out at time one because it required 1 hour
duration only then it will go to machine 2 when it will go to machine 2, 1 hour of
processing already has been done on a machine 1. So, it goes to machine 2 after 1 hour
and on machine 2 if you see the table again it will require 6 hours; so, it will be out at 7.

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So, the idle time on machine 2 is 1 here because we are starting at time 0. And there is no
shock that can directly be scheduled or sequenced on a machine 2 why? Because the
technical order has to be followed. Then the next in the optimal sequence is job 4 and
accordingly we will see that it will go to machine 1; after 1 hour why? Because in the
first 1-hour machine 1 was busy with job 2.

So, it goes after 1 hour whatever is the time required processing time for job 4; we will
add that to 1 hour we get it will be out at 4 here and then it will enter machine 2 at 7;
why it will enter at 7? Because machine 2 is already busy with job 2 because it requires 6
hours’ duration.

So, similarly we can sequence the all the different jobs that is 3, 5 and 1 and accordingly
calculate the idle time on a machine 2. As we have seen in the very beginning the
machine was idle because job number 2 was being worked upon or was being processed
on a machine 1 and machine 2 was waiting for the job 2 to arrive and to start the
processing.

Similarly, in we can see that in job number 5 also machine 2 will be idle for 1 hour and
similarly for job 1; it will be idle for one and total elapsed time we can see is 30 hours.
So, 5 different jobs when they have to go to two different machines we have been able to
sequence them with the help of a standard procedure so, that the total elapse your time is
minimized.

So, we can see the starting time on a machine 1 is assumed as 0. The machine M 2 starts
processing job 2 only when it comes out of machine 1 after completion. So, it is idle for
1 hour in the start till the job comes to it from machine M1. The minimum total elapsed
time is 30 hours to process all the jobs through 2 machines M1 and M2 and the idle time
on a machine M2 is in three scenarios we have seen it is idle for 1 hour is an especially
when in the beginning of the processing then for 5, job number 5 and job number 1. So, 1
plus 1 plus 1, 3 hours it is having an idle time that is machine 2.

Total elapsed time

The idle time on machine M2 = 1+1+1 =3 hours

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So, with this I think we will conclude the today’s session. We have seen that when 5 jobs
have to be sequenced on one workstation, how the sequencing rules can be used we have
seen three sequencing rules first come first serve, shortest processing time and earliest
due date and tried to compare the performance of the three sequencing rules.

Then we switched to the sequencing problem where we have N number of jobs and 2
machines and we have seen as a procedure which can help us to sequence these 5 job oh
sorry N number of jobs on 2 machines so, that our idle time is minimized as well as our
total elapsed time or total completion time for this N number of jobs is minimum.

So, in next session our focus will be as was highlighted today; we will try to solve
additional problems on sequencing. And in the last session we will focus on the
scheduling problems or the master production schedule.

Thank you.

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 Operations Management
Dr. Indedeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 44
Sequencing Problems – II

Namaskar Friends, welcome to session 44 in our course on operations management and

currently we are in the ninth week of discussion and we are currently discussing
important topics related to production control. Now, as you are aware that there are
different functions that fall under the category of production control and we are trying to
understand each one of them and to name a few of them we are currently focusing on
sequencing.

Then scheduling is another important function and expediting as the name suggests is
speeding up our operations that is we need to speed up the way we are doing the work;
when we are lacking behind our schedule and how to schedule that we will cover in the
last session that will be focused on master production schedule during this week and in
today’s session our target is sequencing.

So, basically sequencing scheduling and expediting all are in relation to that time we
have to see that how many machines are available with us, which machine is going to be
assigned for a particular job and how to decide that which job will go to which particular
machine and that will be based on the time required for processing on a particular
machine.

That is our important we can say target during the sequencing of different jobs on
machines which we have already covered in our previous two sessions. The first session
was on a production controlled where we focused on the various functions that fall under
production control. Then we focused our attention on the most important part that is
sequencing that there are number of jobs number of machines how to decide that which
job has to go to which machine.

Then we have seen different criteria that is usually followed in industry tried to solve
some problems related to the different criteria even one of the problem we compared the
performance of the three different criteria which are used for sequencing and then we

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learnt the problem of assigning jobs to the machines based on a simple algorithm and
there we solved one problem where 2 machines were available with us and we had 5 jobs
which had to be sequenced on these 2 machines prior to that we solved a problem for one
workstation also.

So, today our focus will be that we will be covering as you have seen the topic
sequencing problems-II; our problem today will be that there will be 3 machines and an
end jobs that will be available with us. So, we have N jobs that are already lying in our
shop floor we have to a sequence these n jobs to these 3 machines, how would the
sequence should be taken into account? How the sequence must be planned?

What will be the objective criteria here, now in any case there are 3 machines available
with us there are maybe N jobs available with us we have to sequence these N jobs on
these 3 machines, definitely this can be done even a person who has no knowledge of
operations management can very easily solve this problem he can start distributing the
jobs among various machines depending upon the order in which they have to be
processed on these 3 machines and finally, after some time maybe after a given time he
will be able to solve this problem.

Now, what is the you can say importance in studying this topic that we are trying to
scientifically, mathematically, logically plan that how these N jobs must be allocated or
sequenced to these 3 machines. So, what can be our criteria is that we have to minimize
the total elapsed time which is required for this 7 or maybe 8 or N number of jobs to be
completed on given 3 machines in a specific order.

Also we want to minimize the idle time that the machines are having during the complete
cycle when these jobs, N jobs are sequenced on these 3 machines. So, two important
performance criteria for this type of situation are the total elapsed time as well as the idle
time for the various machines and both have to be minimized.

So, today our target will be that in the next maybe 20, 25 minutes we are able to
understand the sequence or the steps that we have to follow in order to solve this
problem of N jobs on 3 machines. So, we have already understood the importance of
sequencing in our previous session. So, directly we will focus today on the problem that
is the problem of N jobs and M machines.

718
So, here you can see it is not M machines, M is equal to 3 in this case because we can
also solve problems in which we have N jobs and M machines, but our focus today is m
is equal to 3 that is N jobs and 3 machines and that is the problem which is our target
today.

Now for this problem to be solved mathematically we need to have a criteria.

(Refer Slide Time: 05:40)

So, there has to be conditions to be satisfied to solve the N jobs and 3 machines
problems, now these are the conditions or we can say assumptions that are there for
solving this type of problem and the assumptions or conditions are that there are 3
machines available M1, M2 and M3. So, the 3 machines problem has to be solved. So, 3
machines are available with us.

The next condition is that each job has to go through 3 machines in the order M1, M2
and M3. Now if you remember our previous session we have seen that 2 machines and N
number of jobs. So, N jobs the example that we have taken was that there are 5 jobs and
2 machines available and there also this condition was to be met that the sequence of
operations have to be taken into account.

That is first the jobs will be processed on M1, then the jobs will be processed on M2,
similar is the case here, here we can see that each job has to go through 3 machines and
the order is also fixed that is M1, M2 and M3. Now the conditions to be satisfied to solve

719
N jobs 3 Machines problem these are another additional two conditions which have to be
satisfied.

(Refer Slide Time: 07:05)

So, the first condition is the smallest processing time on machine 1, so as you remember
we have seen that usually we have the data in the form of a table and we have the jobs in
the first column maybe we can name the jobs as A B C D and E and F goes to maybe N
and then in the next column we have machine 1 and what is the processing time for each
job on machine 1 is given in first column and then in the second column we have
machine 2 and the time or the processing time required for each job on machine 2 is also
given.

Now, we can see in column 2 we can find out what is the minimum processing time for
on machine1 for each and every job. So, each and every job means that which job has got
the minimum processing time on machine 1 that we can find out in column one.
Similarly, which job has the minimum processing time on machine 2, we can very easily
locate that by looking at the values in column 2.

Now, this is a situation where we have 3 machines and N number of jobs. So, here we
will have 3 columns in column 1 the processing times for all the jobs for machine 1, in
column 2 the processing times for all the jobs for machine 2 and in column 3 the
processing times for all the jobs for machine 3. So, we have 3 machines N number of
jobs and the corresponding times are available in the form of a table.

720
Now, we have to focus on all the 3 columns and on each column we will see what is the
minimum and the maximum processing time and that we have to compare here and 2
conditions have to be satisfied. So, condition 1 you can see the smallest processing time
on machine 1. So, in column 1 whatever is the minimum value it will be specified for a
specific job must be greater than or equal to the largest processing time on machine 2.

So, we are not currently considering the third column that is for machine 3, we are
focusing only on the first 2 columns that is the processing times for various jobs in
column 1 that is for machine 1 and processing times for all the jobs for machine 2 that is
column 2. So, we are focusing on column 1 and column 2 and column 1 minimum value
may be suppose it comes for job C.

So, the shortest processing time in column 1 is for job C, it must be greater than equal to
largest processing time on a machine 2. So, suppose that is for job D so, for job D the
largest processing time is among the various jobs on a machine 2 the job D requires the
largest processing time. So, here as per our first condition the shortest time required on
machine 1 for any job must be greater than equal to the largest processing time required
for any job on machine 2 we will try to see this with the help of an example also.

Similarly, there is second condition the smallest processing time on a machine 3, now we
are focusing on column 3 and trying to find out the minimum value in column 3 that will
represent to a specific job. So, the minimum or the smallest processing time on a
machine 3 must be greater than or equal to the largest processing time on a machine 2.
So, in column 2 we have to focus on the largest processing time only and to a respective
job we have to see that for which job we have the largest processing time in column 2
that is for machine 2 and we have to see the smallest processing time in machine 1 that is
column 1 and similarly the smallest processing time for machine 3 that is in column 3.

So, to simplify all the things we have to we can summarize that we will have the
processing times for all the N jobs in call 3 columns column 1, column 2 and column 3,
column 1 will be for machine 1, column 2 for machine 2 and column 3 for machine 3 and
in each column we have to see the in first and third column we have to see the minimum
processing time value and in column 2 we have to see the maximum processing time
value.

721
So, if this much is clear now the next stage is if either one or both. So, it is this is
important either one or both of the above stated conditions are satisfied, now out of these
2 conditions that is one and 2 either one or both if both are satisfied very good if even
one is satisfied we will go ahead and solve our problem if either one or both of the above
stated conditions are satisfied the given problem can be solved by Johnson’s algorithm.

So, we will first see as per the data available with us whatever columns we have framed
we will see minimum maximum values and compare them as per the 2 conditions
mentioned here and try to figure out that whether both conditions are satisfied if even if
one is satisfied we will solve the problem using the Johnson’s algorithm, now what is
Johnson’s algorithm that we will see.

Now, the various steps that will be followed suppose now we are assuming that the
conditions are satisfied at least one condition is satisfied.

(Refer Slide Time: 13:07)

Now we go to the steps convert the N jobs and 3 machines problem into N jobs and 2
machines problem by introducing 2 fictitious machines G and H. Now you can see that
we have a problem at hand if in the problem we have N jobs, now N jobs can n can be
any number it can be 8, 10, 15, 20 so, N jobs and we have 3 different machines. Now, we
are converting this problem into 2 machines problem which we have already solved in
our previous session. Now 3 machines problem is now being converted into a 2 machines

722
problem and what is the name of the machines any number any alphabet you can use, but
in our problem we are using is G and H.

Now, what are these G and H, two fictitious machines such that Gi that is for machine Gi
the processing time will be the processing time for the ith job on M 1 plus the processing
time for ith job on machine M 2.

Gi = M1i + M2i
Hi = M2i + M3i

So, we will add the first 2 column the processing time in the first 2 column for the ith job
now suppose i is equal to 1. For the first job in our problem we have 3 columns,
processing times for on machine 1 column 1, processing times on machine 2 column 2
and processing times on a machine 3 column 3.

Now, our processing times are available in all the 3 machines, now suppose for job1 we
want to convert it into a fictitious problem with G and H as the two fictitious machines
we will say G is one machine and which requires how much time, we will add the
column 1 value to the column 2 value that is the processing time required for job 1 on
machine 1 and the processing time required for job 1 on machine 2. So, we will add
those 2 values and we will get the time required on machine G.

Similarly, for H we will calculate summation of the time required for the same job on
machine 2 and the time required for the same job on machine 3. So, we will then get
these 3 machines data we will convert it into 2 machines data by adding for machine G
first and second column value and for machine H the second and third column value and
i can be again N because here we are solving a problem for N number of jobs to be
processed on 3 different types of machine.

So, I think it is easier to calculate because only summation has to be done among the
rows in the column for job 1 the first value added to the first column first row plus the
value in the second column first row that will give us the time required for machine G
and similarly the second plus third value in the very first row the summation of these two
will give us the time required for processing job 1 on machine H.

723
(Refer Slide Time: 16:30)

So, once we have done that, once the problem is converted to N jobs and 2 machines,
now what are the 2 machines, 2 machines are G and H the optimal sequence is
determined by the Johnson’s Algorithm for N jobs and 2 machines which we have
already seen in our previous session. So, the problem becomes fairly simpler now for the
optimal sequence determined find out the minimum total elapsed time and idle times
associated with the machines which I have already told in the beginning of today’s
session that our target is to minimize the total elapsed time as well as the idle time for the
various machines that are being used for processing.

(Refer Slide Time: 17:12)

724
Now, let us take important topic that is tie breaking rules many times it may. So, happen
that in the same column we have two minimum values, now how to solve or how to
break this tie. If there are equal smallest processing times, one for each machine; place
the job on machine 1 first in the sequence and one in a machine 2 last in the sequence.
Now you can see if there are equal smallest processing times one for each machine.

Now, we have 2 columns or 3 columns, now here we have converted the problem from 3
machines to 2 machines now suppose we focus on a 2 machine problem only. Now we
have 2 columns and if suppose there are minimum values is same, for example, 3 hours 3
hours is available or the data is there in column 1 also and 3-hour data is in column 2
also. Now how to schedule so, what we will do?

We will see column 1 and wherever whatever job is corresponding to 3 hours we will
schedule it from the left hand side we will schedule it first and for machine 2 whichever
job is showing a processing time of 3 hours because 3 is equal to 3 we will schedule it at
the end. So, that is you can say first tiebreaking rule when we have the same minimum
processing time data or value in 2 columns representing 2 machines.

Now, the second tiebreaking rule is that if both are equal smallest times are for machine
1, now suppose in first column only which is representing machine 1 we have same
value that is 3 hours and 3 hours, but 2 jobs are there each requiring 3 hours, but both
requiring 3 hours on machine 1 how to break this tie we will look for the corresponding
values or the time required for these 2 jobs on the right hand side that is on the machine 2
table or in column 2 select the job with lower processing time for machine 2 and place it
first in the sequence.

Now, we have 3 hours and 3 hours in column 1 only, which means that on a machine 1
there are 2 jobs which have 3 hours processing time. So, what we will do, we will see the
corresponding values in the second column that is for machine 2, now suppose it is 8 and
10. So, what we will do, which is the minimum value 8 is minimum is less as compared
to 10. So, we will schedule this job which has processing time on machine 1 as 3 hours
and processing time on machine 2 as 8 hours we will schedule it first or first we will
sequence it first.

So, again I am reading point 2, that is tiebreaking if both the equal smallest times or
equal smallest times are for machine 1 that is in column 1 select the job with lower

725
shortest processing time that was 8 in my example for machine 2 for placing first in the
sequence. So, in machine 2 8 was minimum. So, we will the job corresponding to 8 we
will sequence first.

Now the next tiebreaking rule is that if both the equal smallest times are for machine 2
now again instead of column 1 now both the minimum or shortest processing times that
we find out are in column 2 only. Now what we will do we will see the corresponding
values or the corresponding processing times for machine 1 and select one with a lower
processing time for machine 1.

So, we will see that again this is reverse of point 2 we will again see the shortest
processing times are lying in column 2, now that is for machine 2 we will see the
corresponding values for machine1 and in the machine1 we will see which one is
minimum and whichever is giving us the minimum value we will sequence it at the end
so, that we will place towards the end that is in the last in the sequence.

So, these are the tiebreaking rules and we will now try to solve one problem in today’s
session and here we will try to see that how we can solve a problem.

(Refer Slide Time: 21:39)

Or convert a problem from N number of jobs with 3 machines to n number of jobs to 2

machines and then solve the problem using Johnson’s algorithm. As per the problem you
can see as I have been using these term columns again and again in this screen you can

726
see that there are 3, 4 columns. So, first column is representing the jobs and in this case
we have 7 jobs which have to be sequenced and the processing times are given in the
next 3 columns that is for machine 1, machine 2 and machine 3.

So, 7 jobs are to be processed through 3 machines M1, M2 and M3 in the order is also
specified which was one of the conditions that we have seen in the beginning of today’s
session that is M1, M2 and M3. The processing times given in hours to process each of
the 3 each of the 7 jobs through all the machines I think it is a typing error in the process
each of the 7 jobs through all the machines. Now find the optimal sequence of the jobs
also find the minimum total elapsed times and the idle time zone M2 and M3.

So, the 7 jobs we have to sequence on these 3 machines and what we have to minimize
we have to find out the minimum time required to complete this project and we have to
see that how much time the machines are idle. Now let us see, how we will solve this
problem, now as you can see there are 3 machines first we have to check that whether
our conditions are satisfied or not. The 2 conditions were the minimum value in this
column we can say that is for machine 1 must be greater than or equal to the largest
value for machine 2.

So, we can see first let us try to see what is the minimum processing time on machine 1.
So, it is 3 so, for job A 3 hours is the minimum processing time. Now, let us focus on the
second column machine 2 here we have to look for the largest value. So, you can see
largest value is 5 here. So, is 3 greater than equal to 5, no so the first condition is not
satisfied.

Now let us look at the second condition here we have to see the maximum value only
that is 5, but here again we have to see the minimum value. So, in column 3 that is the
processing times for various jobs on a machine 3 the minimum value is we can see 5 for
2 jobs. So, we have that value of 5 is the minimum. So, we can see that 5 is equal to 5
that is the maximum value for machine 2. So, it means that the condition is second
condition is satisfied and this problem can be solved using the Johnson’s algorithm.

727
(Refer Slide Time: 24:42)

So, this is what I have already explained check further and patience to be satisfied first of
all. So, the minimum processing time on M1 is 3 for job A which we have seen here for
job A, the minimum processing time is 3 and the maximum processing time on machine
2 is for job D that is 5 maximum processing time on a machine 2 is 5 that is for job D
and minimum processing time on M3 is 5 for 2 jobs.

Condition I: Minimum time on M1 ≥ Maximum time on M2.

3≥5
Condition I is not satisfied
Condition II: Minimum time on M3 ≥ Maximum time on M2.
5=5
Condition II is satisfied

So, we can see that condition 1 minimum time on M1 must be greater than or equal to
the maximum time on M2. So, minimum time on M1 is 3 maximum time on M2 is 5. So,
3 is not greater than equal to 5. So, condition 1 is not satisfied minimum time on M3 is
greater than or equal to maximum time on M2. So, the minimum time on M3 is 5 which
is equal to maximum time on M2 that is 5. So, condition 2 is satisfied.

So, as per our requirement either of the 2 conditions has to be satisfied or both the
conditions have to be satisfied. So, at least one is satisfied therefore, the problem can be
solved by N jobs and 3 machines algorithm. So, our condition is satisfied, now we will

728
try to convert this problem into a 2 maybe N jobs and 2 machines problem how we have
to do that we have to do it using this simple mathematics.

(Refer Slide Time: 26:17)

So, convert N jobs and 3 machines problem into n jobs and 2 machines problem by
assuming 2 fictitious machines G and H. Now for G for first job what is the time
processing time, processing time is the processing time required on machine 1 and
processing time required on machine 2.

Similarly, for fictitious machine H what is the processing time processing time required
is the processing time required on machine 2 plus the processing time required on
machine 3.

729
(Refer Slide Time: 26:52)

So, here we can see we have now done the summation of first and second column for
machine G and second and third column for machine H and we get these values. Now
this is a simple problem here we can see we have 7 jobs processing times on a machine
G and processing times for machine H.

Now, let us see what is the minimum value here as per Johnson’s algorithm, minimum
value is 6 here, but that is in the second column that is for machine H. So, we will
schedule it towards the end and we will strike off this machine E. So, first we will strike
off this machine.

730
(Refer Slide Time: 27:30)

And we will schedule it at the end.

(Refer Slide Time: 27:34)

Now, again we will see whatever data is available with us now we see that here we have
2 minimum values that is for machine G job A require 7 hours and for machine H job C
requires 7 hour. So, here we will see A and C both A is in column first. So, we will
schedule it in the beginning and C is in column H that is the second column for second
machine we will schedule it in the end.

731
(Refer Slide Time: 28:11)

So, we will strike off these 2 jobs, now coming on to the next minimum value is 9.

So, there is no other 9 value so we it is in column 1. So, we will schedule D in the

beginning for towards the start.

(Refer Slide Time: 28:22)

And strike off this and now we have 2 different values 10 and 10. So, we have to
schedule these jobs G is in column 1 minimum value 10. So, we will schedule G in the
beginning and H 10 value same, but it is in the second column we will schedule it
towards the end so, we will strike off the 2.

732
(Refer Slide Time: 28:43)

And this way we can calculate the sequence of the jobs.

Now, once the sequence of the jobs is finalized the optimal sequence we get this output
ADG FBC E. So, once this is first column on your screen you can see if this is finalized
column, first column optimal sequence if this is finalized then we will start we know the
order of the order is all jobs I have to first go to machine 1 then to machine 2 and then to
machine 3 sequence already we know that what is the sequence to be followed very
easily we can see that job A which is a first job to be scheduled enters machine 1 at time
0 it whatever time it requires, it requires 3 hours.

So, it is out at 3 hours and at machine 2 it enters at 3 hours just immediately as we have
seen we have assumed that the transfer between the machines takes minimal time or
maybe we can say negligible time it enters machine 2 after 3 hours and is out from
machine to after 7 hours and enters machine 3 after 7 hours and gets out after processing
for 6 hours in 13 hours.

So, that is our C, we can see the working on job A in 3 machines and similarly then D is
scheduled when it will start on machine 1 after 3 hours because for first 3 hour job A is
sequenced on machine 1 and similarly we will make all the calculations sequence the
jobs as per our optimal sequence ADG FBG CE and finally, we can calculate the idle
time here.

733
We can see idle time for machine 2 is 3 hours only why 3 hours because our job A took 3
hours on a machine 1 by that time it was idle and then finally, the job A went to machine
2 after 3 hours after that it started its functioning. So, this way we can do that what is the
earliest time them is the job will go to a particular machine and from this data we can
very easily calculate the idle time as well as a total elapsed time for completing
processing of these 7 jobs in the optimal sequence on these 3 machines M1, M2 and M3.

(Refer Slide Time: 31:18)

So, the minimum total elapsed time is 59 hours to process all the 7 jobs through 3
machines M1, M2 and M3 the idle time on a machine, M2 we can calculate as we have
calculated here step by step we can calculate this time and here we can see that how let
us take one value how 5 is the idle time for machine 2. So, we focus on machine 2. So, in
machine 2 here we can see that after 22 hours’ machine 2 is starting to process F
whereas, the component that has left earlier that is component G was completed after 17
hours.

So, we can see that for 22 minus 17 for 5 hours the machine 2 was idle why it was idle
because the processing of machine 2 on component G was over after 17 hours and
because of the sequence that we are following we got this value. Similarly, how this
number 7 is coming here we will see that machine 2 the component was started to
process that 46 hours after 46 hours whereas, machine 2 was has finished the work
assigned to it after 39 hours. So, this 46 minus 39, 7 hours’ idle time E was there

734
between the processing of component C or the job C and job E on machine 2, similarly
for machine 3 also we can calculate the idle time.

So, we then we can add the idle time for each machine to calculate the total idle time. So,
the idle time for machine 2 we can add up 3 plus 2, 5 plus 5, 10 18 plus 7 25 hours and
idle time on machine 3 is 7 hours. So, friends with this I think we have learnt at least 2
simple methods of solving the up sequencing problems.

2. The idle time on machine M2 = 3+2+5+4+4+7 = 25 hours

3. The idle time on machine M3 = 7 hours

The very first we have seen the priority sequencing, what are the rules for priority
sequencing and how we can solve the problems on a single workstation and in the
previous two sessions today and the previous session we have covered how to solve the
problem of N jobs on 2 machines and today how to solve a problem of N jobs on 3
machines and how to convert a N jobs 3 machines problem into N jobs 2 machines
problem.

And finally, how to use a step by step procedure to sequence the various job how to
calculate the idle time for each and every machine and how to calculate the total elapsed
time. So, with this we close our discussion on sequencing and this is the fourth session in
this week and in the last session we our target or our attention will be on master
production schedule.

Thank you.

735
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 45
Master Production Scheduling (MPS)

Namaskar Friends welcome to session 45 in our course on operations management and

today we are going to wind up our discussion on this topic of production control with a
discussion on master production scheduling. As you are aware that in production control
there are four important functions that have to be met or that have to be considered that is
loading, scheduling, sequencing, as well as expediting.

So, what we have to do? We have to manage our operations that are being done on the
shop floor or within the organization for the best interest of our organization that is for
optimal utilization of the resources that are at our disposal. We have seen in this week in
the very first session we focused on production control, if you remember we have seen
that 4 important functions have to be taken into account. We have understood that, what
do we mean by loading, we have a number that comes from the demand forecast that is a
number of products or items or equipment or sub assemblies that we have to produce.

So, once we have the number we have to load the various work centers with the type or
the amount of work that has to be done by each work center. Similarly, we have to load
the employees that are available with us in order to satisfy the requirement or the demand
that has been generated by the sales department. So, we have to load the things we load
means that we have to assign the work to the individual work centers and the workforce
available with us that comes under the loading.

Then we have to do the sequencing that how the machines will be operating on the
various jobs that are coming to the machines, what will be the priority rule for assigning
the jobs to the machines in sequencing we have tried to solve problems where only one
work center was there then we have try to solve a problem where N jobs and 2 machines
are available then we have try to solve a problem where N jobs and 3 machines are
available.

736
And today our last part of discussion in week 9 is focused on master production
scheduling that we have a demand, we have a forecast, we know that how much has to be
produced how we have to overall plan our production in such a way that we are able to
meet the deadline, because the word schedule is coming in this; that means, that we have
to schedule our operations in such a way that we are able to finally, meet the deadline.

So, all these four functions when done in unison that is in unity we can say the four
functions of loading, sequencing, scheduling and expediting if we do focus on all these
four functions of production control. We will be very easily able to achieve our overall
objectives of operations management that will ensure that we are able to produce the
desired quantity of material at that specific or desired time with a specific cost or that is a
reasonable cost.

That is our overall objective and that we have to ensure and for to ensure that we have to
focus on each work, for each person, each labor, who is working we have to focus on
each machine, that we are using we have to focus on each man hour, we have to focus on
each machine, hour and try to optimize the utilization of men and machines in order to
achieve our overall objectives of operations management.

And we have try to solve problems where N jobs have to be assigned to 2 machines 3
machines in our previous session and today our focus will be on master production
schedule, one thing I must address here that this master production schedule maybe at a
higher level of management and our sequencing is at an operational level of
management. So, maybe sometimes in organization or rather I must say most of the
times all organizations will first have a master production schedule.

Then they will go to the individual sequencing, but in our discussion since we wanted to
focus more on sequencing models and how to maybe try to solve problems of sequencing
N number of jobs on different machines we are given more focus on sequencing, but in
general we will see that master production schedule will be prepared at the higher level
of management and once the master production schedule is available then we will next
move to the sequence of various job or sequencing of various jobs on various machines
or on different machines.

So, it is at higher level as compared to the sequencing function. So, we will try to focus
on master production scheduling today and try to understand that how this is helpful in

737
better management of the operations now in master production scheduling it provides the
basis for making good use of manufacturing resources. Now, what are our manufacturing
resources, as I have already taken two resources in the beginning of today’s session.

(Refer Slide Time: 05:44)

That is man hours; that is the number of person available with us or the number of skilled
people available with us, unskilled people available with us, as well as the machines or
equipment that is available with us. So, we have to optimize the utilization of men and
machine in order to ensure profit for our organization, also making customer delivery
promises because once we know that what is the demand, whatever our sales department
has committed to the customers, we have to ensure that that commitment is honor that
commitment is justified that commitment is met and master production schedule will
help us to meet that commitment.

It will also help us to resolve tradeoff between sales and manufacturing as well as for
attaining strategic objectives in the sales and operations plans. So, we will see that the
master production schedule is a quite useful may be data or may be representation of data
which will be helpful not only in better planning and execution of our manufacturing
function, but also leading to the overall better productivity overall efficient and effective
utilization of resources at our disposal. So, strategic objectives in sales and operation
plan can also be utilized or can also be met using master production schedule.

738
Now, what is a master production schedule a master production schedule is a master
level or top level schedule.

(Refer Slide Time: 07:26)

As I have already told once our master production schedule is ready then we go for
optimization in terms of sequencing. So, it is a higher level of decision making or a
strategic level of decision making. So, the master production schedule is a master level
or top level schedule used to set the production plan in manufacturing facility.

So, it will work out a manufacturing plan for or a production plan may be for 15 days or
a month or maybe 2 months that how what we have to produce which machine will work
on which job and what is the time allocated for that job. So, that the overall target is met
the overall target may be to produce maybe 500 components in 15 days. So, this is our
target 500 components in 15 days, now what all operations are required for these 500
components or for each component. So, these operations will be scheduled in such a way
that our overall target of 500 components in 15 days is met.

So, that complete picture depiction of when which machine will work on which
particular sub component of this component or of this product will give us an overall
view of the production plan that we have to follow in order to meet our target. It is
usually a medium term production plan indicating the start of manufacturing in quantities
and lead times for each article according to the demand and the company’s capacity. So,

739
we can see here that what is the pull? The pull here is the demand and the demand has to
be matched or mapped with the company’s capacity.

So, these 2 are important things are important inputs for making a master production
schedule. So, we must know that what is the demand in the market? What is the number
of products that we have to produce? Also we must know what is our capacity? We have
already had 2 sessions on capacity planning also. So, we know that what is our capacity,
so; based on our capacity, based on the demand, that is available in the market or that is
existing in the market we will plan our production accordingly.

So, it will be based on the quantities that we need to produce as well as the lead times,
lead times means the manufacturing lead time is that from the start of the manufacturing
activity for that component to the end time that is the final time when the article is ready.
So, that lead time will help us to plan our production because suppose we have to
produce a particular article by a particular date I think I will try to explain it with the
help of a figure.

(Refer Slide Time: 10:25)

We can see that now suppose this is our deadline that is suppose September 30, 17 this is
our deadline. Now, we have to make a master production schedule and suppose there are
3 components that have to be assembled to get a final product. So, we know this is the
assembly time may be one day. So, these are the number of days that we are calculating

740
now suppose this is our day 0 when we have to finally, ensure the delivery minus 1,
minus 2, minus 3, minus 4, minus 5, minus 6 maybe we can have another day minus 7.

So, we are moving backwards from the date of delivery. So, suppose September 30 is the
delivery date. So, we will see this is our assembly operation for A plus B plus C. So, all 3
components are being assembled on the last day that is one day is required maybe A may
require we can see 4 days of operation day 1, 2, 3, and 4, 4 days are required for
component A, maybe we can see 1, 2, 3, 4 and 5 days are required for component B.

Similarly, maybe C requires only 2 days of processing now we can do the calculation or
see the manufacturing lead times for each of these sub components, that is sub
component A, sub component B and sub component C and final assembly of A B and C.
We can calculate using our master production schedule that when our production must
start in order to meet this target of September 30th 2017 and accordingly we can come
back and see that this was the time or this is the date by which our manufacturing of at
least sub-component B must start so that we meet the target of September 30th.

So, that is basically we can see using the lead time, we can find out that how and when
our production must start. So, the MPS is used to in particular establish the materials
requirement plan also. So, in our subsequent weeks we will also discuss the materials
requirement planning MRP 1, MRP 2 and try to understand that how a master production
schedule is an input to our materials requirement planning.

Now, schedule is known to us based on that whatever is the raw material required we
have to order it at appropriate time. So, that whenever there is a need of the material we
are not having a situation of a stock out that we need the material to start our production,
but the material is not available. Now, how it can be automated it can be automated using
a materials requirement planning system in which one of the inputs will be master
production schedule; which will give us that when which material has required this will
give us that when processing of which particular component has to start as we can see
here that for component B when the production has to start for component A when the
production has to start.

So, when we know that when the production has to start for a particular component what
is the raw material required will be planned using a mass materials requirement planning
system which we will cover towards the end of our discussion on operations

741
management. So, we can see the importance of master production schedule and here
suppose for each component, we even know the machines that which machine is required
for which particular component we can even check the conflict among the machines also
for example, we can say that if we again look here.

Suppose we have machine 1 required, machine 2 and machine 3 we can also note down
the machines required for various operations on component B, we can also note down the
machines required for component C and suppose I say that machine 3 is also required for
component C on this particular day. So, we can see that there is a conflict of machine 3
here and machine 3 here same day machines are required for 2 different components.

So, we can see that what is the capacity of machine 3 rather it can process both
component A and component C on that particular given day that is may be on September
28th or not so, all that has to be taken into account. So, that is may be the beauty of this
master production schedule we can even use it for resolving the conflicts among the
machine utilization also. The main functions of master production schedule are.

(Refer Slide Time: 16:08)

Translate the aggregate plans into specific end items. Now aggregate planning we have
already seen in our previous discussion. So, those aggregate plans whatever we know
that this particular demand has to be met by this particular production alternative. So,
that aggregate demand can be or aggregate plan can be put into action using the master
production schedule if you remember in aggregate plan we calculate that how a demand

742
or the distribution of the demand among the various quarters or the distribution of
demand among the various months of a year has to be satisfied.

So, once we have the data we have finalized our aggregate production plan we have to
translate that demand now into actual action where we have to plan our shop floor
operations in a way that we are able to satisfy that demand for that particular month. So,
it will help us to translate that plan aggregate plan into specified end item. So, how the
conversion will take place that is the actual actionable output of master production
schedule it will evaluate the alternating schedules.

Now, we may have 3, 4 different alternatives possible or possibilities existing that this
demand can be met using these 3 alternatives. So, it will help us to evaluate the
alternatives, generate the material requirement in connection with the materials
requirement planning system which we are still to cover. We will definitely cover it in
our course generate the capacity requirement, effective utilization of capacity as I have
already told in the beginning of today’s session that our focus primarily is the effective
and efficient utilization of all resources at our disposal.

So, master production schedule if we are using it will help us as I have tried to explain it
will help us to use the resources available with us in the best possible manner. Now sales
and operation plan versus master production schedule, now we can compare the 2 your
sales and operations plan is different from the master production schedule.

(Refer Slide Time: 18:17)

743
Why because master production schedule is actually the plan that we are going to follow
on our shop floor to meet the demand target or to meet the demand, but the role of sales
and operations plan is to balance supply and demand volume. So, there will be a demand
in the market so, they have to manage that whatever supply they have or whatever is
being produced whether it is able to satisfy the demand or not while the MPS or the
master production schedule specifies the mix and volume of the output.

So, the focus is primarily in terms of the number or the volume of products that can be
produced in case of master production schedule. Master production schedule shows
when the products will be available in future because we know we have done the
calculations we know that by this date our master production schedule is helping us to
find out that this many number of products will be ready. MPS is a planned production it
is not a forecast. So, actually we are making use of the forecast for making our master
production schedule it is not a forecast it is basically our plan that how we are going to
meet the forecast or meet the demand which is existing in the market.

Master production schedule is a statement of production not a statement of demand. So,

demand is certainly an input to the master production schedule, but it is not the statement
of demand, it is you can say statement of production that how actually the demand will
translate into the operations at the shop floor. So, that is basic objective of master
production schedule.

Now, what are the development phases of master production like suppose we have a
demand data available with us from various sources, how that has to be translated into
actionable production plans is basically the overall objective of preparing a master
production schedule.

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(Refer Slide Time: 20:28)

Now, MPS Development takes place in 3 phases. So, 3 stages or 3 phases are to be taken
into account, the first one is development of the first version of master production
schedule rough cut capacity planning to ensure that target production quantities are
achievable. Now, target production quantities from where we are getting we are getting
this from the demand data which is provided by the sales department. In case if the
capacity is overloaded an insufficient sales and operations team revises the plan to
develop a more viable version of master production schedule.

Now suppose there is more demand, but we do not have the capacity to produce that
many number of components which can satisfy the demand. So, we have to reschedule
the sales department has to enter into logical contracts, actionable contacts with the
customer. So, that we are able to map our capacity with the demand there are the
contracts that the company has with the vendors. So, that can be negotiated between the
sales department and the customers. So, in 3 stages the master production schedule will
be prepared. So, we can see with the help of a diagram here the master production
schedule.

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(Refer Slide Time: 21:45)

What are the inputs sales and operations department we have a production plan detailed
demand plan is must be available with us customer orders. So, all these are the kind of
inputs. So, master production schedule will be one of the inputs to the materials
requirement planning system which we are definitely going to cover in our course on
operations management in the subsequent weeks. So, at that time you must remember
that, what is a master production schedule?

So, it is basically a production plan focused on the timely production of each and every
component of the product so, that the product is delivered on the due date. So, our master
production schedule will be an input to the materials requirement planning system. So,
MPS we can see it is first tested the rough cut capacity planning is done. So, we know
that what is the demand, how we can meet, it whether we are able to meet that demand
with the existing capacity available with us if yes go ahead final MPS is issued or
prepared.

On the contrary if suppose we do not have the capacity that we have checked up in the
rough cut capacity planning stage we will look back to the sales department and try to
reorganize our demand or maybe re look at our demand data and try to figure out that
how and maybe when we can supply the products that we are producing to our customers
maybe the sales department can look at this and give a reasonable demand, not

746
reasonable maybe the actionable demand which can be translated into actual production
with the existing capacity that is what is the different stages.

And finally, whatever demand has been agreed upon or whatever contracts have been
agreed upon by the sales department with the probable customers that data will be given
as an input data to the production department and based on that revised a data master
production schedule will be formulated or it will be framed it will be again checked for
the capacity constraints and limitations and if everything goes on fine the master
production schedule will be issued and will be followed religiously in order to meet the
specified demand.

(Refer Slide Time: 24:24)

Now, what are the inputs we can see master production schedule demand forecast,
production cost, inventory cost, customer orders, whatever are the inventory level. So,
this inventory cost, inventory levels, lot size all this will be used in our materials
requirement planning also and these are the inputs and based on that MPS output will be
quantity to be produced staffing levels because we know that who are the people; who
are going to actually produce the product.

So, workforce management is also an output of master production schedule quantity to

be produced is the most important output we know that by such and such date September
30th; this many number of components will be able to produce based on the master

747
production schedule then quantity available to promise projected available balance this is
also the output that is going to help us for better management of our operation.

So, maybe each one of this point can be discussed with the help of an example, but
considering the paucity of time I leave it for the learners to further enhance their
knowledge in context of the master production schedule, but the basic idea I think is
clear to all of the learners and we will try to reinforce this idea with the help of few
examples.

(Refer Slide Time: 25:46)

So, first example you can see the aggregate plan which we have already covered in week
6 is given here, in week 6 we have seen that what do we mean by aggregate planning and
aggregate production planning. So, we have different months from January to September
and numbers of motors are there which have to be produced for January 30, February 45
similar data is available.

So, this is the demand data which has to be satisfied by our planning or production
planning department.

748
(Refer Slide Time: 26:21)

Now, we can see the master production schedule can be formulated like this within the
motors also there are four different types of motors. So, we can see 30 is the total
requirement which was there in the previous slide we can see for January 30 motors. So,
here we can see 30 subdivided into 5 AC motors 5 hours per.

So, accordingly distribution is there now the master production schedule has given us a
detailed idea that by January how many AC motors have to be produced or February how
many AC motors have to be produced. So, this is our master production schedule which
has to be followed in order to meet this overall monthly demand for the number of
motors and is monthly data can further be subdivided into weekly data in order to better
manage our operations.

749
(Refer Slide Time: 27:12)

Now, we can take another example in the following example the master production
schedule has been developed by taking the demand plan of April, May and June. So, we
can see the demand forecast data is given and we are only considering April, May and
June months of the year 2013 into accountant and assuming that the aggregate
production plan has the same figure. So, we can see coffee mugs have to be produced the
demand forecast is given 3 sizes small medium and large January, February, March this
data is given that is the demand forecast data we are focusing on these things only April
May and June.

So, what we can do here we can assign this values to our master production schedule and
this can further this subdivided into weekly basis. So, that we have better management of
our operations. So, coffee mug we can see in small quantity this much is required 23,102
is planned for month of April small coffee mugs, medium coffee mugs data is there and
large coffee mugs data for all the 3 months is available.

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(Refer Slide Time: 28:21)

So, we translate into weekly that April week 1, how many small mugs have to be
produced for week 2, how many and week 3 how many and finally, week 4 and then
similarly for the month of May and June and accordingly once we know the master
production schedule we can see that, what will be the materials requirement? What will
be the workforce requirement to achieve these targets?

So, this is the way we can represent our overall production plan in the form of a master
production schedule in order to meet the demand forecasts which is existing in the
market or the demand forecast which has been done by our sales and marketing
department. So, basically you can see that once we have the number of products that we
want to produce it can be easily translated into actionable production with the help of a
master production schedule which will give us the timelines in which the various
components or parts must be manufactured in order to meet the deadline or the product
delivery date.

So, with this we close the session on master’s production schedule and in the next week
we will carry forward our discussion on this important topic of operations management

Thank you.

751
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 46
Concept of Quality

Namaskar Friends welcome to session 46 in our course on operations management. So,

we have finished the discussion for 9 weeks and currently we are starting the discussion
for the tenth week and in this week our focus will primarily be on the important topics
which are important for ascertaining the success of an organization. We will study that
how quality plays an important role in measuring the effectiveness of the operations that
we are doing.

So, basically all operations, specially on the shop floor are involved in converting a raw
material into a tangible product. Now the quality of the product is very important. So, we
have to ensure that whatever we are doing whatever we are producing is of the utmost
quality utmost quality means the quality which is acceptable by the customer who buys
that product to achieve certain function.

So, the customer in today’s scenario is the king and he or she decides that what is the
quality of the product and everybody has become quality conscious everybody wants to
buy a good quality product. So, our operations have to be fine-tuned in such a way that
we produce good quality products. So, how the subject is related to this topic that I am
trying to emphasize because in the discussion we will see that the process is very
important whenever we talk about the quality.

We have to see that the people involved in the overall conversion process or
transformation process of the raw material into the final product are capable enough the
people involved, the men involved, the machine involved, the equipment involved,
everything every stakeholder who he or she who is involved or the equipment or
machines that are involved in the overall conversion process must be aware of what they
are producing, must be aware of the quality standards, must be aware that where they are
representing in the overall product development cycle.

752
Their role must be clear how they can affect the quality must be clear to them, how they
can improve the quality must be clear to them. So, we need to understand first that what
is quality then we need to apprise, we need to train, we need to tell, we need to guide the
people who are involved in the transformation process right from the procurement of the
raw material to the dispatch of the product to the customer everybody involved in the
organization must be quality conscious and there by only the people can suggest number
of changes which can help in order to improve the quality not only of the product, but of
the processes of the operations as well.

So, our focus will be to understand the concept of quality and try to highlight it to the
people involved in the overall process, now I think all the learners who are doing the
course may be management graduates may be engineering graduates may be bachelors of
business administration all the learners I think must have a clear cut idea about quality,
that what quality is all about and there are hundreds of good presentations available on
the internet which you can refer to and try to grasp this concept of quality there are
handbooks available there are good books available on quality.

So, you can refer to these books and try to use the concept so that we can improve the
quality of operations, the quality of service, the quality of products that we are
developing and designing. So, it is an overall concept it is not specifically a formula
where you can put in some values and you get your answer it is something which is in
our lives of we can lead a quality life or we can lead a disturbed or maybe unhappy life
also.

So, we can have a quality of life the quality word is associated with our life, also quality
word is associated with the products that we use, quality word is associated with the
processes that we see, quality word is associated with the way the governments govern
the people, quality word is associated with the automobiles how they are manufactured,
how they perform qualities, associated with the mobile phones that we use. So, quality is
all around us so it is not something which is only in the books which is only in the
presentations.

Which is only over the internet quality is all around us therefore, we need to understand
this basic concept of quality that how quality is perceived as a customer for example, I
go and buy a shirt I would definitely like to buy a very good quality shirt it should look

753
good on me the people who see me in that shirt must appreciate that you are looking
smart in this shirt. So, as a customer I perceived quality of the shirt I may look for
different colours the bright colours the colours that are suited with my skin colour. So, I
will see that what type of shirt, what type of cloth should be there for the shirt, what
should be the colour of the shirt that matches with my personality. So, that is the quality
concept from my point of view.

Now suppose there is a company which is manufacturing readymade shirts. So, they are
not only focusing on me as a customer, but their focusing on general customers. So, they
will see that what type of shirts they must prepare so that the customer buys the shirts
manufactured by that company. So, their focus may be entirely different from my focus,
my focus is colour, my focus is cost, my focus is fitting, my focus is maybe comfort that
I get by wearing that kind of a cloth or the shirt. So, my expectations as a customer of a
shirt are entirely different from the objectives of the organization which is preparing or
manufacturing that shirt.

So, they may like to see that 40 size must be exactly 40, 42 must be exactly 42 the
stitching may not come out the stitching may be of good quality. The thread that is being
used for stitching the shirt must be of the best quality, then it can be a wrinkle, it can be
can be made of a wrinkle free cloth it should be comfortable to wear. So, some of the
objectives that the company is focusing on are similar to what I also want as a customer
and that is where the input of the customer these days is defining the way the companies
are operating.

So, the feedback of the customer has become very important in defining the quality of
the processes as well as the quality of the products because of the competitive business
environment of the business scenario earlier, whatever companies used to produce they
used to push it down your throat because there was no competition, but today because of
the competition each company has to take into account the customer feedback what the
customers actually want how much price they are ready to pay. So, the customer input
has become a very important part of managing our operations in such a way that we are
able to satisfy the demand of the customer.

Therefore, the quality has also attained a very important role because the customers
always would look for quality product. So, how qualities defined, how qualities

754
perceived as a customer, how quality is defined as a manufacturer, that is the basic
concept that we are planning to discuss today in our course. Although quality is such a
word which can be discussed in a complete course for an undergraduate or a
postgraduate course, but still we will try to address the basic idea about what quality is.
So, that if there is a question that how do you see a quality of a product you must be able
to answer it convincingly, scientifically, logically and with conviction.

So, that is the purpose of this maybe 20-25 minutes of discussion related to the word
quality. So, we will try to understand the concept of quality with the help of this brief
presentation now as per Joseph Juran qualities fitness for use.

(Refer Slide Time: 09:50)

So, we can see fitness for use means that it can be from the customer’s perspective that
the function for which I have bought the product it is fit for that particular function or fit
for that particular use. Now the quality of a product or service is the fitness of that
product or service for meeting its intended use as required by the customer which I have
already explained, as a customer I have bought a product for a specific function and if
the product is performing its intended function in the best possible manner reliably I will
say that the product is of good quality.

So, the quality is fitness of or fitness for use, other quality gurus have also defined
quality. So, we can see Edward Deming has defined quality as qualities conformance to
specifications which is the quality perception or quality concept from the manufacturer’s

755
point of view because the manufacturer has to produce the product as per specifications
if you remember the example that I have taken in the beginning of today’s session the
example of a shirt.

So, as a manufacturer I will see or I will ensure that if the size is forty it must be made as
forty there should be minimum of variation in that size although I will focus on no
variation in size, ideally the focus will be no variation in the size. So, that is conformance
to specifications then as per Philip Crosby qualities conformance to requirements as per
Feigenbaum qualities what the customer says it is. So, there is a customer focus also on
quality now whatever the customer says that this is what I perceive as quality that is
actually what quality is all about.

So, different authors different quality gurus have defined quality in different
perspectives, but majorly the focus has been on the two stake holders. Now for any
product there are two stakeholders there is one per one company or a person or
organization that is offering a particular product there is audience or a customer base
which is using that product. Now quality has to be defined in context of these two
important stakeholders the offering as well as the receiving. So, we will see that how
quality is defined from the manufacturer’s point of view and how quality is defined from
the customer’s point of view or from the user’s point of view.

(Refer Slide Time: 12:54)

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The other definitions for quality the second one being slightly longer, but I have
highlighted the important points. So, that we are able to understand it point by point. So,
what is quality the totality of features and characteristics of a product or services that
bear on it is ability to satisfy stated or implied needs of the customers.

So, we can see that for a product there are certain features there are certain
characteristics or for services also there will be certain characteristics of the services for
example, you go to a bank how your serviced there, how people are interacting with you
or the bank staff is interacting with you, how much time you spend in the bank for a
particular activity for example, you want to make a draft what are the steps involved how
many times you have to go to the window.

So, these are the parameters or features or characteristics of the service being offered by
the bank now you would like to have the best experience when you are visiting a bank.
So, the bank needs to look at the customer expectation as well as the customer maybe
perception of quality that how the customer will feel happy if he enters into our bank. So,
that is the features and characteristics of a product or service and how those features and
characteristics are able to satisfy the direct needs of the customer as well as the indirect
needs of the customer or the implied needs of the customer.

For example, if I walk into a bank I would like to be serviced at the earliest possible
time. So, that the waiting time is minimum that is my direct need whatever I want to be
done for example, I want to withdraw the cash from the cash counter must be done at the
earliest possible. So, that is my direct need, but indirect need may be that if go I must
feel comfortable. So, the environment must be comfortable it must not be too muggy or
maybe too maybe with so much of moisture or maybe it is hot and humid inside the bank
that is my implied need.

It is a secondary need I have to go and withdraw the money even if that environment
persists I will have to get my direct needs serviced, but my indirect need also has to be
taken care by the bank. So, but we can conclude here is that the product has got certain
features and characteristics, these features and characteristics must be so designed that
they are able to satisfy the direct the implied needs of the customer my example may not
be that correct from the tangible product point of view, but I have tried to explain it from
the services point of view that what can be the features and characteristics of a service

757
provider which can make the customer happy both in terms of the direct needs as well as
in terms of the implied needs.

Now, coming on to the second definition we can see a quality system is the agreed on.
So, agreed on means that everybody in the organization agrees to that. So, the quality
system is the agreed on companywide and plant wide operating work structure. So, it is a
totality means everybody in the organization companywide and plant wide operating
work structure. Now, what is the work structure, work structure is effective integrated
technical and managerial procedures. So, we have to document all these things
effectively the effective integrated technical and managerial procedures.

So, these are the procedures that everybody agrees upon and these are companywide not
only for a specific department or a business unit and why these procedures are in place
for guiding the coordinated actions of people the machines or the information of
company in the best and most practical ways. So, again coming back from where we
started there has to be a companywide effective documented integrated technical and
managerial procedures that guide not only the people, but also the machines and the
information within the company in the best and most practical ways to assume customer
quality satisfaction and economic costs of quality or economical cost of quality.

So, the quality system is designed in such a way it is in the form of the effective and
integrated technical and managerial procedures which guide everybody within the
organization towards working for the customer satisfaction as well as achieving the
economical cost of quality. Then quality is inversely proportional to a variation that is a
third definition. So, if we can see inversely proportional or for low of all of us have
studied mathematics till class 10.

So, qualities inversely proportional to variations mean that if the variations in the product
performance are large we will see variations more quality is less. So, if the variations are
less we will say the quality is more.

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(Refer Slide Time: 18:40)

Now, performance objectives for quality we can see that quality is being right, speed
being fast, dependability being on time, flexibility being able to change, cost being
productive so, all this will lead to competitiveness. So, we can see that quality we can
also define that we have to be right the very first time then we can say that our
procedures our processes are of good quality.

(Refer Slide Time: 19:15)

Now, dimensions of service quality we can see quality word has got so, many different
connotations maybe if we can see that if we buy a particular product and we see that it

759
can be used for one year 2 year or 3 years, but still we are using it after 10 years also. So,
the quality has a different dimension somebody will say that it is a very good quality
product, it is a very good quality product I am using it for the last 10 years, but the other
may be part or other word that actually can define that time bound performance of that
product can be one word can be performance that the performance is so, good that the
customer has used it for 10 years therefore, it is a good quality product or it can be
dependability or it can be reliability.

So, we will see that it is a very reliable product therefore, it is of good it is a good quality
product. So, there different denominations like performance will the product do the
intended job if it does an intended job perfectly we will say yes the performance is good
for example, we take example of a mobile phone if I am using a mobile phone for the last
4 years and there has not been a single maybe problem of hanging off the phone I will
say my phone I am losing for last years it has never hanged and it has always operated
successfully.

It has never given any troubleshooting or any problem to me then I will say we will say it
is the performance is very good in nutshell we are saying the quality of the product is
very good. Similarly, reliability, how often does the product fails so, example that I have
taken me something between performance and reliability if my product has never failed
for the last 4 years I will say it is a reliable product. Durability how long does the product
last for example, I use a product for 10 years and still it is working with me. So, I will
say that it is a durable product and a good quality product.

Serviceability how easy is it to repair the product aesthetics what does the product look
like, features what does the product do, perceived quality, what is a reputation of a
company about or its product. So, basically quality has got varied dimension. So, as a
customer if one particular maybe I have bought a product for a particular use for a
particular intended function for example, I buy a pen and I am writing with it if for
maybe for 5 years continuously I am using the same pen and I have never faced any
problem with that pen.

So, I will say that the durability is good, reliability is good, performance of the pen is
good, but in nutshell what I am saying that the overall quality of the pen is very good.

760
Now, quality in different applications I have taken I think 2 - 3 example I have taken an
example of a bank, we have taken an example of a pen, we have taken an example of a
shirt. So, in different dimensions or in different applications we can see quality has got
different meanings.

(Refer Slide Time: 22:31)

So, for example, we have seen we have highlighted it may not be possible to go through
each and every area or application area, but some of them we can see for example, in
airlines what can be the quality the criteria, we can say on time arrival, comfortable
seats, low cost service. So, the cost can be one criteria, comfort level can be another
criteria, on time arrivals and departures can be another criteria of branding any airline
service has a good quality service.

Similarly, if we talk about the postal services we can say fast delivery, correct delivery,
cost containment so, all these parameters will be quality criteria for the postal services.
Similarly, as all of us are at least we are in to academics we are into academia so, for
academia proper preparation for future on time knowledge delivery. So, all these can be
the quality criteria. Similarly, for automotive suppose for cars or motorcycle defect free
performance can be one quality criteria, fuel efficiency can be another quality criteria.
So, where we can have different types of quality criteria for judging the quality of 2 or 3
different types of competitor 2 or 3 competitors in the same area.

761
For example, in airline sector if we have suppose 4 companies operating the aircraft. So,
we can compare them based on these quality criteria that on time arrival, comfortable,
low cost and we can sometimes go to further micro detailing also the type of food being
served or maybe sometimes we can see the charge for extra baggage. So, there can be
number of criteria based on which we can compare different service providers in the air
aviation industry and then we can judge that which one is the best quality as per my
requirement or as per as a customer which company I feel is giving me the best service.

So, similarly in all different application areas we can see that the quality service or what
is the quality criteria and how a customer sees a particular company as per his quality
expectations. So, qualities will be variable within the maybe customer base also for
example, if we are buying a soap, a bathing soap we want to buy. So, the quality of a
bathing soap for one person or one customer may be different from the quality that is
perceived by a customer in the completely different segment.

So, the quality is a relative term which will be perceived differently with different
customers also therefore, there are different companies focusing on different target
segments of the customers for their products. So, but the quality in general will be it has
to satisfy the intended need as well as the implied need of the customer from that
product. Now, suppose I feel that this shirt of a particular company is satisfying my need
my direct need of wearing this shirt as well as my implied needs that I must look smart in
this shirt I will say it is good quality shirt as perceived as a customer from my point of
view, but somebody else may say it is not a good quality shirt there are the other
companies which are preparing better shirts than this.

So, if as a customer they feel that yes that is the quality they have defined, the intended
uses do you find the implied needs are defined and they that needs are satisfied. So, they
can say yes that is a good quality from the, those customer’s point of view. So, within the
customer base also we can see that how we can understand the concept of quality.

So, within the customers also the quality definitions or the concept of quality will be
variable and therefore, it is important to understand that if we are managing the operation
if we are producing something how to get this information that what the customers want
and what customers will appreciate as a quality product if we produce a particular
product and sell it in the market.

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(Refer Slide Time: 27:18)

Now, there are three aspects of quality very quickly we can see the three aspects of
quality and their linkages with each other have been depicted quality aspects, quality of
conformance, quality of design, quality of performance. So, the definitions given by the
quality guru focus on these three important quality of conformance, performance and
design.

(Refer Slide Time: 27:37)

Now, quality of design as I have already told from consumer’s perspective as a customer
as a consumer I may perceive this shirt as a very good quality shirt, but some other

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consumer or customer may not feel the same thing. So, the quality definitions or quality
concepts may vary from customer to customer the product must be designed to meet the
requirement of the customer. So, the company which has produced this shirt has taken
this thing into account that the design of the shirt must be such that what if some
customer wants to buy this colour, shirt in half sleeves, he must be able to say he must be
happy to buy this shirt.

The product must be designed right the first time and every time and while designing all
aspects of customer expectations must be incorporated into the product. So, again the
focus is on the customer. Now this is from the consumer’s point of view the customer’s
point of view what design thinking should go into the design of the product or the quality
design of the product.

(Refer Slide Time: 28:47)

Now, quality of design from consumer’s perspective we can see the factors that need to
be considered while designing the product are what is a type of product? What will be
the cost? What is the profit policy of the organization? What is the demand of that
product in the market? What is the availability of the parts that are required to make that
product?

Now, quality of conformance is from the manufactures perspective, now quality of

design means when we are designing a product our focus is on the customer that who are
our customers and what are their needs and requirements, what are the direct needs, what

764
are their implied needs and we must design a product in order to satisfy the customer’s
needs and requirement.

The quality of conformance is majorly from the manufacturer’s perspective the product
must be manufactured exactly as designed.

(Refer Slide Time: 29:35)

The activities involved at this stage may include defect finding, defect prevention, defect
analysis, rectification which means that we have to conform to the specifications as
designed. So, whenever a designer designs a product he lays out certain specifications for
the manufacturer.

So, conformance to specifications basically is the manufacturer’s objective that whatever

are the specifications we must meet these specifications religiously in order to satisfy our
customer.

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(Refer Slide Time: 30:13)

Now, quality of conformance, from manufacturers perspective the difficulties

encountered at the manufacturing stage must be conveyed to the designers for
modification in design if any and if you remember in product design and development;
we have touched the topic design for manufacturing this is basically where the designers
and manufacturers work as a team in order to satisfy the customers demand.

The two-way communication between the designer and manufacturing team may help to
improve the quality of the product which is a basic aim of design for manufacturing.

(Refer Slide Time: 30:50)

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Now, quality of performance is again from consumer’s perspectives so, quality of
performance means how the product will perform. The product must function as per the
expectations of the customer the two-way communication between the designers and the
customer is the key to have a quality product. So, you can see that there are three
important words of design, quality of performance, quality of conformance. So, if all
these three aspects are taken into account they are integrated into one bigger objective.

So, the overall objective is to produce a product which is acceptable by the customer the
customer perceives it as a good quality product. So, for that the complete organization
will need to focus on all the quality aspects and with this I think I will end the today’s
session and in the next session we will cover a most important topic that is total quality
management

Thank you.

767
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 47
Total Quality Management (TQM)

Namaskar Friends, welcome to session 47 in our course on Operations Management and

as you are aware we are currently in the tenth week of our discussion. We have already
completed discussion for 9 weeks and in these 9 weeks, we have tried to understand that
in operations management, we need to take certain strategic decisions starting from what
must be our product, what we must produce then we have to see that what is the number
or the quantity of products that we must produce. Then we have to answer the question
where we have to produce this product where the facility must be created, where the
plant must be located.

Then we have to see within the plant west what must be our layout, what type of layouts
we must use in different types of manufacturing activities. Then we have seen that how
we can schedule our operations; also we have try to understand that how the project
scheduling can be done. Now we are currently discussing that once we know that what
we have to produce, how much we have to produce, how we have to produce it we have
to see that our focus must be on quality we must try to produce a good quality product so
that the customer is satisfied with our product, and he buys our product he is loyal to
over the company, and he repeats his purchases a year after year or maybe whenever he
wants to change the product must come to our company only as a loyal customer of our
brand.

So, that we have to ensure and therefore, each one of us must appreciate the concept of
quality and how quality can be implemented in an organization that is something
important that everybody must know every engineer, every manager must know and in
that context, there is a management philosophy, management thought which is called as
the total quality management. In most of the universities it is an important course in the
curriculum of engineers, irrespective of the branch in which they are specializing; it is
across the disciplines that this course is taught to all the engineering students,
engineering graduates as well as to the managers why? Because in today’s scenario in

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today’s competitive world; where for a single product, there are 8 to 10 to 15 different
companies manufacturing the same product.

The concept of quality has assumed much more significance as it used to be in the last
maybe 40-50 years therefore, a product with good quality will only be able to sustain its
market share otherwise it is going to be obsoleted from the market on its own there is no
maybe reason that the product must not be obsoleted it is not a good quality product. And
if we see the quality products have lived the test of times and are still being used, and
those which were not able to satisfy the customer which were not designed as per the
quality, which were not manufactured as per quality specifications have disappeared into
oblivion.

So, therefore, the TQM concept is an important concept, and as manager as engineer all
of us must emphasize this concept all across the organization so that, everybody who is
associated with the organization must effectively and efficiently work towards the
objectives of quality so, that the organization also moves forward it progresses, which
will automatically lead to the progress and improvement of the individuals associated
with the organization.

Therefore, today our topic will be total quality management, and we will try to
understand this basic concept that what total quality is all about a total quality
management is all about, what is the definition and how we can implement this.
Although the time allocated for this topic in our course on operations management is not
that large maybe we have one session only on the concept of TQM, but we will try to
understand at least the basics of TQM or the philosophy of TQM.

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(Refer Slide Time: 05:15)

Now, the customer expectations are supreme in today’s scenario and on your screen you
can see that deliver the customer what they exactly want. As in the previous session also
our focus was on concept of quality and we have seen that we have quality of design
quality of conformance quality of performance. So, as a manufacturer it is our
responsibility it is our duty to ensure the quality of conformance and performance as well
as to ensure the good quality of the design, which is much more dependent upon the
customer’s feedback, customer’s need, customer’s requirements direct needs as well as
the implied needs.

So, we have to deliver the customer what they exactly want. Then our focus must be that
we must be able to produce first time the right product first time and every time the right
product, that is we must focus on eliminating the waste in terms of defective items or
production of defective items nothing less nothing more. So, we will see in our
subsequent sessions, we are going to discuss materials management where we will see
that we must order what is exactly required.

So, it should not be more because then it will add to the inventory cost, also we must not
add order less so that, there is a condition or a situation of a stock out and the production
or the operations have to be stopped.

Similarly, from quality point of view also, it should be nothing less and nothing more.
Quality target must be 100 percent, acceptable quality may be 99 percent which I may be

770
slightly disagree we must focus on 100 percent quality only with the type of technology,
with the type of inspection metrology instrumentations available with us these days, we
must focus on 100 percent quality. For example, if a 100 centimeter scale is the exact
dimension exact specification of the product; can you accept a scale of 99 centimeter
length? So, as a customer I will never accept that scale. So, our focus has to be on 100
percent quality.

(Refer Slide Time: 07:48)

Now, what is total quality management? The question mark signifies that we need to
understand this concept of total quality management and as you see it is made up of three
words, total, quality and management. The total means it is made up of the whole which
means that if an organization decides to go for quality or to go for TQM, it cannot be in
bits and pieces or it cannot be department wise it has to be whole that is total then quality
all of us know degree of excellence a product or service provides.

So, quality as we have seen that its fitness for use there were a number of definitions
which have which we have seen in the previous session. So, quality is well known to all
of you, and coming on to the last word that is management. That is our actions we have
to plan in such a way that this quality product is produced in the organization and is
delivered to the customer and it satisfies the intended function for which the customer is
buying the product; So, the act art or manner of planning controlling and directing with
an objective of ensuring the quality.

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So, therefore, TQM is the art of managing the whole or complete to achieve excellence
in terms of product. Why I am saying product because if the product is of good quality, it
means that the preceding operations and materials procurement and all other functions
are of good quality why? Because a product is a reflection of the procedures and the
operations that have been employed to produce this product for example, for an
educational institute the product is the student who graduates from that institute or the
college.

So, if the student comes out with flying colors and the company which has hired that
individual or that student is extremely satisfied with the performance of that student or
the alumnus of a particular institute, the company will definitely be proud of the
organizers the student as well as the company will definitely be proud of the institute
from where the student has graduated.

There will be no doubt about the capability of the institute to produce wonderful
intelligent and brilliant professionals which are going to serve the organization. So, the
process of graduation will be certified that yes the process is good, the sessions or the
lectures or the process examination system everything is ok. Therefore, only the product
in the form of the graduating student which has come out is of good quality.

Therefore, our focus has to be on each and every maybe step involved in the overall
product development cycle so that our total quality is ensured. So, we can see another
definition on the screen.

772
(Refer Slide Time: 11:15)

The TQM can be seen as the process used to manage the change in environment that will
ensure that company reaches the goal of TCI, but what is TCI that we are going to
understand in this slide, but before going to TCI let us first see what TQM is all about.
So, TQM is seen as the process why a process because it is ensuring a continuous
improvement. So, the process is continuous, it has seen as a process which is used to
manage the change in environment.

Now, this process will be companywide it will be plant wide, it will be organization
wide. So, it will be in totality ensuring that you change for better you change for better
methods, you change for better inspection techniques, you change for better HR
managing and management, you change for better financial procedure.

So, the process is of change and TQM is will ensure it can be seen as a process used to
manage the change in the environment, that will ensure why do we need to change why
do we need to change all these procedures all these processes in order to ensure that the
company reaches the goal of TCI.

Now, TCI is total continuous improvement. Total involves everybody in the organization
continuous means forever an improvement means we need to eliminate the waste we
need to reduce the variations in the product as well as improvement in the innovation or
the creativity among the employees. So, we focus on TCI. So, it is a process which will
lead to this change in the overall lead to the or manage the change which will lead to the

773
improvement in the TCI or the we can say total continuous which will lead to the total
continuous improvement.

So, we can see that it is companywide, it is continuous process and it is leading to a

positive change in the organization, and this change will automatically lead to better
productivity better employee satisfaction, and in nutshell better profits for the
organization; Another very good definition given by ISO.

(Refer Slide Time: 13:56)

TQM is a management approach of an organization in the previous definition we have

said that it is a process to manage the change within the organization to ensure that the
company reaches its objectives of TCI. Here we are saying it is an approach of an
organization centered on the participation of all its members and aiming at long term
success.

So, another two words are again coming total that is participation of all its members. So,
total word is coming there and aiming at long term success which is a continuous
process. So, long term success, how it can be achieved? It can be achieved through
customer satisfaction and benefits to the members of organization and society.

So, again I will read now the definition as a complete definition, TQM is a management
approach of an organization. So, we can also call TQM as a management approach.

774
Centered on the participation of all its members and aiming at long term success through
customer satisfaction and benefits to the members of organization and society at large.

What is the goal of TQM? Now what we tend to achieve we have seen so many
definitions. So, just to summarize do the right things right the first time and every time.

(Refer Slide Time: 15:28)

So, do the right things which means that it will help us this management approach will
help us to identify that what are the right things to be done in an organization. Then
doing the right things right which means we have identified what needs to be done, then
we have to do it perfectly efficiently and effectively.

The first time it should not be an iterative process it should be done right the very first
time and every time that is it has to be continuous it cannot be a stopgap that the now I
am doing everything correctly, but after some time I start making mistakes. So, those
mistakes are avoidable and must be avoided. So, do the right things right the first time
and every time.

775
(Refer Slide Time: 16:30)

Now, there are 6 Cs of TQM we can see, we can start from the top commitment which
means that total commitment from the top or the strategic team to the operational team of
the organization. So, that total commitment must be there, quality culture must be there,
each and every employee must be aware of the concept of quality and must be aware
what is his role in ensuring the quality of the product, where he is participating in
ensuring the quality of the product.

So, that quality culture is very important, then continuous improvement. Always we have
to manage the system in such a way that continuously we are towards the path of
improvement cooperation among the various stakeholders is very important for ensuring
the quality, customer focus is the most important point and the most important C from
TQMs point of view, that our approach must be customer centric what the customer
actually wants and if we are able to satisfy the quality needs of the customer the
company will definitely move on the path of progress and the project trajectory we can
say or will be towards the profits as well as the financial stability.

Similarly, the control so, we can see that the 6Cs if we combine them together if there is
a commitment from the top there is a quality culture within the organization the
organization is focused on always improving the quality continuously improving the
quality, and there is a cooperation among all the various departments within the
organization, that designs the operations are focused on customer point of view or the

776
customer’s needs and requirement and in and if there is a control on whatever changes
have been planned, documented, executed if there is a control on these changes definitely
the TQM philosophy, TQM approach, TQM process will yield the desired results for the
organization.

(Refer Slide Time: 18:57)

Now, productivity and TQM normally the traditional view is, that quality cannot be
improved without significant losses in productivity. Usually we feel that if in order to
ensure quality again and again we are checking the quality of the product, we have
different inspection state may be stations within the production line. So, normally people
feel more inspection, more breakages do not add any value to the product and the lose it
loses time also. So, the productivity becomes less, but know the TQM approach says that
improved quality will lead to improved productivity.

So, we can plan we can change our inspection procedures in such a way that we are able
to inspect also and we are not compromising on the productivity of the production line
also. So, TQM will help us to design our production line in such a way that, we are able
to achieve the dual motto of inspection also as well as high productivity also.

So, the traditional view that quality cannot be improved without compromising the
productivity is I think a completely false view, and in these days companies are focusing
on TQM and TQM implementation is leading to higher productivity as compared to the
traditional approaches of management.

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Now, what are the basic principles of TQM, basic tenets of TQM we can see here
whatever I think we have discussed by now everything has been summarized in this
slide.

(Refer Slide Time: 20:42)

The customer makes the ultimate determination of quality. So, as we have seen the 6Cs
of TQM customer focus must be there if we want to implement the TQM philosophy.
The top management must provide leadership and support for all quality initiatives. So,
as per 6Cs, we can say commitment and culture is coming here in point number 2. The
top management commitment must be there and there should be quality culture within
the organization.

Preventing variability is the key to producing high quality. Now preventing variability if
you see the control aspect is coming here, how we can prevent the variability by
exercising control. So, the C of 6Cs of TQM is coming in to point number 3, that is
preventing variability is the key to producing high quality by exercising control. Quality
goals are a moving target thereby requiring a commitment towards continuous
improvement. So, C for continuous again is coming a 6Cs of quality or TQM. Improving
quality requires the establishment of effective metrics we must speak with data and facts
not just opinions or gut feelings.

So, our intuitive appeals or what we feel as an individual does not play any role the
things must be run by procedure, the systems must be run by rules regulation policies

778
and procedures. So, whenever quality is being discussed it must be discussed in terms of
facts and data instead of may be feelings or gut feelings or intuitive appeal. So, the total
quality management approach will focus on facts and data maybe instead of focusing on
the gut feelings or intuitive appeal of individuals.

(Refer Slide Time: 23:01)

Now, the three aspects of TQM quickly we can conclude here, counting tools techniques
and training in their use for analyzing understanding and solving the quality problems.

So, the three aspects, first is the counting as we have seen our approach must be focused
on facts and data, it should not be just a rhetoric that we want to implement TQM, we
must have the relevant data also relevant facts also available with us if we want to
successfully implement the TQM philosophy or approach.

So, counting will give us those facts and data, counting what are the tools, what are the
techniques and training in their use for the analyzing. So, maybe what are tools
techniques one thing, how to use them the training must be given to the employees and
then if that data whatever information we are deriving from these tools and techniques, it
can be used for analyzing understanding and solving the quality problems.

Then with the other focuses again and again we are emphasizing the same point
customers, quality for the customer as a driving force and central concern. So, whatever
operations we are doing within the organization must be focused on customer as the king

779
that we have to produce a product which satisfies the demand of the customer then the
cultural part that is shared values and beliefs expressed by leaders that define and support
quality.

So, these three aspects we must focused on facts and figures and data’s and tools and
techniques that is the counting maybe that is giving some you can say specific details to
the quality that is the counting then the customers and finally, the quality culture. TQM
and continuous improvement I think already I have highlighted all these points. So,
quickly I will read them.

(Refer Slide Time: 25:04)

TQM is the management process used to make continuous improvements to all functions
TQM represents an ongoing continuous commitment to improvement, the foundation of
total quality is a management philosophy that supports meeting customer requirements
through continuous improvement. So, everything has been explained earlier.

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(Refer Slide Time: 25:30)

Now, continuous improvement versus traditional approach we can see. In traditional

approach market share is the focus, but in continuous approach customer is the focus.

Similarly, in case of traditional approach is focused on individual, but continuous

approach is focused on cross functional teams which mean that people from different
specializations combine together to ensure the quality of the product. So, another most
important fact is that traditional approach is focusing on short term whereas, the
continuous approach is a long term focus or maybe our focus will be on continuous
improvement in case of TQM.

So, mostly in case of traditional approach we go for firefighting, there is a problem we

start addressing that problem, but in continuous approach we will be going for problem
solving one by one and it this problem solving approach will be a continuous endeavor in
the organization. There are other maybe we can say differences the last one that I want to
emphasize is in traditional approach we focus on the product or the product is the focus
whereas, in continuous approach process improvement is the focus and already I have
highlighted that is our process is a correct product automatically is the output of this
correct process.

So, if a process is wonderful process, is excellent process, is defect free process is any
other adjective you can use then automatically the product will be of good quality and in

781
continuous approach our focus is on designing the system in such a way that it only gives
out the best product only.

(Refer Slide Time: 27:20)

Now, the TQM system I think the last part for today’s session, continuous improvement
is the objective the principles are customer focus process improvement and total
involvement of each and every employee each and every system of the organization. And
what are the elements that can help us to achieve these objectives? Leadership, education
and training, supportive structure, communications reward and recognition and
measurement.

Some in some of the companies we have quality circles and there is an award scheme
whichever quality circle will give the best possible solution to an existing problem the
awards can be given. So, measurement is also which is that control part of TQM; we can
check that, whether whatever changes we have proposed what type of benefits can be
derived out of them.

So, this is I think a total TQM system objective is continuous improvement, then there
are certain guiding principles which will help us and there are elements which we need to
focus on in order to meet the objective of continuous improvement.

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(Refer Slide Time: 28:32)

The best way to implement TQM is different approaches are possible soft approach or a
hard approach a rhetoric or concrete actions total organization or a pilot project general
TQM implementation of a specific TQM implementation bottom up approach starting
from the lower level to the higher level or it can be top down that you start the
philosophy or approach a total top level and then you make it stepwise you bring the
TQM principles to the lower level. But in general if we say it has to be implemented in a
way that everybody is involved in the TQM endeavors.

So, in practice we can say summarize interaction between the different approaches is
needed. That single approach may not give us the desired results. So, we can combine
these all approaches to get the desired results.

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(Refer Slide Time: 29:32)

Now, there are seven steps of TQM quickly I will read these points and then conclude we
have to select a theme, then grasp the present system what is the current way of doing
that particular job, analyze the present situation, set the counter measures into motion
determine the effectiveness of the counter measures use standard operating procedures
and plan for future action.

So, this is a standard approach usually followed whenever we want to bring a change.
So, we have to first understand the current way of doing the work or current way of
managing the operations, then we have to see how better we can manage them, what are
the alternatives available with us then we pick and choose analyze the alternatives we
scrutinize the alternatives and finally, we feel this is going to be the best alternative in
order to improve the existing condition and then we implement the chosen alternative
and see how it works and then we document all the process.

So, that in future we can look at the document and see that how we have designed this
method or this process which has yielded the desired results. So, with this we conclude
the today’s session on total quality management, in our subsequent sessions we will
focus on other important tools and techniques which can help us to manage our
operations in a more maybe efficient and effective manner.

Thank you.

784
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 48
Total Productive Maintenance

Namaskar Friends, welcome to session 48 in our course on operations management and

as it is very clear to all of you currently we are in tenth week of our discussion, and we
have trying to see to understand the processes, the approaches, the philosophies which
can help us to better manage our operations. And one of the important techniques is the
total productive maintenance.

Now, in the previous session if you remember we have seen the total quality
management and prior to that we have try to understand the concept of quality. Now how
these things are interrelated and how these things are important from the point of view of
operations management we can see that why we are doing the operations, why we are
doing the business activity in order to produce some tangible outputs and these outputs
have to be of good quality then only the company will survive in the market, then only
the company will grow in the market.

So, the quality of our products and services is very important and as operations manager
it becomes our responsibility, we are accountable for that that we are producing a good
quality product.

Now, in order to produce a good quality product our operations must be smooth, our
operations must be very effective, they must be efficient, they must be productive
whatever activity we are doing must reflect in the quality of our product. And we have
seen that the concept of total quality management is a plant wide, organization wide
factory wide concept. It is not a maybe local domain concept or may be specific to a
particular department.

So, all people should have this culture of ensuring quality of whatever activities they are
doing or whatever operations they are conducting or whatever inspections they are doing.
So, the quality culture is very important in any organization.

785
Now, coming on to the total productive maintenance; Suppose we have a set of 50
different machines which are working on a particular product. If maybe some of the
machines are under breakdown or are under maintenance the overall system performance
will suffer. So, we have to ensure that all our machines and equipment are up and
running as per our planned production schedule.

So, if some of the machines are not functioning properly, our productivity will definitely
suffer. So, we have to ensure, we have to make it possible that we do maintenance of our
machines at regular time intervals whatever is prescribed for a particular machine. So,
that the process is smooth, the operations are continuous, our production is continuous
and we are able to produce a right quality product at right time in right quantity as per
the customer requirements.

And therefore, the total preventive maintenance is one such strategy which will help
companies to evolve a better maintenance policy or a better maintenance schedule which
will help the company in ensuring that all the machines are up and running as per the
requirement, as per the plan and that company produces the products to satisfy the
customer demand.

So, we will try to understand in a very brief manner the concept of total productive
maintenance, because we have allocated 30 minutes of discussion maximum on total
productive maintenance. So, they will have an overview of the concept of TPM and
much details are possible in this particular concept. So, I will just introduce you to the
concept and all the learners can see that where all they can progress what all they can
study in further detail in order to clearly understand the concept of TPM in order to have
a good grasp over the concept of TPM.

So, let us start our discussion.

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(Refer Slide Time: 05:02)

So, total productive maintenance you can see first thing is total that is participation of all
employees. As we have seen in total quality management also that word total means
participation of everybody involved in the operations, everybody who is a part of the
organization. So, it includes the whole, it includes everybody includes all departments
operations equipment and process. Then coming on to productive which means pursue
the maximization of efficiency of the production system by making all losses as 0.

Now, what our losses may be we can say that accidents must be 0, defects in the product
must be 0 breakdown of the machine must be 0. So, total means everybody is involved
productive means that we have to ensure that our defects are 0 our accidents are 0 our
breakdowns are 0. So, total productive maintenance total and productivity we have
understood and maintenance, it is our endeavor to improve the efficiency of the
equipment.

So, maintenance means that the entire lifecycle of the production system is under our
investigation under our maybe purview and we have to ensure that for the entire lifecycle
of the system the system is up and running.

Barring the schedule maintenance activity, when we stop the process and we do some
maintenance is not only to repair and maintain the machines.

787
(Refer Slide Time: 06:50)

But it also has to ensure that the machines are running during their actual production
activity.

(Refer Slide Time: 06:58)

So, we have seen that total productive and maintenance are the three things that make up
this concept of TPM that is total productive maintenance.

Now, history of TPM; TPM is an innovative Japanese concept or reason of TPM can be
tracked back to 1951. So, Nippondenso of the Toyota group was the first company to

788
introduce plant wide preventive maintenance in 1960s. So, this is just a brief history now
let us define the concept of TPM what actually TPM is.

(Refer Slide Time: 07:36)

So, TPM is a set of activities. As we have seen the total quality management is a process
it is an approach similarly TPM that is total productive maintenance is a set of activities
now what is the aim of these activities? For restoring equipment to its optimal condition,
and changing the work environment to maintain those conditions through daily
maintenance activities.

So, basically these are the activities which ensure that the machines are working as per
the plan. So, there is no breakdown of the machine, there is no accident because of the
breakdown of the machine; So, all that has to be ensured their set of activities for
restoring equipments to optimal condition or optimal operating conditions. So, we have
to ensure that whatever are the optimal conditions or optimal operating conditions for the
equipment, we have to ensure that machine operates under those conditions only.

Now, how that is possible that is possible if we maintain them as per the schedule,
similarly changing the work environment to maintain those conditions. So, we have to
see that how we can modify our environment to ensure that the machines operate at their
optimal conditions or the equipment operates at their optimal condition through daily
maintenance activity.

789
So, sometimes for some of the machines we may go for daily maintenance, for some of
the weekly maintenance if there is a big plant, we may go even for a half yearly
maintenance activity also; So, all that is scheduled maintenance as per the standard
operating procedure.

As soon as you buy or you set up a big plant for example, a cement manufacturing plant.
So, it may have its maintenance policy that how each, and every equipment after how
much time and equipment has to be serviced and equipment has to be brought under
maintenance.

Similarly, for a thermal power generation plant, there will be a maintenance policy for
each and every equipment for boiler, for turbine whatever are the constituents of that big
system, there will be a maintenance policy for each and every see a part of that system
and which will be scheduled as per the standard operating procedure as per the
maintenance policy being followed for that plant. So, here that policy has to be followed
in principle has to be followed religiously. So, that we are able to keep our system up and
running.

Now, what are the objective, why do we need to focus so much on these maintenance
activities why? Because we want to increase the production while at the same time
increasing employee morale and job satisfaction.

(Refer Slide Time: 10:46)

790
So, we have to ensure that the machines are up and running our production increases at
the same time the employees are also happy, their morale is high and they are satisfied
with the jobs that they are doing.

Hold emergency and unscheduled maintenance to a minimum. As I have already been

highlighting that each and every industry will have a scheduled maintenance policy. So,
TPM objectives are if we are following the TPM our objective is that emergency and
unscheduled maintenance activity must be reduced to a minimum or we can say that
must be 0. We must only follow the scheduled maintenance policy which has been laid
out for the organization.

Another objective is to provide the safe and good working environment to the worker. As
well as what we have already seen the TPM objectives are to achieve 0 defects, 0
breakdown and 0 accidents in all functional areas of the organization. So, it has to be
ensured that there is no accident happening because of the breakdown of the machine or
because of the breakdown of an equipment, that defects are 0 because sometimes the
product that we are manufacturing may be defective because the machine is not
operating properly.

So, that also has to be ensured because indirectly it will affect the quality of the product
also. In fact, I must say directly it will affect the quality of the product and the accidents
have to be minimum.

(Refer Slide Time: 12:41)

791
Now involve people at all levels of organization as we have already seen in case of total
quality management, similarly in total productive maintenance also we have to ensure
that the concept or the activities involve everybody in the organization. So, form
different teams to reduce the defects ensure self-maintenance to fulfill the regulatory
compliances.

So, maybe if we are operating for example, a rope way maybe from one station to
another station, there will be a regulatory order that every month you have to check all
these important installations and make a daily report or make a diary that these things
have been checked and found well under the operating conditions or operating
environment.

So, you have a diary or you have to manage logbook in which you will enter all the vital
parameters, for the important installations used for operating a rope way. So, there are
regulatory compliances, which will enforce a company to go for total productive
maintenance.

(Refer Slide Time: 13:56)

Now, there are eight pillars of total productive maintenance on the right hand side you
can see the taken from the slide share, 5S autonomous maintenance, concept of Kaizen
planned maintenance, quality maintenance, training, office TPM, safety health and
environment. So, if we maybe build a strong foundation, if we are strong in these eight
pillars our systems will not have to undergo unscheduled or accidental maintenance. Our

792
systems will be maintained under scheduled maintenance activities only and the system
will be highly productive and will be having the continuous production, which will help
the company to make a lot of profit. So, here we can see eight pillars we can take into
account.

So, friends it is difficult to explain all these important aspects in context of TPM in a
very short duration that we have with us, but 5S and Kaizen are the two important topics
which are covered in most of the UG curriculum. So, we can see that five s is the
Japanese terms, which are Seiri Seiton Seiso Seiketsu Shitsuke and here we can see the
English meaning of these five terms. In English this means sort, systemize sweep
standardized or standardization and self discipline. So, 5S also is one of the important
pillars of total productive maintenance.

Similarly, Kaizen means continuous improvement, which we have already seen in case
of total quality management; that we always we have to strive for improving our systems
our processes in such a way, that we are continuously improving the quality that we are
offering to our customers. So, Kaizen and 5S we have seen that these can help us to
ensure the implementation of TPM in our organization.

(Refer Slide Time: 16:14)

Now, what can be a TPM targets? The targets can be obtained minimum 80 percent
overall production efficiency, obtain minimum of 90 percent overall equipment
effectiveness from quality point of view operate in a manner. So, that there are no

793
customer complaints. So, as I have already told you that that quality of the product is
directly proportional to the maintenance of our machines and equipment. If our machines
and equipment are not properly maintained the quality that we are producing may not be
as per the desired specification or we can say the conformance to specification will not
be honored. So, therefore, the maintenance of equipment is equally important from the
quality point of view.

Similarly, the cost from cost point of view the target of TPM is to reduce the
manufacturing cost as much as possible. So, if there is avoidance of unscheduled
maintenance if we can avoid the accidents, if we can avoid the unscheduled as well as
the may be unnecessary maintenance activity for the equipment, we can definitely save
lot of cost and which will help us to be more productive from the economical point of
view.

So, we can see the production from the production point of view obtain minimum 80
percent overall production efficiency and 90 percent of overall equipment effectiveness.
So, we have to see this is the percentage is given in terms of efficiency and effectiveness.

So, we can say that production efficiency 80 percent means that we are able to achieve
our targets, at least it is given minimum 80 percent it can even be higher and our target
can be maybe sometimes higher as high as 90 percent of the production efficiency.

Sometimes one of the targets even can be that we have to give a rest to the machine so,
that we are able to operate effectively and efficiently with a break to the machine and
after the rest period for the machine, we feel that the machine’s wear and tear can be
minimized.

But on the contrary we have to ensure with the schedule maintenance of machines and
equipment, even that during the lunch time also the machine may be functional and
operating. So, that also that is our target that we must ensure that the machine is
available for producing the products.

And in order in maybe we can say in subsequent to that we can say that further
improving our production efficiency. So, if we can even ensure the use of machine for
the maximum period of time by the planned maintenance of our production efficiency
can further be focused upon and can be improved in many cases.

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(Refer Slide Time: 19:29)

Now, from delivery point of view, we have to achieve 100 percent success in delivering
the goods as required by the customer. From safety point of view our target must be that
maintain an accident free environment. From multitasking point of view developed multi
skilled and flexible worker.

So, we can see that TPM targets is TPM is not only focused on reducing the maintenance
activity within the organization, but TPM is focused on improving the production
improving the production efficiency, improving the equipment effectiveness ensuring the
quality minimizing the cost, ensuring delivery, ensuring safety as well as ensuring
multitasking of the worker. So, it has got a wide dimension where the TPM has got its
footprints.

795
(Refer Slide Time: 20:29)

Now, what we can see is the major losses in production line and organization. So, we can
see first and foremost is the failure loss or the breakdown loss. Every company want
each and every machine to be working barring the scheduled maintenance part because
everything requires maintenance. If we take an example of human body, human body
also requires maintenance, we sleep in the night and work during the day; many times
people go out for vacations just to give relaxation not only to the mind, but also to the
body. So, every working machine requires some kind of maintenance.

But the maintenance must be a scheduled maintenance we decide when we have to go on

the vacations. It is not something accidental. So, accidental maintenance where we are
forced to stay indoor that has to be avoided. Because somebody has fallen ill he has to
stay at home for five days. So, that cannot be called as a planned vacation, it is accidental
vacation similarly for machines also there will be a planned maintenance where the
machine will not be working and everything all the maintenance activity related to that
machine will be done.

On the contrary, there can be accidental maintenance where the machine has broken
down or machine is not functioning properly and the people involved from the
maintenance department are working on the machine to make it up and running.

So, the first type of loss is that all of a sudden the machine breakdowns and is out of
order and is not producing thereby affecting the production efficiency of the production

796
line; Setup and adjustments losses, cutting blade losses. So, suppose while operating the
blade breaks down maybe it is all kind of a loss it is broken, startup loss minor stoppage
idling losses speed loss the machine is not operating at its optimal speed what is at
operating at a lower speed, because has not been maintained properly defect or rework
losses are there schedule downtime, losses are there yes that has to be there because it is
a scheduled maintenance.

(Refer Slide Time: 23:14)

Management loss, operating motion loss, Line organization loss, Logistics loss in
measurement and adjustment loss energy loss; So, there is a long list of losses in the
production line and organization.

So, our target of total productive maintenance is that we have to ensure that, these losses
are to a minimum possible extent or they lead to minimum possible breakdown of our
production line.

So, we have to ensure the minimization of these losses in order to make our organization
a better organization and efficient organization or successful organization, profitable
organization. So, if the losses are under control the organization will automatically be
successful.

797
Now, how we can do this? We can do this with the help of the concept of total
productive maintenance because if we apply the concept of TPM we will definitely get
number of benefits.

(Refer Slide Time: 24:29)

So, it will lead to increased employee morale increased productivity how it will lead to
increase productivity? When all the machines are up and running the productivity will
definitely be higher. There is no unscheduled maintenance there is no accidental or
breakdown maintenance. So, the productivity automatically is going to be higher.

Similarly, improved sharing and working as a team because as we have already seen that
this concept is a companywide concept, it is not an individual machine specific concept.
So, it will develop the maintenance will be a collective responsibility of the team.
Improved tidiness and cleaning of the working place if you ensure that under TPM
activity, the overall benefits will be there for everybody to see improved product quality
if machines are operating under their optimal conditions they will definitely turn out a
good quality product.

Improved customer satisfaction; So, if you are offering a good product to a customer he
will definitely be satisfied, cost will be less improved delivery time and hence safety
records which means the accidents will be less if the machines are maintained properly
improved image. So, the brand image of the company will improve and the reputation in
the end of the company will improve.

798
So, in nutshell to summarize what we have tried to cover today is, that when we are
managing our operations maintenance plays a very important role. And this maintenance
must be total productive maintenance it must be everybody’s responsibility the
maintenance policy of the company must be valid out, we have to maintain a logbook for
each and every maintenance activity within the organization, we have to check any
unplanned or accidental maintenance.

So, that that is brought to be minimum zero risk, zero defect may be zero actually to
breakdown. So, we want to ensure that the total productive maintenance concept, the
philosophy the activities under TPM must be religiously adopted and followed. So, that
we derive all the benefits that are listed on your screen.

I do understand that in the brief 25 to 27 minutes period that we have covered this topic,
it is not adequate. So, in order to have better understanding of the concept of TPM, I
would advise readers to read the text that is available on internet or look for good text
books on maintenance and maintenance strategies and try to grasp the concept in much
more detail.

Because the actual policies, the pillars of TPM whatever we have seen today everything
needs to be understood in much more detail; in much more depth in order to control the
maintenance policy, in order to control the maintenance activity of an organization.

So, with this we close the today’s session.

Thank you.

799
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 49
Statistical Quality Control (SQC)

Namaskar Friends, welcome to session 49 in our course on Operations Management and

currently we are in the tenth week of our discussion. And in this particular week our
focus is primarily on ensuring the quality of the products that we are producing with our
operations or with our production flow lines. And we have seen in the second week in
the very first session the concept of quality and then we have seen in the second week the
total quality management philosophy or the strategy of TQM.

In third week we discussed about the TPM that is total productive maintenance and we
try to understand that it is the duty of the organization or it is a responsibility of the
organization to have a proper maintenance policy in order to keep all the machines up
and running. So, that we are able to perform continuous production and are able to
satisfy the demand as per the delivery scheduled which we have contracted with our
customers or with our vendors.

Now, today our focus is on statistical quality control; we have seen the concept of quality
we have understood the philosophy of total quality management. Now how we can
calculate actually execute our plans and try to find out that whatever we are producing is
well within the control or whatever we are producing is out of control or is beyond the
variations which are acceptable by our customer.

Now, we have to see that actually measurement of certain criteria, measurement of

certain variable, measurement of certain attributes which will help us to find out that
whatever we are doing whether it is correct or we need certain rectification, we need
certain changes which can help us to improvise our process in such a way that we are
able to produce the product or to produce whatever is being made or is being fabricated
or is being processed as per the requirement of the customer as per the design
specifications.

800
Now, in statistical quality control there are 3 words the statistical, the quality and control.
Now quality as we know may be certain set of specifications that have to be met fitness
for use from the customer’s point of view. So, whatever are the specifications or the
design specifications that have to be ensured; so, we have to ensure that quality

Now, statistical means that we have to use statistics to ensure that specifications are met
and control means that we have already decided the specifications we have set the limits;
now we have to ensure that our process is within those limits only. So, therefore, we say
that statistical quality control we can say that the statistical method of controlling the
quality of the product that we are producing. And there are number of methods or
number of tools and techniques that we can use to exercise this concept of statistical
quality control; that we will list today and try to understand one or two methods which
we can employ to control our quality statistically.

Now, one important parameter that we must keep in mind is that always there is going to
be certain variation in our output. Now whatever we are producing if the average value is
10 because of certain variations there will be some deviation in that value of 10; it can be
9.999 or it can be 10.10 or 10.09; there will be some spread across the average value that
is 10 as per the specifications; why this will be there? There can be assignable causes or
there can be random causes.

So, because of the combination of assignable and random causes; we will definitely get
certain variation and this variation has to be accounted for we have to find out that
whatever is the variation coming in the output characteristic, whether that is within the
control it is within the acceptable limits or it is beyond the acceptable limit. Suppose this
variation goes beyond an acceptable limit, we have to stop the process, we have to check,
we have to look for the assignable causes we have to look that why the variation is going
beyond a particular limit and how we can control the process how we can bring the
process within the acceptable limits of quality or whatever is the accepted variability.

So, that is basically the concept with which we try to control the quality of our product.
Now the quality of the product is dependent upon the process therefore, sometimes we
call may be another technique that is statistical process control. Also in which we try to
control the process in such a way that the quality that we are producing is within the

801
limits. So, when we exercise control on the quality part we always say that statistical
quality control methodology.

So, today our topic is SQC; so, we are going to see what do we mean by SQC? What are
the various tools and techniques which can help us to perform statistical quality control
and try to understand maybe one or two techniques with the help of certain numerical
problems. So, let us quickly jump to our presentation and have a look at the concept of
statistical quality control.

(Refer Slide Time: 06:35)

Now, statistical quality control refers to the use of statistical methods in monitoring and
maintaining of the quality of products and services. So, you can see that I have explained
earlier that three words statistical, quality and control; So, as we are going to use
statistical methods here for controlling the quality.

So, statistical quality control refers to the use of statistical methods in the monitoring and
maintaining of the quality of products and services. The term used to describe the set of
statistical tools used by the quality professionals. All the tools of SQC are helpful in
evaluating the quality of the products and services. So, whatever I have just discussed as
the introduction to today’s discussion everything has been put here in the form of points.

Now, what are the categories of statistical quality control SQC encompasses 3 broad
categories of statistical process control, descriptive statistics and acceptance sampling.

802
So, we are not going to discuss all these topics today; we are going to focus primarily on
statistical quality control only.

(Refer Slide Time: 07:40)

Whereas, acceptance sampling and descriptive statistics are also important tools that
learners must focus on their own and try to figure out the concept of acceptance sampling
the operating characteristic curve and try to figure out that what are the different
inspection strategies. And how they can be used to control the quality of the product that
we are producing, because our subject is an operations management and controlling the
quality of the product that we are churning out that we are producing that we are
processing using the operations is the most important point.

If we are managing the operations we are optimizing the use of our man-material
equipment as well as resources, but we are producing something which is not of
appropriate quality than the whole may be sequence or whole objective of the operations
management is lost. We may have optimized all our resources, but if the product that we
are producing is not of good quality; then whatever work we have put in managing the
operations becomes useless.

So, therefore, checking the quality of the product that we are producing is very very
important and this aspect cannot be neglected in the overall view of the operations
management.

803
(Refer Slide Time: 09:16)

And here we can see that statistical process control as I have already told is one
important part of the statistical quality control. So, the underlined concept of the
statistical process control is based on a comparison of what is happening today with what
happened previously. So, that is a concept that whatever we are doing today what has
happened, what we have planned earlier, how the process was performing maybe 10
weeks before how the process outcome is compared to the process outcome of the
previous readings. So, all that can be is an important concept of statistical process
control.

The underlying concept of statistical process control is based on a comparison of what is

happening today with what happened previously. We take a snapshot of how the process
typically performs or build a model of how we think the process will perform and
calculate the control limits for the expected measurements of the output of the process.

So, as we see a word future is mentioned here performs or build a model of how we think
the process will perform. Will perform means that whatever is expected from the process
that is the mean value whatever is the outcome or the expected outcome from the
process; that is something we fix first and then try to see whether the process is within a
certain degree of variability with that expected outcome or it is beyond a particular
variation limit.

804
So, if it goes beyond whatever is the mean value as given here; if it goes beyond them
goes far away from the mean value outside certain limits then we have to stop the
process, we will say that the process is not under statistical control and the process needs
to be stopped and checked. And we have to look for the assignable causes controllable
causes and if we are not able to find any as and assignable causes; we may we attribute
that variation to the random errors or the random causes beyond the control of the
machinist or beyond the control of the supervisor.

So, we can say again I am reading this sentence that what statistical process control is all
about. We take a snapshot of how the process typically performs; so, we know that how
what is the expected outcome, what is the mean value of the measurement that we want
to take or build a model of how we think the process will perform and calculate the
control limit. So, we know the mean value we can see that what can with the control
limits for this process and for the expected measurements of the output of the process.

So, we have to first fix our gauging criteria we know that this process is expected to give
this mean value with this much limit of variation; which is acceptable. If the variation
goes beyond the limit, then we have to see that what is going wrong and how it can be
rectified or controlled.

(Refer Slide Time: 12:53)

So, then once we know we have started to exercise control, we know what is expected
from this process; what is the expected degree of variation that is acceptable; then what

805
we do? We run the process, we collect the data from the process and compare the data to
the control limits; that is control limits is the degree of variability that we are accepting
as being there because of certain random variations which cannot be controlled.

So, that variability due to random variations that we are we are accepting that we accept
that this much variation is acceptable. So, we will we will compare the data that we have
observed from the process with those control limits and see whether the data is within
control limits or beyond the control limits.

The majority of the measurements must fall within the control limits; measurements that
fall outside the control limit are examined to see if they belong to the same population as
our initial snapshots or model. So, if the variations are beyond the control limit; we have
to see that why this is happening and try to look for the causes leading to that variability
in the process or the variability in the process outcome.

Now, what are the SPC techniques there are many ways to implement the process
control.

(Refer Slide Time: 14:06)

Now we can see the key monitoring and investigating tools include control charts,
histograms, run charts, pareto charts, cause and effect diagrams, flow diagrams. scatter
diagrams. So, we cannot discuss each one of these, but one important point that we can
use here is the concept of control charts which is widely used in industry. So, we can see

806
that we can use the histograms, we can use the pareto charts, we can use cause and effect
diagrams in order to exercise control over our process.

Now, what are the control charts? On your screen you can see why control charts?

(Refer Slide Time: 14:46)

So, control charts are used to monitor because we will be checking taking the data
plotting that data, control then we know that there are certain control limits those are
maybe the on the positive and the negative side of the mean value. So, we have mean
value plus the variability that is acceptable on both ends. So, we first monitor the process
that is we collect the data then we put that data on the chart and try to see whether
everything is within the accepted degree of variation. And then if the sum of the values
are beyond our control; then we try to improve the process performance over time by
studying variation and its source.

So, as soon as the variation goes beyond the control limits; we may have to stop the
process and check for the causes and then at the end try to improve the process in order
to bring the process under control within the upper and the lower control limits. How do
I use the control charts? Now what are the control charts is I think absolutely clear.

Now, how to use the control charts? There are many types of control charts; so, if you
study the topic in detail you will see that there are control charts by variables, there are
control charts by attributes. So, there are mean chart, range charts, percentage defective

807
chart different types of charts are there; depending upon the situation, depending upon
the requirement, depending upon the type of data that is available with us; we can
construct these charts and use them as a controlling tool for managing the quality of the
products or services that we are offering to the customers.

So, there are many types of control charts; the control charts that you or your team
decides to use must be determined by the type of the data that you have; as I have
already highlighted as per presentation only one criteria is given based on which we can
select the type of chart to be used. But there are different types of criteria which will help
us to identify the type of chart that we must use for bringing a process under control.

Now data are of two types basically; data can be variables data can be attributes. As I
have already told we have two types of control charts; control charts by variables and
control charts by attributes and we will try to see what are variables and what are
attributes?

Now, we can see the variables are things that we can measure for example, we can
measure the length, we can measure the weight, we can measure the height, we can
measure geometrical dimensions.

(Refer Slide Time: 17:44)

808
So, there can be number of things that we can measure and examples are given on the
screen; you can see here length, diameter, volume, tensile strength, time, temperature
etcetera all these things are variables which we can very easily measure.

So, the control charts that are based on statistical data of length diameter or things that
we can measure; so, those types of control chart we will call as control charts by
variables. And mean and range charts are usually you will call them as X and R charts
are usually the types of charts that fall under the control charts by variables category.
And then we have attributes things we count.

So, count means that sometimes we can count that if we switch on the light 100 times
how many times the light will get switched off? Or if we check the number of bulbs for
defectives for example, a company is producing the bulbs; electric bulbs and out of 100
bulbs that have been checked we find out that 10 are defective and 90 are acceptable.

So, we can see we have counted the 10 are defective 90 are acceptable; So then number
of percent defective items as I have given an example of the electric bulb number of
percent defective item. So, 10 out of 100 are defective number of defects per item for
example, we are using a led television at our house. So, led TV we can say that maybe in
a year 3 times there has been defect in the item or in the led, there are 3 different types of
defects per item.

So, number of defects per item can be another measure which can be falling under the
control charts by attributes then types of defects also can fall under the control charts by
attributes. So, usually P and C type of charts fall under the control charts by attributes
category X bar and R charts usually fall under control charts by variables P and C charts
are control charts by attributes.

So, we will try to see this presentation further we have taken one or two example. So,
these have been adopted from operations management.

809
(Refer Slide Time: 20:17)

By Dan Reid and R Sanders nada R sanders 4th edition; so, we can see control charts for
a variables. So, we have seen X bar chart.

(Refer Slide Time: 20:27)

As I have already told and R bar charts are the two types of charts which fall under the
control charts for variables category P and C chart fall under the control charts by
attributes category

810
(Refer Slide Time: 20:45)

Now, this is an example how to construct an X bar chart this is a problem statement on
your screen a quality control inspector at the XYZ company has taken 3 samples with 4
observations each. So, this is highlighted there are 3 samples taken with 4 observations
each sample. Each of the volume of bottles filled now there are there is a bottling plant
where the bottles are getting filled. So, the quality control inspector has taken 3 different
readings of 4 samples each.

So, we can see 3 different samples at 3 different times 3 samples with 4 readings for each
sample; 3 samples with 4 observations each of the volume of bottle filled what he has
measured he has measured the volume of the bottles filled and this is a control chart by
variable. So, we can measure the quantity for which we want to set the control limits.

If the standard deviation of the bottling operation is 0.2 ounce use the below data is given
in the table to develop control charts with a limits of 3 standard deviations for the 16
ounce bottling operation. So, the mean value is given that 16 ounce is the expected
volume of the bottles that have to be filled.

So, we can see sample 1 is at time 1. So, sample 1; 4 observations we have been taken
sample 2 again 4 observations, sample 3 again 4 observations have been taken. So, the
volume of the bottles filled has been measured using the equipment. So, the sample
means first we have to calculate.

811
So, that is x bar sample means and then the mean of these mean values we have to there
are 3 mean values here for 3 samples each sample having 4 observations. So, we have
calculated first for every sample that is sample mean, then we will calculate the mean of
means that is x double bar that we will calculate; So, of these 3 values.

Similarly, we have calculated the range also if you can see the data here the maximum
value is 16.0 and the minimum value is 15.8. So, the difference between the maximum
and the minimum value is 0.2 and similarly for sample 2 and sample 3 we can calculate
the range. Now the center line or the mean value, for our control chart that is x bar chart
will be the x double bar that is our central line. So, x double bar is our sample means x1
bar plus x2 bar divided by the number of sample.

So, we can see k is the number of sample samples sample means. So, sample means here
are 3; so, we get the value of k as 3 and X bar 3 values 15.875, 15.975 and 15.9

So, we have means for 3 samples here. So, these 3 values will come here divided by
three. So, we will get x double bar which will represent the center line for our control
chart that is x bar chart. So, n is the number of observations in each sample. So, the
upper control limit will be the x double bar plus z value which is we are already having
this value 3 standard deviations.

So, xz here will be 3 because it is already given in the problem that we are going to
exercise control up to 3 standard deviations only. So, this is x double bar plus 3 standard
deviations and then multiplied by the standard deviation of the process we have to
calculate. And this is upper control limit, the lower control limit is the mean value center
mean value minus the number of standard deviation that is 3 standard deviations
multiplied by the standard deviation of the process.So, we will calculate this upper
control limit and the lower control limit for this data that is available with us.

So, first for that standard deviation of the sample mean the sample mean here is 16
ounces. So, overall mean of the process we know the standard deviation of the process
mean is given 0.2 divided by the square root of the number of observations. So, this

812
sigma x bar which is given here sigma x bar how we will calculate this? Sigma X bar
represent the standard deviation of the process.

So, sigma x bar will be calculated as standard deviation of the process mean.

Where (k) is the number of sample means and (n) is the observation in each sample

So, standard deviation of the process mean is given as 0.2 ounce. So, this is 0.2 divided
by square root of the number of observations; the square root of the number of
observations is the number of observations here are 4 observations. So, we will get 0.2
divided by the square root of 4 that represents our standard deviation of the process, z is
3 standard deviations.

So, z is equal to 3 and x double bar is the mean of means that we have calculated here;
these are the 3 means for the sample. So, sample 1 sample 2 and sample 3 3 mean value
mean of sample 1, mean of sample 2 and mean of sample 3 So, this means 3 samples
means divided by 3; so, this is a center line.

(Refer Slide Time: 26:29)

So, I think it is clear let us see how the center line is 3 values 15.875, 15.975 plus 15.9
these are 3 sample means for 3 samples divided by 3.

813
 15.875  15.975  15.9
x  15.92
3

So, this is a center line and control limits can be calculated x double bar plus 3 times of
standard deviation of the process. So, 15.92 is the grand mean we can say mean of
sample means plus 3 times the standard deviation of the mean as we have seen in the
previous slide; you can see standard deviation of the process mean standard deviation of
the process mean divided by square root of the number of observations per sample.

Control limits for ± 3σ limits:

 .2 
UCL x  x  zσ x  15.92  3   16.22
 4
 .2 
LCL x  x  zσ x  15.92  3   15.62
 4

So, with this we calculate 16.22 as the upper control limit and the lower control limit is
again the centerline, minus 3 standard deviations. So, standard deviation we have to take
the standard deviation of the process which will be calculated as the standard deviation
of the process mean divided by square root of the number of observations which is 4 per
sample. So, we calculate the value as 15.62; so, this is upper and the lower control limit
what is our average value? Centerline is 15.92; so, we calculate using the formula upper
and lower control limits and our control chart X bar control chart looks like this.

(Refer Slide Time: 27:52)

814
This is a black line represents the center line which was fifteen point you can see 15.92.
So, this is corresponding to 15.92 value and then these are the value sample mean how
the sample means are changing so, so, many samples we have taken.

And upper control this is a center line this is a lower control limit and this is a upper
control limit. So, we can see the upper control limit is 16.22 and lower is 15.62. So, this
is representing 16.22 value and 15.22. So, this may be an upper control limit lower
control limit and our all sample means are within the desired control limits.

(Refer Slide Time: 28:42)

Similarly, we can calculate the R chart also first we have seen we have calculated the
range for each sample. So, 3 samples were there the range for each sample we have
calculated we will add it when divided by 3. So, we get the R bar value that is a range
mean; mean of the range value for each sample.

0.2  0.3  0.2

R  0.233
3

UCLR  D4 R  2.28(.233)  0.53

LCLR  D3R  0.0(.233)  0.0

So, there were 3 samples; so, this is the center line the mean value for all the ranges for
all the samples. Then upper control limit is D4 into mean range and lower control limit is

815
D3 in to the means of the ranges for the different samples. So, for getting these values D4
and D3; we can refer to this chart factors for 3 sigma control limit. So, our sample size n
is equal to 4. 4 here corresponding to this D3 is 0 point 0 0 and D4 is 2.28. So, the lower
control limit is since D3 is 0 so, D3 0 in 2.223 which is the mean of the range values of
the sample.

So, it is 0 only 0 multiplied by 0.233 and the upper control limit is corresponding to
sample size of 4 the D4 is 2.28. So, D4 is 2.2 8 multiplied by 0.233 which is the mean of
the range of 3 samples. So, the upper control limit comes out to be 0.53.

So, both we have seen that we can calculate the upper and lower control limits for the X
bar chart, we can calculate the upper and lower control limits for the range chart also. So,
we can control the sample means within the upper and lower control limit, we can also
control the range or the variability within the upper and lower control limits for the range
values for each sample also.

And if we get if we everything is within the control limits; we will say yes the process is
producing the products within the acceptable limits. As soon as these mean values or the
range values goes beyond the control limits, we will stop the process and try to check for
the causes that are leading to this out of control variation in the process thus leading to
the faulty output or a poor quality product. So, that is basically the concept that we
exercise in order to produce good quality products.

So, with this I conclude today’s session on statistical quality control; in next session we
will discuss the concept of six sigma.

Thank you.

816
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 50
Six Sigma

[FL] Friends welcome to session 50 in our course on Operations Management and in the
current week our focus is primarily on quality and in the four sessions for this week
which we have already conducted; we have focused on the word quality. In the very first
session we try to understand what is quality how do we define quality, what is quality of
design quality of conformance; quality of performance?

And then we tried to take the examples of relative quality that if the quality is perceived
as a customer what is the definition of quality? If the quality is perceived from the point
of view of a manufacturer how do we define quality?

In the next session our focus was on total quality management and we try to understand
that what exactly is total quality management, what is the process or strategy of total
quality management, what are the important things that have to be kept in mind when we
are implementing the concept of total quality management in our organization and then
we have seen that it is a overall concept; it is not just a department wise or a business
unit wise concept it is an organizational concept and it has to be implemented in totality.

Then we focused our attention on total productive maintenance that to with the focus of
achieving quality. We have seen that if our equipment is scheduled for maintenance if we
do the scheduled maintenance of the equipment as per the maintenance policy of the
organization. The equipment will be up and running and will give us the desired results
without defects. So, the quality will be a certain if all our equipment is functioning
properly and the purpose of total productive maintenance is to ensure that the production
line is functioning without any defect, without any accidental maintenance stoppages or
any unscheduled maintenance stoppages.

So, if we are able to maintain that we will be able to produce good quality product in
adequate quantity and we will be able to meet the delivery schedules. In our next session
after the total productive maintenance our focus was on statistical quality control

817
wherein we focused on the statistical aspect of quality control and we have seen that
what a statistical process control. And in that we considered the control charts and we
have taken example of an X bar chart and an R chart which are the control charts by
variables.

There can be controlled charts y attributes also which can be c chart and p chart which
we were not able to discuss because of the paucity of time and today we want to wind up
the discussion for this week by considering an important aspect that is six sigma that
when we are producing a product our focus is to minimize the defects. So, our systems
must be so, designed the operations must be so, organized that we are able to produce the
product without many defects.

So, our degree of variability in our product has to be minimized as much as possible.
Every company has a wish that they are able to produce all the products without any
defect, but because of the inherent process variability there is always a degree of
variation which we have seen which is within the limits. So, whenever the variation goes
beyond the limit, we have to stop the process we have to check for the causes and try to
improve the process so, that we are able to produce a good quality product.

So, that variation part we have to focus and that deviation or the variation should be
within the limit. If it goes beyond the limit then the process is not producing the products
as per the specifications and the quality of the product is not acceptable. So, six sigma
also is a concept which helps the companies to design its system in such a way that the
products that are produced are well within the specified limit.

So, we will see if the current industry practice is to accept within plus minus 3 sigma
limits, but the focus worldwide is toward six sigma even toward towards higher orders of
six sigma, but six sigma is relatively acceptable standard of manufacturing or managing
our operations in order to achieve the target of six sigma. So, the defects that are
acceptable in six sigma limits that we are going to cover in today’s session. And we will
see that how we can change the quality of our product, how we can manage the quality
of our product improve the quality of our product by adopting the concept of six sigma

So, the number of failures, number of defective items, variations, deviation from what is
expected will be minimized if we use the concept of six sigma. So, six sigma is we can
say a philosophy a technique which can help organizations to improve the quality of the

818
products that they are offering to the customers. In the long run the branding of the
company improves and the company is able to develop loyal customers because the
quality standards of the company are very high. And the customers are satisfied with the
quality the company is providing them for the money the customer is spending on the
product.

So, overall we will try to see the concept of six sigma in today’s presentation maybe in
the next 25 minutes. So, on your screen you can see which pilot would you choose. So,
here is an example the airplane landing example.

(Refer Slide Time: 06:32)

So, you can see a airplane is landing; here there is a lot of variability on the runway; the
pilot is landing haywire. This is maybe the central line on which the plane must land the
target value for the plane to land on the runway, but you can see where the plane is
landing; you can see the variability in the landing process here, but on the other hand we
see the variability is very less the data is scattered around the central line and is focused
on the central line only.

So, I think if I would have to choose; I will choose this pilot whose landing at these
locations because it is fairly accurate as per the mean value of the target. So, the mean
value of the target is this white dotted line and the plane is hitting the target most of the
time it is landing at the place where it must land where it is designated to land.

819
Similar is the concept that we want to be as accurate as possible we need to be as precise
as possible as time does not permit I may not be able to explain the concept of accuracy
and precision here. But usually the concept is explained with the help of a shooter who is
shooting on the target.

So, there is a mean value or a central bull’s eye; if a shooter is shooting all his shots in
the bull’s eye we can say he is both accurate and precise. Whereas, if the spread is
uniform around the bulls eye we can say it is accurate, but if there is a maybe far away
from the mean; if the shooter is shooting, we will say that he is precise because he is
shooting in a small range, but that range of the variability is less maybe let me explain
with the help of a simple diagram.

(Refer Slide Time: 08:35)

Now, this is the target value and we say; this is our main target value. So, if the shooter
is shooting his 5 shots here; we will say the shooter is both accurate and precise. Now if
the shooter is shooting, we can say he is accurate, but not very precise. Now suppose the
shooter is shooting, we will say the shooter is precise, but he is not accurate because
accuracy is this is our target that is the accuracy target.

So, we can try to see here the difference between accuracy and precision and in
manufacturing our focus has to be on both accuracy as well as precision also. So, we will
say that if this is our target and we are getting precise shooting here; it is accurate also.
So, we can say that accuracy and precision both are achievable if the shooter hits all the

820
shots in the bulls eye only. This is precision, but not accuracy the spread is accurate it is
uniformly spread around the target value, but not precise as the range is more.

So, this is the concept of accuracy and precision, I think very briefly, I have tried to
explain. So, here also we see our focus must be that our target value whatever is our
target value; our values or the data that we are collecting, the measurements that we are
doing must be equal to the target value, but in case because of some random errors even
if the value is not equal to the target value; it should be well within the range of the target
value to be both accurate as well as precise.

So, this is the basic concept of variability; there will be inherent process variability in
each and every process because of some random causes, but that variability or the
inherent process variability must be well within the limits and it must not go beyond the
control limits. As we have seen in our previous session that there are control charts
which help us to calculate the upper and the lower control limit beyond which the
variability is not acceptable.

(Refer Slide Time: 11:24)

Now, six sigma process we can see here a six sigma process is one that has at least six
standard deviations between the process mean and the nearest specification limit when
centered. So, this is our mean value here; so, we have three sigma deviation this side and
three sigma deviation on this side. This is upper design specification, this is a lower

821
design specification. And this dotted lines are 1.5 sigma; so, 1.5 sigma in both side in six
sigma we have plus minus 6 sigma deviation. So, maybe we can see the example here.

(Refer Slide Time: 12:02)

The percentage we can see in case of six sigma 99.99966 percent is explained and maybe
only 3.4 parts per million are outside the explanation range or we can say our control
range.

So, in if to explain it in a much simpler manner suppose a company is producing one

million parts. So, only 3.4 parts are expected to be defective rest all will be under the
acceptable limits that is the six sigma limits as we can see in this diagram. Whereas, we
can see the variability, the deviation 68.25 percent are explained, we can say, with
accuracy and the rest can be defective for this we can see 95.4 percent this is 1 sigma
limit, 2 sigma limit, 3 sigma limit, 4 sigma, 5 sigma and 6 sigma.

So, usually the industry standard is 3 sigma in which 99.993 percent accuracy level is
there and only 63 parts per million are we can say maybe defective. One sigma is 68.27;
2 sigma is 99.45; 3 sigma is 99.73; 4 sigma is 99.9937; only 63 parts per million will be
defective rest all will be as per the design specifications within the acceptable limit.

So, we can see that as we are increasing our specification limits or as we are increasing
the sigma level that is; we are able to get the lesser number of parts with deviations. This
is representing a long non-linear decrease here we can see 1 sigma limits this many

822
number of 317300 parts may be out of the control limits, in 2 sigma we see 45500, 3
sigma which is the industry average usually the industries focus on 3 sigma limits 2700
parts; 4 sigma 63 parts only, 5 sigma 57 parts only and if we go to the six sigma only 3.4
parts per million will be with deviation.

(Refer Slide Time: 14:30)

So, this is representing the process capability in terms of the sigma and this is a defects
per million opportunities DMO

(Refer Slide Time: 14:44)

823
Now, examples of sigma we can see electrical companies if they operated at 4 sigma
limits; no power for 1 hour per week. If they operate at six sigma we can say no power
for 2 seconds per week. So, we can see how the quality has improved by considering the
six sigma as our target.

Similarly, the telephone companies if we follow 4 sigma no phone service 4 hours in a

month whereas, if we follow 6 sigma no phone service only nine seconds in a month.

(Refer Slide Time: 15:18)

So, this explains the non-linear decrease as we have seen here in the non-linear decrease
which is explained here.

Now, difference between sigma levels you can see in 4 sigma; 99.99 percent is good and
in 6 sigma 99.99966 percent is good. So, we can see that different examples are taken
just to explain the concept of 6 sigma. 20000 lost articles of mail per hour whereas, if we
follow 6 sigma limits; 7 lost articles of mail per hour.

So, we can see what is the change we can call it a C change if we are able to achieve our
target of 6 sigma. Then unsafe drinking water for 15 minutes every day if we follow 4
sigma limits, but if we follow 6 sigma, one unsafe minute of drinking water every 7
months, you can see the change in quality by following a very strict regime of 6 sigma.
So, one unsafe minute of drinking water every 7 months which is linearly changing if we
say 15 minutes every day as per the 4 sigma limits.

824
Similarly, plot 2 lakh wrong drug prescriptions each year whereas, if 6 sigma limits are
used 68 wrong drug prescriptions each year or every year. So, we can see the difference
that can be created by following a very strict you can say quality control over the
products that we are producing.

Now, history of six sigma we can be, I think we have understood the concept of six
sigma.

(Refer Slide Time: 17:00)

Now six sigma was implemented in Motorola in 1979 was developed by Michael Harry,
a quantum leap in manufacturing technology occurred at Motorola when it applied the
concept of six sigma within 4 years six sigma had saved the company dollar 2.2 billion.
So, your defects when they will decrease automatically your profits will increase because
a rework scrap and reuse or maybe kind of the wastage will be reduced. And therefore, it
will automatically lead to productivity as well as increase in the profit of the company.

Now, what is six sigma? I think the examples have fairly explained that more focus is on
ensuring that the process is done in such a way the operations are done in such a way that
the defectives are minimized.

825
(Refer Slide Time: 17:58)

So, measure of how well a process is performing is what is six sigma. Six sigma process
produces 3.4 defects per million opportunities. So, we can see it tries to minimize the
defective items being produced by the production line. Most companies are at three or 4
sigma level only; so, that is something which is be the current practice, but slowly and
steadily with the development of the technology companies are trying to focus on the six
sigma level also.

Philosophy of reducing defects to improve customer satisfaction and reduce the costs.
So, business strategy that increases process performance resulting in enhanced customer
satisfaction. So, if the defects in the product will be less, the customer will automatically
be satisfied. And when the process is managed in such a way that the defects that are
occurring in the process are reduced to a minimum value, reduced to maybe 0 value only,
the customer will always be satisfied,

For example, suppose we buy a refrigerator and we are using it for the last 15 years and
there is no defect in the refrigerator the customer will always become a loyal customer of
that company because it has outlived the designed life of the component or the product.
And the product is still functioning satisfactorily without any defect. So, that is maybe
the customer loyalty or satisfaction which will occur if the product is not defective. So,
that is basically the target of the companies to produce products which are good quality
which are without any defect.

826
(Refer Slide Time: 19:52)

Now, let us see just a simple definition of six sigma; a disciplined method of using
extremely rigorous data gathering and statistical analysis to pinpoint sources of error and
ways of eliminating them; So, we can see that it is a systematic or disciplined method of
using extremely rigorous data gathering and statistical analysis.

So, maybe we will try to analyze our processes statistically or the data derived from the
processes statistically to find out what are the sources of error and then in a way using
the creative skills using the technical knowhow using the advancements in the
technology to eliminate the sources of errors. So, that the process produces the products
which are without any defect.

So, if the process produces all the products maybe over a year’s time or 2 years time
without any defect I think we are we will be able to achieve the six sigma level of
accuracy. The six sigma is both a philosophy and a goal now focus on continuous
improvement through customer satisfaction.

827
(Refer Slide Time: 21:00)

And if you remember in our concept of total quality management also we have discussed
that continuous improvement is the key word. Suppose today we are at one, may be at,
one level of our sigma next time or maybe over 6 months we can plan to have a rigorous
review of our processes of our operations of the manufacturing techniques that we are
using and try to continuously improve and minimize the defects that are occurring during
the process. So, that our customers are satisfied and the defects are minimized.

The focus is not on the defects per million opportunities that is DPMO as per the six
sigma; I think this has been discussed today earlier also the critical processes at 3.4
defects per million opportunities that is the six sigma target. So, the focus is not actually
on the DPMO that is defects per million opportunities, but on the systematic method to
reduce variability within the manufacturing processes.

So, our target will be to modify, to develop, to design, to invent our system in such a way
that the variability in the product specifications is minimized to a 0 level in case of ideal
scenario or is minimized to acceptable variability or deviation level. So, that we are able
to produce the products with the good quality within the allowed deviation that is as per
the random variation which is mostly there or sometimes we call it as the inherent
process variability also, but that inherent process variability must be within the limits of
acceptable range.

828
And therefore all products if are acceptable then we will be able to achieve this target of
producing 3.4 defects per million opportunities; So, six sigma projects are led by
individuals selected and trained in the applications of this systematic method; this
requires clear definition of rules and responsibilities.

Now, the essential six sigma tools and methods are in different presentations different
books, we will find that there are approaches standard approaches of how to approach the
six sigma level.

(Refer Slide Time: 23:41)

So, one may be think that we have already seen in our previous session the statistical
process control, design of experiments, process design and redesign, continuous
improvement, today also we have seen process management, creative thinking, as I have
already discussed that. We have to think creatively we have to reinvent our systems in
such a way that the defects are reduced to a minimum value. Voice of customer we have
to look up to the customer for his advice, for his requirement, for his needs which can be
direct or implied needs accordingly we have to change our process. So, that we are able
to satisfy our customer then 7 quality control tools which can be used there are number
of presentations available on 7 QC tools which can be seen and which can be referred to
by the learner. So, six sigma basically is a management approach which will focus on
improving the quality of the products being manufactured in the company.

Now, what will be the organizational structure for a six sigma team?

829
(Refer Slide Time: 24:48)

A typical six sigma strict structure in manufacturing organization is there will be a

quality leader or a manager. The quality leaders responsibility is to represent the needs of
the customer and to improve the operational effectiveness of the organization. So, the
important part is the two things one is we have to take the feedback take the inputs from
the customer, another thing is we have to manage our operations in such a way that we
are able to deliver to the customer what he actually wants and he is satisfied with what he
gets for the money he spends.

So, therefore, two important things are there our system and the need and requirement of
the customer and both have to be addressed in order to produce a good quality product
which is accepted by the customer and that is the responsibility of the quality leader or
the manager

Similarly, there is master black belt MBB. So, the master black belts are typically
assigned to specific area of functions of a business or organization. So, they will try to
see and look for the causes or the sources of error and use their creative thinking to come
up with solutions which will help to reduce those sources of error in order to improve the
overall quality of the product. Then the Black Belt: black belts lead quality projects and
work full time until they are complete.

And Green Belt: green belts are employees trained in six sigma who spend a portion of
their time in completing the projects, but maintain their regular work role and

830
responsibility. So, maybe in six sigma once you undergo the training, you may be a
green belt or a black belt or a master black belt that depends upon your level of training
and the kind of projects that you can handle or will be assigned.

Now, what are the benefits of six sigma project? We have tried to see that we have to
focus on our system, on our operations, on our manufacturing processes try to look for
the sources of error try to use the creative thinking to find out the sources of error and
then eliminate these sources of error. And finally, design the process in such a way that
the products being produced by our process are of good quality.

Now, what will be the benefits if we do that I think instead of reading the points on the
screen all of you will be able to answer by now that if we give quality to the customer
what will be the advantages.

(Refer Slide Time: 27:22)

The advantages will be that the rework will be reduced; customer will be satisfied; we
will get loyal customers; our inventory levels will be reduced; our rework will be
reduced; the profitability of the company will improve; the productivity of the company
will improve; the employee morale will be improved.

So, whatever without looking at the slides we can just try to figure out that what will be
the advantages if we are able to produce a good quality product without any defective

831
products coming, why to talk of a million we can talk of multi millions also that there is
no defects in multimillion products that we are producing.

Currently six sigma limits specify 3.4 defectives per million, but we can talk of even
higher ranges where we say that even in 2 million or 5 million we are not finding any
defective item. How that is possible? That is possible if our systems are so developed; so
designed that they are error free, human intervention is minimum and the system is so
designed self regulating system that even if there is a problem it regulates itself without
affecting the quality of the final product.

So, if just for your sake I will read these points here the benefits of six sigma; reduced
cycle time, increased productivity and added value improved capacity and output.
Because if when there are no defects fully we can utilize our capacity, reduced total
defects, increased product reliability because if there are no defects product will be
reliable; I have taken an example to this effect in today’s session also. Decreased
working process, improved process flow, faster return on investment improved overall
customer satisfaction.

(Refer Slide Time: 29:17)

And let us take a very simple example case study of Bombay Dabba Wallas Lunchbox
Carrier who supply lunch to the office going people in their offices only and then collect
back the used boxes lunch boxes. So, just one this is a last slide.

832
(Refer Slide Time: 29:29)

We can see this is sources Forbes magazine Bombay Dabba Wallas; the president is Shri
Raghunath Medge; they make 1 error on every 16 million transactions. So, you can see
we are accepting 3.4 defectives per million, but here we see 1 error for every 16 million
transactions. So, 5000 tiffin wallas deliver 175000 lunches every day and take the empty
tiffin back.

So, they make 1 mistake in 2 months. So, we can see 175000 lunches every day into 2
transactions they have to first deliver at the right address and then collect the used tiffin
back from the right address; so, two transactions for every delivery. So, 175000 lunches
into 2 into 30 days is equal to we can see 10 lakh that is approximately no it is more than
10 lakh.

So, we can see for two months it is coming out to be 21 million and in 21 million they
make only one mistake. So, we can see the level of accuracy, the level of maybe hitting
the target value again and again without any mistake that is what has been achieved by
the Bombay Dabba Wallas.

So, we can see the same concept or same maybe methodology may be applied in the
shop floor operations also. And the number of defective items can be reduced, it is
possible to reduce them if we use a systematic approach of managing our operations. So,
the target of this week, the discussion of this week was focused on quality and we have
taken five important sessions to explain the concept of quality to explain the concept of

833
total quality management; then we have discussed total productive maintenance and then
we have seen statistical quality control and today we have seen six sigma.

So, these two and a half hours of discussion if you focus and if you work on these topics
on your own try to go into the depth of these topics, you will be able to see that, yes the
quality of the product can be improved by systematic planning and control.

So, with this we end the discussion for this week.

Thank you.

834
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 51
Materials Management

Namaskar Friends, so welcome to session 51 in our course on Operations Management.

As all of you are well aware that this course is a 12 week course, 30 hour course on
operations management and today we are going to start our discussion for week 11, in
which our focus will primarily be on Materials Management. As all of you are well
aware that in any industry, any manufacturing industry there is a raw material that we
convert into a final product.

So, the raw material can be of different types. For example, this pointer I am having in
my hand, two different types of materials you can see here; one is a metallic, another one
is a non metallic material. So, we have to manage the materials in an industry. Why?
Because the overall cost of the product is highly dependent upon the cost of the materials
also.

So, if we are good enough, if we are intelligent enough, if we are judicious enough in the
procurement of our material, in avoiding the wastage of material, in properly managing
our material flow, in effective and efficient utilization of materials. So, if we are able to
manage our materials properly within the organization, we will be able to earn a good
amount of profit for our company or for our industry and therefore, all of us must be able
to address the important points related to materials management.

So, materials management can be done by a shopkeeper also and can be, can be done by
a very high and sophisticated equipment manufacturing company. So, materials are
managed at different levels in different forms, but the basic concept remains the same,
that we must be able to buy the materials at a reasonable price, at reasonable quality, in
reasonable quantity.

We must be able to use these materials in the most effective manner; that is the wastage
of materials must be avoided. And then finally, we must be able to produce a product
based on these materials, so that the product is also successful in the market. So, the

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overall umbrella of materials management spans from the procurement of the raw
material to the final dispatch of the finished goods or finished products.

So, as an engineer, as a manager or as an industrialist, as a businessman it is very

important for me to understand the concept of materials management. So, in today’s
session; that is the first session for week 11 in our course on operations management, our
focus will be on the introductory part of materials management and thereby we will learn
different techniques. For example, ABC analysis, economic order quantity and we will
see certain numerical problems based on these techniques.

So, we have hardly two and a half hours available with us for discussing the complete
concept of materials management which is sometimes taught as an objective course at
the PG level which may span for 40 hours’ duration. So, 40 hour course you can
imagine, we have to cover in a small duration of two and a half hours. So, we will have a
brief idea and will acquaint ourselves with some of the most important tools that are used
for managing the materials within the organization.

And if we have to be successful in managing our operations in the organization; one of

the key components is the materials management. We may be very very efficient and
effective in managing our operations, but if we are poor in managing the materials, the
overall advantage that we derive by managing the operations may be lost, because we
will be spending additional amount in the wasteful expenditure on mismanagement of
materials that can be easily avoided by using certain tools and techniques.

And in these two and a half hours our focus will be on learning these simple tools and
techniques which do not require any high end mathematical equations, it only requires
simple mathematical calculations; such as addition, subtraction, multiplication and
division which is known to everybody. So, basic mathematics will be used to solve
certain problems, which will help us in better management of our resources, specifically
the materials.

So, let us try to understand the fundamental aspect behind the materials management. So,
first let us see what is the definition of materials management. So, materials management
is the planning and control of the flow of materials that are part of the inbound logistics
system.

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(Refer Slide Time: 05:16)

So, we are procuring the material and we have to plan our procurement process, as well
as we have to control the flow of materials within the organization. So, we have to see
that our materials are managed properly, the procurement process is managed properly
and there is no waste of materials or may be the waste in the sense one example, I wish
to quote here, that suppose we have bought a huge amount of material, but the usage rate
is very less. So, we have kept the materials for a long period of time, which means that
we have blocked huge amount of our capital in the materials that are only stored in our
storehouse and are not being used at a very frequent rate or are not being used at a very
high rate.

So, we have, may be locked our capital which is not a good decision from the industrial
point of view. So, that is something we can bring it down or scale it down to our
households also. For example, we will never buy 2 quintals or 3 quintals of onions at the
same time; at the max depending upon the size of our family, we may go to the market
and buy 5 kgs or 10 kgs of onions, so that we may consume them in a month’s time and
then we can buy more onions.

So, the materials management this is a scaled down model, similar model can be
applicable in the industry also. Instead of you buying or instead of procuring a huge
amount of material which is not being used at that rate will lock up lot of capital which
can be easily avoided by properly managing the procurement process. As we manage the

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procurement of materials in our houses, similarly using common sense we can manage
the materials in the industry also and we do not wish to block lot of money in the
inventory of our industry.

So, this is first thing, is the definition must be clear that why we are doing the materials
management. Many times we will see that people are not able to manage the materials
properly, even in our houses also. Sometimes there is some sale, so we feel that now we
are getting 2 plus 5 free or 2 plus 3 free. So, let us buy these 5 commodities. So, we buy
those 5 commodities, we pay also, but we are not able to use them, maybe it is lying just
in our almirahs so or in our trunk. So, that is something is wasteful expenditure and the
material is not being utilized properly.

So, whatever we try to learn we should try to relate it with our day to day experiences, so
that we remember it throughout our life. So, materials management will teach us that
when we must order, how much we must order and then at what quantity we must order,
in order to utilize our resources properly, in order to make use of the money that is
available for us in the most judicious and in an efficient manner. This is the first
definition on your screen related to materials management.

(Refer Slide Time: 08:51)

Then what is the concept; a total concept involving an organizational structure unifying
into a single responsibility for the systematic flow and control of materials from the
identification of need through the usage and accounting of the same. So, maybe it is a

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systemic management of materials flow, planning and control. So, both functions are
there we have to plan also. So, plan means, now suppose we know that we have to order
10000 car tires and we have an idea that we have forecasted as we have seen in our
course on operations management only in the first 4 weeks, we had 1 complete week on
forecasting. Now suppose we have a forecast for producing a certain number of cars in a
month, maybe we are going to produce based on the forecast, suppose 2500 cars in the
next month. How many tires will require? It is a 4-wheel vehicle. So, 4 wheels per car
will be required. So, 4 week wheels per car means 2500 cars we plan to manufacture so
multiplied by 4. So, maybe 10000 tires will be required for the next month.

So, now, we have to see that as per forecast, whether we must order all the 10000 tires at
one go or we can spread this order into 2 weeks or after maybe span of 2 weeks that
instead of ordering all at once, we can order it twice in a month or we can accept the
order twice in a month. So, that kind of decision making is the planning, planning part.
So, we are planning that when we must order, how much we must order and then once
we have completed this planning activity the next stage is the control. When the
materials are coming we have to issue at a particular rate to the assembly line, we have to
control, we have to keep a check at the usage rate of our may be the materials.

Then we have to see that when next we have to place the order. There will be a red tag
that if the inventory level or if the storage level of the tires go beyond a particular or go
below a particular inventory level we have to immediately issue an order and there will
certainly be some lead time by which we get the next order. So, it is not only the
planning part, the controlling part is also equally important. So, for materials
management we have to manage both. We have to manage the planning; we have to
manage the control part also.

And to the last thing you can see that what we need to plan, what we need to manage
from identification of need through usage and accounting of the same. So, we have to see
the identification of need, as I have told that there will be a red tag the. We are using the
materials from our storehouse, so there will be a point that we call as the reorder point
which we will discuss in our subsequent sessions. So, there will be a point that when the
number goes below that reorder point, immediately we have to issue an order that we
want additional raw material or additional materials.

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So, we have to see the identification of neither, there is a trigger point that we require
additional material. Then we have to see it through its usage and finally, the accounts
have always to be managed properly. So, materials management is not only related to
one function of related to materials, but it is related to different functions related to
materials management

Now what are the objectives? So, whatever we have studied till, maybe the last slide or
in today’s session, the focus was on abstract thinking about what a materials
management topic can be, but here we are trying to be very specific in terms of
objectives that what do we plan to do with materials management, what are the
objectives of materials management. The first is support the organ operational
requirements.

So, operational requirements mean that we have a set of operations being done in the
organization and our materials management department or materials management section
must be able to complement them, must be able to supplement them with the whatever
requirements are raised by the operational department. As I have taken an example that is
assembly of 2500 cars. So, the car is being assembled on the assembly line.

So, as a materials management section we have to ensure that whatever has to be

assembled at different stations must be supplied there, so that the line operates
continuously, so there is no break of our assembly process. So, materials management
the main function is, to supplement the major operations of the organization. So, first is
support the operational requirement, second is manage the material process efficiently
and effectively.

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(Refer Slide Time: 14:21)

So, the materials process means that right from procurement to the usage and finally, the
accounting part of the material, it has to be managed efficiently and effectively. Select,
develop and maintain sources of supply. Now suppose we are buying the materials from
our vendors. So, we have to develop new vendors, we have to keep maybe different
vendors for our supply process. For example, suppose we are not able to procure the
material from one particular supplier, because of any reason.

Because of a political unrest or because of strike, we must have our alternate sources of
supply, so that we have to always keep on developing the vendors, so that we have
alternate sources and sometimes the competition also is good for us. So, that we are able
to negotiate for the prices also with our vendor. So, it is a major function of materials
management department to select, develop and maintain the different sources of supply,
also to develop strong relationships with the other group. So, we must always be in good
relationship with different sources of supply or with different vendor. Sometimes in
some organizations we call it the vendor development also, for the requirements we can
always look up for different vendors.

Then support the organizational goals. It is something similar to the first part, support the
operational requirement. So, in operational requirements our focus is on the operations
specifically. In organizational goal our focus is that the brand of the company, the brand
name of the company must always be held in a high esteem by the customers. And how

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that is possible if we are producing a high quality product? And the quality of the
product is also dependent upon the materials, the process that we are using and the
quality control mechanism that the company is following.

So, that overall organizational goal is to make profit and our materials management can
definitely supplement this organizational objective of profit making by properly
managing the procurement, usage and the accounting of the materials. And finally,
develop integrated strategies that support organizational goals. So, maybe slightly the
discussion is on the theoretical part, but it is highlighting the objectives that a materials
management section has to keep in mind, while they are undergoing their process of
materials procurement, planning and control.

Last part; develop integrated strategies that support the organizational goal. So, always
they have to keep on switching strategies, developing new and new strategies in order to
procure the materials in the best and efficient manner, in order to use the materials in the
most efficient manner and thereby supporting the organizational goal of making profit
and satisfying the customer and as well as making a good brand name for themselves.
So, that is the overall objectives of materials management department.

(Refer Slide Time: 17:54)

Now scope of materials management where the materials management section can focus
on material requirement planning and control. In the previous section we have seen that
they have to develop new and new strategies. One of the strategy that is most commonly

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used is just in time, where the material procurement is done, when it is required. So, we
have one session on JIT also that we will be covering, maybe we have already I think
covered JIT in our previous session.

So, we will see that if it is not covered we will cover in the next session. So, one thing is
JIT. Then the materials requirement planning and control is one of the objectives,
another is the procurement, they have to take care of inventory control has to be done.
Inventory control we will do different types of analysis, receiving and inspection,
transportation, material handling, disposal of materials, value analysis. So, all these
comes under the purview of materials management.

And materials requirement planning is one of the important things that has to be done by
the materials management section. As I have already highlighted procurement, inventory
control, receiving an inspection of materials, transportation of materials, material
handling, disposal of materials, value analysis. If you remember in our discussion on
product design and development, we had session on value engineering and analysis. So,
always the materials management department has to be, it has to keep a focus on that
what can be the alternate materials that can be used for the similar type of application or
for the same application. Can there be alternate material which is performing the
function reliably, but at a relatively lower cost.

So, that type of analysis also materials management department, will continuously be
doing in order to make profit for the organization. So, rest all whatever points are listed I
have read them twice. So, maybe you can remember them and their self explanatory
only.

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(Refer Slide Time: 20:07)

Now responsibilities as I have already told the last point of the previous slide; that is
value analysis is directly related to cost reductions. So, always the management
department or the materials management department has to be on it toes to ensure that
they are able to procure the materials at the least possible cost without compromising the
quality, quantity, as well as the performance of the materials. So, that is one of the major
objectives of materials management or the main responsibility.

Another is the optimum service level has to be maintained; that is whenever the material
is required for any operational requirement, the material must be available within the
organization. It must not happen that the material has to be ordered and the process has
to be stopped, because of the want of the material. This is like that we have guests in our
house and we are running for buying the milk for preparing the tea. So, that is a similar
thing scaled up at the industry level that there is a requirement of the material, but we are
not able to manage the supply of that material; therefore, it will be considered as a huge
failure of the materials management department, and it means that they have not been
able to discharge their responsibility properly and they will be held accountable for this
loss.

So, as a big responsibility of the materials management department, they have to ensure
the cost is optimum, optimum service level is maintained, quality assurance also has to
be ensured by the materials management department and then they have to ensure that, in

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the beginning of today’s session I have told that usually we do not want huge amount of
capital to be tied up with the materials. So, we will order the material as and when
required, maintaining the optimum service level, so that whenever a material is required,
we may not be looking for our vendors. So, we have to ensure that low level of capital is
tied up, our complete capital or a huge amount of capital is not tied up with the materials.

So, as a responsibility of the materials management department, they have to ensure cost,
optimum service level, quality of the materials, as well as the low level of the capital
must be invested in storing the materials. So, now, what is inventory? I think today’s
session in the previous discussion I have used the word inventory number of times. So,
what is inventory basically? So, inventory is a stock of items, which have been kept to
meet the future demand. So, we always keep some materials in store, so that can be
called as the inventory.

(Refer Slide Time: 22:58)

So, inventory is stock of items kept to meet the future demand. Purpose of inventory
management is, that how many units to order, when to order. So, we have to answer
these two questions, that how much we must order that we will get from economic order
quantity EOQ analysis, and then when to order that also we will we can calculate from
there, if we have the yearly demand available with us and we calculate the EOQ value.
Then we can very easily find out that how many orders we must make, and when we

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must make those orders in order to, so in order to manage the overall demand of one
particular year.

So, these type of answers we have to look for. When we are managing the materials in an
industry, we have to find out that how much material is required that will come from the
forecast. Once we know this is the material requirement for our company in the next 6
months or next quarter or in the next year, we have to then plan that when to procure this
material.

There is another thing as we have seen vendor development. We have also to see that
from whom we have to procure this material. So, from whom means they there we have
to maintain different sources of supply. So, we have to ensure from whom we have to
buy the materials, how much we have to order in single go, when we have to order? So,
all these answers we have to find out. And for finding these answers we have and tools
and techniques that we will learn in our discussion during this week.

So, the two questions that are most important are mentioned here, how many units to
order and when to order. Now what are the components of inventory? We know that
what is inventory. It is the stock of materials as per our forecast. So, raw materials fall
under inventory, purchased parts that are to be used for the assembly of the product will
also fall under the inventory.

(Refer Slide Time: 25:13)

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Work-in-process; that is partially completed products that is usually we call as WIP
work-in-process, we will also fall under inventory. Items being transported from one
section of the company to the other section of the company through the material handling
system will fall under inventory and finally, the tools and equipment will also be falling
under the inventory only. So, I think our discussion today primarily is based on the
fundamental aspects of materials management.

And I think we have been able to cover in this particular session that what are the
objectives of materials management, why do we need to study materials management,
why do we need to do materials management? Then we have seen, what is the scope of
materials management that what all we can do? What are the responsibilities of materials
management department? And finally, we have seen the word inventory; that what is
inventory and what type of answers we have to find out in inventory management and
control? And finally, we have seen that what are the different types of materials in any
organization?

So, with this I conclude the today’s session. In next session we will learn a technique that
is used for materials management.

Thank you.

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 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 52
Inventory Control

Namaskar Friends, welcome to session 52 in our course on operations management and

currently we are in the eleventh week of our discussion and the topic of eleventh week is
materials management and if you remember in the previous session, we have just
discussed the basic concepts of materials management, we have seen what are the
objectives of materials management, what is the scope of materials management, what
are the responsibilities of a material manager and we have tried to define the word
inventory, which is most commonly used in materials management. In nutshell, we have
tried to find out that what materials management is all about and what we need to do in
order to ensure efficient and effective utilization of our materials.

So, we have seen that there are three important aspects of materials management starting
from the procurement of materials, then ensuring the proper usage of materials and
finally, the accounting of the materials that have been procured. So procurement, usage
and accounting are the three keywords that are related to materials management and
today we are going to focus on inventory control, which is a slightly specific topic.

Materials management is more general in nature and inventory is more specific in nature.
In the last session, towards the end, last two slides were focused on defining the term
inventory and we have also seen that what type of materials make up the inventory. So,
we have seen the raw materials, the work in process, the parts that are being transported
from one place to the another place within the organization, the tools and equipment; all
fall under the inventory and it is important for us to manage our inventory properly. If we
are not able to manage the inventory properly, we may have to suffer huge losses in the
organization.

So, today we will see that how we can manage our inventory and the topic for today is
inventory control. So, prior to that, let us try to highlight the importance of inventory
control, that why do we need to keep an inventory. Some of you can question this and
that is a very valid question that why not to procure the material when it is required. So,

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we need not to keep an inventory, we need not to tie up our capital in the inventory, that
is that, we need not spend money and keep the inventory in stock. So why do we need to
keep an inventory? Why these materials at the first instance are required in the industry?
So, our next slide will answer all these queries, that what is so important that we need to
keep the inventory.

(Refer Slide Time: 03:25)

Now, the first thing that explains that is the bullwhip effect, the inventory and supply
chain management are interrelated things and inventory is one of the important elements
of supply chain management. So, first is the bullwhip effect, which means that the
demand information is distorted as it moves away from the end use customer.

Now, as end use customer, suppose I want to buy a mobile phone of a particular
company, so that is the demand at my end. So, the I am the end user customer of that
mobile phone, but as I move down to the company, that complete chain of people who
are involved in this chain may be the information may get distorted. So, the complete
information may not be there, some companies are making use of the direct interface
these days between the customer and the company.

Directly you can order online to the company and they can have a better idea, that what
is the exact demand of our product in the market. So, these days the use of information
technology is helping the companies to reduce this effect, but many times the demand

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gets distorted because of the bullwhip effect. Higher safety stock inventories are stored
to compensate this. So, that is another word is coming here safety stock.

So, we will try to understand this when we go through our discussion on economic order
quantity, that what do we mean by the safety stock, but in order to compensate for this
effect, many times the company keep a safety stock of materials that whenever required,
we can get this material from the safety stock. Otherwise, they may have a particular
service level of materials, that this is my normal may be working capital and if, in case of
emergency I will draw the capital from this safety stock that I have maintained.

Normally we do in our management of our finances, mostly we will keep some amount
as a working capital for daily expenditure and the other amount we will keep as a safety
stock that if required, then only I will use the safety stock. Otherwise, I will manage by
my day to day expenditure money that I have kept. Similarly, for materials also, for
normal usage of the materials that are required in assembly operation or in the
manufacturing process, we will keep certain level but we will keep another level down
that that will be the safety stock, whenever required, we will take the material from the
safety stock.

So, mostly companies keep a safety stock, so that the process must not stop because in
many industries for example, if you are making electricity from coal in specially in case
of thermal power generation, you cannot afford to stop the boilers because a refilling
may take huge amount of investment. In many other processes also which are capital
intensive, you will not wish to stop the process in want of materials, therefore, you will
always keep certain materials in store so that the process is not stopped and its processes
continuous.

Many times, there will be seasonal or cyclic demand, so we have to keep the inventory in
order to meet that demand. Inventory provides independence from the vendors. We
precisely will not be required to look up to the vendors every now and then, whenever
there is a requirement because if we have certain material or maybe certain amount of
material in the inventory, we can very easily use that material instead of depending upon
the vendors every now and then.

So, that is also one important requirement that why we must keep an inventory and why
we must manage our inventory properly. Then, sometimes it so happens as I have

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already told in the previous session; also there are discounts available, you buy two
materials you get two free and many times if you buy beyond a particular volume, maybe
if you buy more than 100 kg of raw material, you will get this discount. So, many time,
the company want to take advantage of that quantity discounts and therefore, they buy
the material in bulk and store it in the form of inventory and inventory also provides
independence between the stages and avoids work stoppages.

So, which I have already explained that the inventory is majorly focused on managing
the line or the manufacturing line or manufacturing process efficiently and effectively as
well as to ensure the continuous production of the products and therefore, we need to
keep an inventory. So, with this slide, the major focus to emphasize is that why do we
need to keep the materials in the store. In our house also, every now and then, we will
not be running to the grocery store to buy our materials.

We may may be for a month, we may buy our grocery and keep it in our kitchen cabinet
or in the store adjoining the kitchen. So, that for the complete month we have stocked
our rations properly. Similarly, in case of industry, there also the manufacturing is going
on. So, we will buy the material and keep it in the store, so that the process is continuous
and whenever the level or the quantity of materials go beyond or go below a particular
level, we will reorder the materials, so, that our stocks or stores are replenished by the
materials so that is what is basically inventory management and control.

So, we will see that one of the important topics today, that how we can control our
materials. So, inventory control is very important because we need to find answers to
certain questions. So, inventory control is a planned approach for determining.

(Refer Slide Time: 09:38)

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So, we need to find out answers when we are managing our inventory that what to order
that is one thing. When to order, that is in the time domain maybe every fortnight, every
month or every 3 months or every 6 months or every year; whatever is our time window
that we have to decide. First is what we have to order, when we have to order, then the
third question is how much to order. Whether we must buy the materials required for
next 1 year at one go or we may break it into two orders of 6 months each or we may
break that or may divide that order into four orders every quarter.

So, we have to take a decision what to order, when to order, how much to order and how
much to stock, that is a safety stock that how much safety stock we must keep in order to
avoid any discontinuity in our manufacturing process. So, these answers we have to look
for in our topic of inventory management and control the costs associated with buying
and storing are optimal without interrupting production and sales. Now, all these answers
we have to find out, subject to that the cost associated with buying and storing is optimal,
without interrupting the production and sales.

Again, I have read the sentence for all of you that answers to these questions we have to
find out either mathematically or intuitively or by our experience, but what must be
always kept in mind that, the cost involved in answering all these questions or finding
solutions to all these cost questions must not be very high. At the same time, we have to
ensure that the process or the manufacturing process must not stop. The assembly of our
cars or assembly of our automobiles must not stop.

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So, that is also very very important. Now, inventory control basically deals with two
problems so, the first problem is when should an order be placed and how much should
be ordered – so, order quantity. So, the answer to the second question first is the
economic order quantity model. Usually, we term it as EOQ model and we will cover the
EOQ model in our next session. In many competitive exams also, in many you can see
university exams, there are numerical problems, quantitative problems related to the
economic order quantity and it is an important topic not only from the academic point of
view, but also from the application point of view, from the industry point of view. We
must know that what is the economic order quantity, using our simple mathematical
formula we can do the calculation for EOQ and the first answer to the first question is,
when should an order be placed that is the order level.

So, that we will see, usually we term it as a reorder point of reorder level. Also, that
when should an order be placed. That is, how much is left in our stock when we must
place the order, that will depend upon the lead time also, that after placing an order what
is the gap of time by which we will receive our order. So, we have to see what is the lead
time, what is our consumption rate. Based on these two parameters, the consumption rate
that is, how the material is getting consumed over a period of time. Today, if we order
after how many days or how many weeks we will get our order. So, these two things, we
will decide that what is going to be our reorder level. We will try to understand this with
the help of a diagram also. So, first of all, we have to learn that what is inventory control
and how to find the answers to all these questions.

So selective control of inventory, that is when what we can do, refer. Now, selective
control refers to the variation in method of control from item to item on selective basis.
So, from part or component to component wise, we have to exercise different type of
control. So, selective control refers to the variation in method of control from item to
item on selective basis. So, in this system, the items are categorized in a few groups
depending upon the selective criteria, such as value, usage frequency and consumption
such grouping helps the organization for scientific inventory control.

So, we have to manage the materials in our organization and we have to frame a criteria
to classify these materials. So, that we focus on the materials which are important and
put less focus on the materials which are less important. Although, all materials are

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important in the industry, but a relative grading can be worked out on the high value
materials as well as on a low value material.

So, we can classify the materials and that one of the methods for this classification is the
ABC classification. So, we will see one problem related to ABC classification today, but
there can be other methods of classification based on the usage, based on the value of the
products or value of the parts that we are focusing our attention on or value of the
materials that are in our inventory. So, we may have 15 different types of materials in
our inventory and we wish to classify them into five different categories so that
classification can be based on the usage of those materials. For example, one material is
used very frequently every day.

Maybe, 10 tons of that material is required; other material may be required in a very less
quantity, maybe 1 percent of this high valued or high volume material. One material is
required maybe 10 tons per day; other may be required as 10 kg’s per day. So, based on
the usage we can classify one material high volume material, another is low volume,
only 10 kgs required per day that is based on usage. Another one can be based on the
value of the material, another can be the frequency of usage, some materials may be very
frequently used, some materials may be less frequently used.

For example, if we go to a shopping mall, so, there will be a high frequency material
which is like kind of vegetable or may be daily grocery things, then there can be high
value materials in the shopping mall. For example, the led TVs or maybe refrigerators or
air conditioners or the sales frequency may be less for high valued material, but sales
frequencies more for the low valued materials like vegetable or maybe the grocery items
and then, the consumption may be another criteria for classifying the material. So, we
can classify the materials based on usage, value, frequency, consumption.

So, there can be different criteria now such grouping. Why do we need to group the
materials because we as managers as engineers we have to focus on specific group of
material. So, we whatever is our objective whatever is our may be the target we have to
classify them. So, that we are able to achieve our target. In many cases we may not like
to focus on a material which is not very costly. So, based on the value we can classify
that this material is not very costly, even if we focus our attention on this material we are
not going to gain much.

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So, wherever you must focus? We much must focus on high valued material because
even if we are able to say some amount of money in this high valued material, we will be
able to save substantial money for our organization. So, similarly that maybe, focus area
can be identified by classifying the material. So, I think I have tried to highlight the
importance of classifying the materials and now, let us take an example of various types
of analysis.

(Refer Slide Time: 18:12)

So, we will take 2 today, that is ABC analysis and the VED analysis, that is vital
essential and desirable and there can be HML also high medium and low analysis as I
have already told, the criteria can be the usage, the value, the consumption, the
frequency. There can be different criteria for classifying the materials. One of them is
ABC, that we are going to understand today with the help of a diagram and an example;
and we will try to understand the very basic concept of VED analysis also.

(Refer Slide Time: 18:50)

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So, ABC classification, you can see on your screen now the classification on the basis of
cost and volume. So, we can see here, the usage is also taken into account and the value
is also taken into account. So, the cost is may be corresponding to the value of that
particular material and the volume can be the usage of that particular material. Now, we
will classify as the name goes ABC classification. We will classify the materials as class
A material, class B material and class C.

Now, let us see; what is class A? Now, class A material is that, it will be only 5 to 15
percent of the units. Now, suppose we have 10 different types of materials, so, we will
have either one or two materials only, which we will fall in class A, but their overall
value, will be around 75 to 80 percent or 70 to 80 percent of the value. So, these will be
costly items, the number of items will be less, but their value will be more. Similarly,
class B may be 20 to 30 percent of the items will fall in class B, that is if we have 10
different types of materials, we can have 2 to 3 items or materials which can fall in class
B and the value of these materials will be 15 to 20 percent only and the last is, class C
items which are maybe cheaper items.

The value is very less, but their numbers may be more. For example, if we see of in an
office, we may have computers we may have 3 computers only. The number is less, but
the value is more. But the stationery items for example, the pencils, pen, pen stands and
the other registers etcetera. So, their number is more, but the value is less. So we, if we
classify the materials that are there in an office. So, the computers will have maybe high
value, but the number is less, but stationery on the other hand the number of stationery

856
items is more, but the value associated with these items is less. So, we classify the
material as A, B and C as given on your slide. Similarly, we can try to understand this
with the help of this diagram.

So, class C items, you can see the percentage of inventory items out of 10 as we have
taken an example, may be, 6 items are class C items, but their overall value is
approximately 5 to 10 percent only. Class B, here we have maybe 30 percent of the item,
out of 10, three items are may be class B items, but their value is maybe 15 to 20 percent,
but there is maybe one item out of 10 which is class A item and the value of that item is
80 percent. So, this is the way we can classify them as A, B and C.

So, A items are high value item, 70 to 80 percent of the value is associated with them,
but their number is less and on the contrary, class C items, their value is less. They may
account for 5 to 10 percent of the overall value, but they are highly numbered; the
number is large. So, that is more percentage of the units in class C items. So, let us take a
very quick example. So, this is one example how do we do the calculations for
classifying the material as A, B and C.

(Refer Slide Time: 22:24)

So, this is annual usage is given. The part numbers are given there are 10 different items.
Here, part 1, part 2 to part 10 unit cost for each item is given or each part is given. So,
what we can do? We can multiply this to establish the overall value that which item is

857
having the maximum value and which item is having the lower value and consumption is
already given to us. So, we can do the calculation further.

(Refer Slide Time: 22:54)

So, first we will arrange this based on the total value, because our one criteria for
classifying under ABC, is the total value associated with the product. So, here we can see
item number 9; 30,600 dollars. So, you can see item number 9, here 510 multiplied by
60. So, when we multiply this, we will get this value – 30,600. Similarly, when we
multiply the usage and the cost, we will get the total value. So, we have unit cost also
available, annual usage also available.

So, based on these two data point data and the multiplication of these values, we will get
the total value and then, we can calculate the total value is coming out to be dollar
85,400 and then, we can calculate how much is this contributing in the total value. So,
the percentage contribution of this can be calculated by dividing this by the total value.
So, 30,500 divided by 85,400; we will get maybe 35.9 percent.

So, value that will we will get is 0.369 multiplied by 100, we will get 35.9 percent
contribution of part 9 towards the total value. Similarly, part 7 is contributing only 2
percent to the total value. So, the total value 35 percent contribution is coming from part
9. Similarly, percentage of total quantity also, we can calculate. We know that the total
usage, annual usage is available with us for each and every part; from there we can
calculate; what is the percentage of total quantity for part number 9.

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So, part number 9, we can see in the previous slide part number 9, only 60 items are used
per maybe year because this is an annual usage given to us 60 parts only per year for part
number 9. So, if we add this, we can calculate the percentage contribution in the annual
usage by part number 9. So, we can calculate that and here, we can calculate the
percentage cumulative, that what is the cumulative percentage of this, may be part in the
overall consumption and based on that, we can classify the material.

Now, maybe this figure, we have done the calculation, we have multiplied the unit cost
with the annual usage, then we have calculated the percentage contribution of a
particular part in the total value, we know the annual usage based on that, we have seen
what is the percentage contribution of a particular part in the annual usage. So, we have
found out the percentage contribution of individual part in the total value, we have
calculated the contribution of individual part in the total usage or the annual usage, from
that we can classify. Now, if you remember A, B and C, A are items which are having
high value, 70 to 80 percent value contribution in the overall value.

But their numbers are less, maybe 10 to 15 percent of the total usage. So, we can see, we
can classify them as on your screen you can see A item high value low usage and part C,
where we see low value high usage. So, maybe here we can see A, B and C. So A we
can, if we add up these three; total value percentage contribution 16 plus 14 comes out to
be 30 plus 30. So, A total uses can be, maybe say, more than 60 percent here. So, and the
usage is percentage cumulative usage is 15 percent. So, their number of items is less,
maybe three items only, but their percentage usage is 15 percent and the total value is
maybe nearly 70 percent. Usage less value, more A uses more value less C. So, that is
what is given here. So, items 9, 8 and 2 are classified as A, because their percentage of
total value is more and their percentage of total usage is lesser.

(Refer Slide Time: 27:28)

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Total quantity contribution is less whereas, C items; four items are there, the total value
is only 12.5 percent, but the percentage or total quantity you can see is 60 percent. So
this way, we can classify if we have the unit cost available with us for all the parts or the
components, we have the annual usage available, we can multiply them, we can calculate
the percentage contribution of individual part in the total value of a maybe materials and
then, we can calculate the total usage also. Percentage contribution of total usage by
every component and then, we can classify them high value will be high valued
components will be given as class A and low usage on the other hand for class C, we will
see the value is less for these materials, but the usage is more.

So, this is one particular classification that is ABC classification. So, advantages of ABC
I will very quickly I will read this for you.

(Refer Slide Time: 28:37)

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This approach helps the manager to exercise selective control and focus his attention on
few items only, though he can focus on high value products or high value components or
parts only by exercising strict control on A class items, the materials manager is able to
show the results with short, within a short period of time only. So, he can show the gains
by exercising control on class A type of items, which are high valued items; it results in
reduced clerical cost, saves time and effort and results in better planning and control of
the materials.

(Refer Slide Time: 29:16)

Now, what is a limitation? That it is not a onetime exercise and items are to be reviewed
and re categorized periodically. So, the usage may keep on changing, the unit cost may

861
also some time change because of certain discounts or other criteria. So, we maybe every
year or every 2 years, we can recalculate or re categorize the materials as A, B and C
category materials or A, B and C class material. So, last part maybe for today, just an
introduction what is VED analysis instead of based on the total value or the usage, we
can also classify our materials as vital essential and desirable.

(Refer Slide Time: 29:47)

So, the analysis; classify the items into three groups or the materials into three groups,
that is – Vital, Essential and Desirable. Now, just we will try to understand what type of
materials will fall under vital category, what type of materials will fall under essential as
well as the desirable.

(Refer Slide Time: 30:19)

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Now, what are vital items? Vital items are those items whose unavailability will stop the
production. So, they are the lifeline of the production process. So, if you cut the lifeline,
the process will stop. So, vital items are those items whose unavailability will stop the
production. Essential items are those items whose stock out costs are very high so if we
are not able to provide that material the stock out cost will be very high. Desirable items
will not cause an immediate production stoppages and their stock out costs are minimal
or nominal. So, based on this also, this classification also, we can classify the materials.

So, maybe the most important are the vital, because if you do not have a vital or if you
have a stock out of the vital materials, the overall production process may stop. So, in
today’s session we have seen two different methods of classifying the materials in the
organization that is the ABC analysis and the VED analysis. In ABC, we classify the
materials as class A, class B and class C. Class A high value, may be low usage. On the
other hand, class C low value, high usage and in vital, essential and desirable; vital
components are very important because their unavailability will lead to the stoppage of
the production process. Prior to that, we have tried to understand that what is the role of
inventory control and more specifically why do we need to keep an inventory.

Now, in the next session we will try to answer our questions like how much to order, that
is economic order quantity and we will try to see that when to put our reorder, what is the
lead time, what is the reorder level; all those things we will try to understand in our next
session.

863
Thank you.

864
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 53
Economic Order Quantity (EOQ) Models

Namaskar Friends, welcome to session 53 in our course on operations management. So,

today we are going to discuss the economic order quantity model and we will try to see
and understand this model with the help of an example. If you review the previous
sessions that we already had in this topic of materials management, we have covered the
basic aspects of materials management, why it is required, what are the objectives, what
is a scope, what are the responsibilities of the material management department and then
we have tried to understand the classification of the materials.

In the last session if you remember we have seen ABC analysis, we have seen VED that
vital essential and desirable materials, and if you remember we have already put some
questions for understanding or for answering. Now these questions are what to order,
when to order, how much to order, how many times in a year you must order.

And we need to find answers to all these questions, when we are managing the inflow of
materials into the organization and then we are using those materials and finally, we are
accounting the materials, we are accounting for the materials that have been procured by
the organization. So, friends we need to find answers to all these questions.

Now what are the questions, again I am repeating that what we must order; that is what
are the materials to be ordered; how much quantity we must order, then the next level is
that when we must order. So, we need to find out the quantity that is a number. We need
to find out the time where that when we must order. We need to set the reorder level that
after this much of usage we are going to order the new consignment of materials. So, we
need to find answers to all these questions and it is not that difficult, if we have some
preliminary data available with us; based on that data very easily. We can calculate
mathematically that; what is our economic order quantity.

Many times; we will see that we make use of the quantity discounts also, but here today
we will take a simple problem without the quantity discount and try to understand that

865
how do we do the calculations based on the economic order quantity. Now first thing we
must understand is the three words; that is the economic, order and quantity. So, first
thing is economic, means it is optimal that if we order this much quantity then we are
going to save money.

So, first thing is economic, then the order; order means how much we must order, it
should be economic. For example, it should give us the minimum overall material
management cost. So, whatever we are ordering, whatever volume we are ordering,
whatever number we are ordering must be economic and the last part is the quantity; that
is in terms of number. So, economic order quantity is a number; that is the number of
equipment, number of material, number of may be it can be the number in terms of the
kgs number, in terms of whatever it is may be a quantity that if we order our overall cost
of materials management will be minimum.

Now, what will make the cost of material; one will be the cost of material itself, another
one is the cost of ordering or placing an order and the third cost is the cost of maintaining
that inventory in our storehouse or the warehouse. So, three different costs are involved
in materials management; the actual cost of the material, the cost of placing the order and
the carrying cost. So, we will try to minimize this overall cost. Our major focus will be
on the last two cost components; that is the ordering cost and the carrying cost. So,
carrying cost will be directly proportional to the period of time for which we are storing
our material in the warehouse.

Ordering cost is directly proportional to the number of times we are placing an order. For
example, if every month we are placing an order and cost of ordering is rupees 10, so 12
into 10 will be that annual ordering cost, because we are ordering 12 times and each time
we have to spend rupees 10. Similarly, the carrying cost is usually specified per unit. So,
if we have 100 units that are stored for 12 months and for every month the cost is rupees
10.

So, for every unit we will see that for one particular product or one particular raw
material component, the cost will be the unit cost of holding it per month multiplied by
the number of months for which we are holding that part in the factory or in the
warehouse. So, if we are talking of 12 months period, it is stored for 12 months 12
multiplied by the unit cost per month. So, that is rupees 10 per month. So, 120 rupees

866
will be the carrying cost per unit for that part, which has been stored for 12 months and
unit cost is rupees 10 per month.

So, therefore, the addition of these two cost will be the total cost of managing the
inventory and the cost of material will then be added into this total inventory cost to get
the total cost of the material. So, we have to see that what is the economic order quantity
that we must order. In order to minimize the total cost that we are spending on inventory
management and this is our topic today, how to calculate this economic order quantity.

(Refer Slide Time: 06:27)

Now, let us start our presentation with this brief introduction about economic order
quantity. EOQ is optimal order quantity that will minimize the total inventory cost, as I
have already explained, it is the optimal or the economic order quantity that will
minimize the total inventory cost. So, we are not focusing on the actual cost of the raw
material or the component or the part for which we are doing the economic order
analysis or economic order quantity analysis. We are focusing on the inventory costs
only.

An inventory costs are two types of costs, only the carrying cost and the second one is
the ordering cost. So, sometimes the carrying cost is also used by many authors as the
holding cost. So, we are using carrying cost for keeping the inventory in the warehouse
and the other one is the ordering cost that we have to pay while placing the order of the
cost spent in ordering the material.

867
So, basic EOQ model we will try to understand with the help of a diagram and then there
is another model which is a production quantity model, which also helps us to calculate
the order quantity which we must order in order to minimize the total inventory costs.
Now before this model is explained with the help of a diagram, let us see; what are the
assumptions of the economic order quantity model. And these assumptions have to be
kept in mind, because these are the assumptions based on which the model has been
developed or the equations have been developed.

(Refer Slide Time: 07:51)

So, first is that the demand is known with certainty and is constant over time. So, it is
very easy to understand that whatever we are producing, the materials are being used for
that production process, the demand for that product is constant. So, constantly the
materials will be used and we maybe have a relationship of the use of materials which is
linear, because there is a constant demand for that product in which we are using the
material.

So, the demand is known with certainty and is constant over time. So, for variable
demand or variable consumption of materials, this type of model is not valid, no
shortages are allowed. So, it is now never going to happen that there is shortage and the
process has been stopped. So, the model is valid only when there are no shortages
happening. During the production process lead time for the receipt of orders is constant.

868
Suppose the lead time is 7 days and on September 21st I am ordering. So, it is bound that
after 7 days I will get the order.

Again I am ordering on January 21st, after 7 days the order must be at my premises that
is the lead time between placing the order and receiving the quantity is fixed and is not
variable, it will not vary; otherwise the model is not valid and last is order quantity is
received all at once. So, we are not getting our order, may be at a rate. At a rate means
that suppose we have ordered 100 components. On September 21st we have ordered 100
components.

So, it is assumed in EOQ model that if the lead time is 7 days. After 7 days we will get
all 100 components in a single consignment or in a single packet. It is not going to
happen that after 7 days we are receiving 20 components first and then after 2 days and
other 20 components and over the next 5 days we are getting 20 components every day
and then multiplied by 5 days. So, we are getting our order as 5 different packets of 20
each adding up to 100. No all 100 will come together and will be received in our factory
or in our premises all at once.

So, under these assumptions the economic order quantity model has been developed. So,
if this type of scenario exists in the organization, it is easy for the organization to
calculate that what is going to be the economic order quantity for the company. Again I
will read all these points for you; demand is known with certainty and is constant over
time, no shortages of material are allowed, lead time for the receipt of orders is constant
and order quantity is received all at once.

So, we will see that when the model changes some of the assumptions also change. Now
this is the inventory order cycle on your screen, on y axis we have the order quantity or
we can also call it as the inventory level or the number of components that are available
in the warehouse or the storehouse.

(Refer Slide Time: 11:35)

869
So, it is being represented by Q on y axis, we have the quantity on x axis, we have the
time, you can see here it is time. So, it is a plot between the quantity where that is
available or the inventory that is available on day zero with time on x axis. So, we can
see here this is the demand rate as we have assumed that demand rate is constant over
time. So, the rate of usage of material is constant over time and that will depend upon the
product that we are producing. If continuously we are producing the product our demand
rate will be constant over time. So, the demand of the product is constant and therefore,
the demand of the material requirement is also constant.

Why, because suppose we are producing 100 cars per week and this demand is constant.
So, 100 cars per week means that we may require 400 tires per week or maybe we may
require 100 steering wheel systems per week. So, depending upon that the 100 that
demand rate is constant for the steering wheel systems or the tires for the automobile. So,
if the production is continuous, demand is constant. So, this demand rate will
automatically be constant. So, here the demand rate as per assumption is constant and
you can see that the quantity is being used continuously over a period of time, as soon as
you reach the reorder point that is depicted by the red line here.

So, as soon as we reach the reorder point we have to place a new order. So, here we
place the new order and this is the lead time on time scale. This dotted green line depicts
the time when we have placed the order and when we are receiving our order this is the
lead time. So, we receive our order here and as is the assumption that all the volume of

870
material or all the number of material that we have ordered, supposed 100 components or
100 parts we have ordered, all will be received all at once.

So, we receive 100 here and our quantity in the inventory again is replenished and comes
to the original queue level of our maybe inventory. So, this is the order quantity, initially
we had queue. So, suppose we had 100 we are using it at a constant rate, maybe after we
have used 80, this is maybe representing 20. So, when 20 are left with us we reorder. So,
we use those 20 and by the time we are at zero level our 100 components have again
arrived, because we have ordered when we were left with 20. So, again we have 100. So,
100 is replenished here. Again we start using that those 100 components at a constant
demand rate.

And once we have reached this reorder level of 20 we reorder and then we have finished
the usage of this 20, again it is replenished by 100 components and this cycle continues.
And to add to this cycle we also have a safety stock which is below this zero level. So, in
many cases we will keep a safety stock also, suppose because of any problem this lead
time is extended or we are not able to maybe get our replenishment of material here.

This may further go down and take the material from the safety stock and again as soon
as the order is received we replenish it to the order quantity level. So, this is our maybe
economic order quantity model based on this now we have to find out the order quantity
that; what is the order quantity which will give us the minimum total cost of inventory
management? So, here we can see in economic order quantity model, we see that there
are two types of costs involved.

(Refer Slide Time: 16:09)

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As I have already explained in the beginning of this session that we have a cost of
placing an order and we have a cost annual per unit carrying cost which I have explained
in the beginning today, that suppose the annual cost we have to calculate for inventory
management. So, the carrying cost is, suppose I have taken an example, rupees 10 per
month, for every component; so, the 10 per component per month multiplied by 12
months. So, annual cost will be 12 into 10 for one component.

Suppose that component is stored in inventory for 1 complete year, so it will be 120
rupees. So, that is the carrying cost for that component, an ordering cost will be based on
the number of orders. So, suppose we order every month and the cost of placing the
order is rupees 10. So, we are placing 12 orders. So, 12 into 10, 120 will become the
ordering cost. So, number of orders into the cost of placing a one order or a single order
will give us the annual ordering cost and similarly the annual carrying cost per
component.

Annual ordering cost = CoD/D

Annual carrying cost = CcQ/2

Total cost = CoD/Q + CcQ/2

Co - Cost of placing order, D - Annual demand

Cc - Annual per-unit carrying cost, Q - Order quantity

872
So, sometimes we may have the carrying cost on daily basis also, that carrying cost for
the component is rupees, maybe 50 paise or rupees 1 per day, so that is also possible. So,
these are the two types of costs involved in managing the inventory. Now in order to do
the calculation we must have the annual demand; that is what is going to be the
requirement of the material for which we want to identify or calculate the economic
order quantity, what is going to be the annual demand of that material also.

The Q is the order quantity which is our variable for which we want to calculate that
what must be the optimum order quantity. Now the annual ordering cost, annual ordering
cost as I have already explained will be the cost of placing the order; single order and
multiplied by the number of orders. Now number of orders; how we can get or how we
can calculate, it will depend upon the total annual demand as well as the quantity that we
are ordering once. So, suppose the annual demand is 10,000 parts or components.

So, annual demand is 10,000 components order quantity. Suppose we decide that we are
ordering 200 parts in one order. Now 10,000 divided by 200 we will get the number of
orders and this number of orders multiplied by the cost of placing an order will give us
the annual ordering cost. So, I think I have made it clear that we have taken an example
that the annual demand is 10,000 and Q we are assuming. For example, 200 per order we
are doing.

So, 10,000 divided by 200 will give us the number of orders and multiplied by the
ordering cost per order will give us the annual ordering cost. Similarly, we have to
calculate the annual carrying cost also and that can be calculated by the carrying cost per
component into Q, Q is our order or the order quantity. So, carrying cost, but usually we
divide it by 2 why we have divided it by 2, because we take the average quantity for
doing the carrying cost analysis, why, because suppose today in the beginning of the
month, I have 100 components in my inventory over the month, I am using it and
towards the end of the month I may be left with 0 component.

So, if the components are being used continuously and therefore, we take an average
value of the quantity and many times it may so happen that we receive the order in the
middle of the month and the parts are used, maybe in the second week of the month and
then the new order is coming. So, whatever we are getting towards the middle of the
month again we have, we have started to use it for the next 15 days. So, therefore, we

873
take the average value of the quantity that is Q by 2. So, we know that; what is the
carrying cost per component multiplied by the number of components; we can calculate
the annual carrying cost.

But the number of components will be taken as an average. So, then the total cost will be
the, total inventory cost will be the ordering cost plus the carrying cost. So, again just to,
because the formula will be based on these two quantities only; so, let us again maybe try
to understand the annual ordering cost. So, annual ordering cost is the cost of placing a
single order multiplied by the number of orders.

The number of orders we can calculate by the annual demand divided by the quantity
that we are ordering in a single order. So, that will give us the number of orders. So, the
number of orders when we will multiply by the cost of a single order, we will get the
annual ordering cost and similarly annual carrying cost will be the cost of carrying one
particular part or equipment multiplied by the number of parts or components.

So, that will give us an average value of the number of parts or component when we add
the two carrying and the ordering cost we will get the total cost. Now let us try to find
out how these will vary with the quantity with the parameter Q.

(Refer Slide Time: 27:11)

Now, this is the annual cost on y axis on x axis we have the order quantity. So, we can
see if the order quantity is increasing the ordering cost is decreasing. So, now, you can

874
very easily see this is D by Q. So, D remains constant. So, D means the annual usage. So,
annual usage if you say 10,000 and now suppose you are ordering 5000 components in a
single go. So, 10,000 divided by 5,000. So, only twice you are ordering in a year. So,
your ordering cost for a single order multiplied by twice; only here are ordering.

So, your total ordering cost is less; suppose you are ordering 12 times a month or maybe
10 times a month easier for calculation. So, suppose you are ordering 10 times a month.
Sorry, not a month 10 times a year, in 10 times a year. Now, you can see what is your
annual use over annual demand 10,000 you are ordering 10 times. So, when you are
ordering 10 times, means that at a single go you are ordering only 1,000 components or
parts only. So, 10,000 is the annual usage maybe after every specified interval of time
you are ordering 1,000 components only. What is the number of orders 10,000 divided
by 1,000; that is 10 times your ordering.

So, if you are ordering 10 times multiplied by the cost of placing a single order your cost
of ordering will be more. So, you can see that when the order quantity is increasing your
ordering cost will decrease, and just to explain if all the 10,000 components or parts we
are ordering in a single order only. So, your Co or ordering cost is multiplied by 1 in
single order only. So, your overall ordering cost is less and if you are making maybe 100
orders 100 multiplied by the ordering cost of placing single order your cost will be more.

So, if the order quantity is increasing your ordering cost will decrease. Now the carrying
cost. So, if your order quantity is increasing your carrying cost will increase, because if
you are ordering more number, suppose in single order only you get all your 10,000 parts
which is an example for annual usage. So, I have assumed that annual usage is 10,000
components or part. So, you are ordering only once. So, in the beginning of the year in
January you order all these 10,000 parts. So, all these 10,000 components have arrived at
your premises. Now this 10,000 you are using them, but you are holding them maybe for
the next 1 year.

So, you can see that your holding cost or carrying cost will be high. So, carrying cost is
Cc into Q by 2; that is the average value of the order quantity. So, we can we have seen
the carrying cost also, we have seen the ordering cost also. So, both of them will add up
to the total cost. Now we will try to see that the total cost has to be minimum and our
total cost is minimum, where the carrying cost and the ordering cost are equal.

875
(Refer Slide Time: 25:36)

So, based on this, maybe equality we can calculate the Q optimum value. So, at our total
cost minimum point our ordering cost and our carrying cost was same. So, if we equate
them very easily we can do a simple mathematics and calculate that Q optimum is equal
to twice the ordering cost multiplied by the annual usage divided by the carrying cost
square root of that. So, this formula is given in almost all good books of inventory
management and this is used for calculating the economic order quantity or the other
way of deriving the Q optimum can be.

We can write a total cost equation by adding the ordering cost and the carrying cost and
then differentiating it to find out the Q optimum value and again the Q optimum by this
method also, is twice the ordering cost into the annual usage divided by the carrying cost
square root of that. So, the formula is same, we can get it by equating at that point where
the total cost is minimum, the ordering cost and the carrying cost and then we can very
easily find out Q optimum.

Deriving Qopt

TC = CoD/Q + CcQ/2

TC/Q = CoD/Q2 + Cc/2

0 = CoD/Q2 + Cc/2

876
So, with this, I close the today’s session. We have tried to see that what is the economic
order quantity model and in the next session we will try to calculate the value of the
optimum quantity or the economic order quantity and see how we can further calculate
the number of orders; how many times we must order after how many days we must
order. We will try to understand that with the help of simple numerical problems.

Thank you.

877
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 54
Economic Order Quantity (EOQ): Problems

Namaskar Friends welcome to session 54 in our course on operations management and

as we are discussing the eleventh week, our topic is materials management and today is
the fourth session of materials management, just to have a brief review of what we have
covered in the last 3 sessions. We have covered the basic aspect of materials
management, we have covered the scope the objectives, the responsibilities of the
materials management section or department.

Then we have covered the classification of the materials based on ABC analysis, also we
have seen the VED analysis and then in the last session that we had, we have seen the
economic order quantity that how we can make use of our scientific logic to find out the
economic order quantity which will minimize the overall cost of inventory management.
So, we have found out there is a simple equation, simple mathematical equation which
can help us to calculate the economic order quantity that usually the students call as the
EOQ.

So, we have seen the EOQ model in the previous session and today we will try to do
certain mathematical calculations, try to solve certain numerical problems based on the
economic order quantity model. So, basically what we are calculating is that, what is the
economic order quantity that we must order, in order to ensure that the overall cost of
inventory management is minimum. Also we can calculate based on the EOQ that how
many times we must place the order based on the annual demand required. Then we can
also see that after how many days we must place the order.

So, all the answers to these questions can be very easily calculated based on the
economic order quantity. So, if we can first see that what is the input required, what type
of information is required to calculate the economic order quantity, then how we can
calculate the EOQ and then based on this EOQ what further calculations we can do in
order to satisfy our, maybe the management that we are ordering as per scientific logic.

878
We are not wasting any money; we are making proper utilization of the money; that is
available for materials or for managing the materials.

So, this number, if we are able to calculate will help us to find answers to all our queries.
So, here we are not answering what we have to order. What we are definitely answering
that how much we must order, when we must order, so that our overall cost is minimum.
So, let us try to see mathematically how we do these calculations.

(Refer Slide Time: 03:29)

So, this is a problem 1 on your screen, you can see Cc is the carrying cost and the product
here is the yards. So, the demand is 10,000 yards carrying cost as I have told earlier also,
is always specified per unit basis. So, the carrying cost is dollar 0.75 per yard and the
ordering cost is dollar 150. So, then we can calculate the Q optimum. These are the three
things if you remember in the formula that we have derived in the previous session, the
Q optimum is equal to square root of 2 into ordering cost into the annual demand divided
by the carrying cost.

So, as is given in the formula for Q optimum, we have the ordering cost; that is dollar
150 per order, we have the carrying cost dollar 0.75 per yard and we have the demand
annual demand; that is 10,000 yards. So, very easily we can calculate the Q optimum,
because all the three values are known to us. So, 2 into ordering cost into the annual
demand divided by the carrying cost, we put all the values here and our Q optimum

879
comes out to be 2,000 yards. So, this is our economic order quantity that if we order this
quantity our overall total cost will be minimum.

Cc = $0.75 per yard Co = $150 D = 10,000 yards

Qopt = 2CoD/Cc TCmin = CoD/Q + CcQ/2

Qopt =
2(150)(10,000)/(0.75)
Qopt = 2,000 yards

Now, if we have calculated this quantity very easily, we can calculate that how many
times we must order, how we will calculate that, we know the annual usage is 10,000
yards. So, now, 10,000 yards divided by whatever quantity we are going to order once,
so that we have already calculated; that is Q optimum is equal to 2,000. So, 10,000
divided by 2,000 that comes out to be 5 orders per year.

So, that gives us an indication that we must place our order 5 times a year in order to
satisfy the demand of 10,000 yards, and every time we must order 2,000 yards. Now we
can easily calculate; what is the total cost which is the minimum total cost of inventory
management based on the ordering cost as well as the carrying cost. So, we have this
inventory cost TC minimum is equal to CoD; that is the ordering cost multiplied by the
annual usage demand divided by the Q; that is the order quantity plus carrying cost
multiplied by the order quantity and average of that divided by 2.

So, that is Q by 2 is the average value that we are taking. So, Q here is the order quantity.
In general, if we are not finding out the economic order quantity, this Q is may be a
number for any company which has no idea about the economic order quantity or
scientifically managing the inventory. So, what will happen? Intuitively a person will be
ordering that, okay send 500 components today, maybe after 3 months he may send 450
components today.

So, this order quantity Q is a variable, if we are not using the mathematical relation that
we are using here. Similar is the case, if you see for a shopkeeper if he is selling suppose
the breads he will order randomly, because he will have a prior experience and he will
say my order for next maybe 10 days is 20 breads of this size, 30 breads of this size and
maybe 20 breads of this size. So, that is a random number selection based on his

880
experience and many times, he may feel that some of the breads he has ordered have not
been sold and are stale and he has to just put them into the bin.

So, the point is that, when we are using scientific logic, we will be able to find out this
number Q, which will help us to minimize our total cost of inventory management. So,
our TC if we remove this minimum here, the total cost of inventory management is the
ordering cost multiplied by the annual usage divided by the order quantity plus the
carrying cost and the average order quantity; that is Q by 2, but since we are using
mathematical logic. So, we are trying to find out the optimum Q value; that is, we are
calling it as the economic order quantity.

If we put Q optimum value here we are sure that the total cost that we are calculating is
the minimum total cost of inventory management. So, in this formula we are putting it
minimum. So, Q automatically becomes Q optimum and Q optimum we have already
calculated is 2,000 and based on that we can do the calculation. So, TC minimum is 150;
that is the ordering cost per order multiplied by the annual usage; that is D that is 10,000
yards divided by the Q optimum value that is 2,000 yards plus the cost of holding the
part that is 0.75 dollars per yard carrying cost multiplied by the Q optimum value, and
divide by 2 that is the average of that.

So, this summation will give us the TC minimum that is dollar 750 plus dollar 750 equal
to dollar 1500. So, we have calculated Q optimum, it has helped us to minimize our total
cost of inventory management. Now also we can calculate the order cycle time that after
how many days we must order. We already know from this calculation that if we have a
problem at hand where we have to order 10,000 yards per year, we know the carrying
cost per yard, we know the ordering cost of placing a single order, we can very easily
find out that; what is our Q optimum.

We can calculate how many times we must order and the next question can be that after
how many days we must order. So, how many times we have to order; that is 5. So, very
easily we can calculate the order cycle time also. So, suppose we take 365 days in a year.
So, 365 days divided by the number of times we have to order or the orders per year that
is 5 times, we have to order.

TCmin = [(150)(10,000)/2,000] + [(0.75)(2,000)/2]

881
TCmin = $750 + $750 = $1,500

Orders per year = D/Qopt

= 10,000/2,000

= 5 orders/year

Order cycle time = 365 days/(D/Qopt)

= 365/5

= 73 days

So, 365 divided by 5 we say that after every 73 days we have to place an order of 2,000
yards in order to have the minimum total inventory management cost or total cost of
inventory management as being minimum. So, this way we can make use of the
equations to solve the problem and to minimize the cost and in nutshell to save the
money for the organization. So, let us see another problem, this was the most simplistic
type of problem, let us see another problem.

(Refer Slide Time: 11:03)

Now an ABC Corporation has got a demand of a particular part at 10,000 units per year.
So, again we are keeping our demand as 10,000 units per year, the cost per unit is rupees
2. So, per unit cost is given as rupees 2 and it costs rupees 36 to place an order and to
process the delivery. So, the ordering cost is known to us, it is rupees 36 per order, the

882
inventory carrying cost is estimated as 9 percent of cost per unit. Now cost per unit as
per our problem is, as you can see on your screen it is rupees 2 per unit.

So, 9 percent of that is the carrying cost per unit. So, what we need to find out? We need
to find out economic order quantity; that is EOQ, then we have to find out optimum
number of orders to be placed per annum and the minimum total cost of inventory per
annum. So, in the previous case we have seen the directly the values were given we had
Cc Co, then we have D and then we have calculated 2CoD divided by Cc square root the
economic order quantity, then we have calculated the number of orders, then we have
calculated the ordering cycle after every 73 days.

But here we have been given the same information, but in a, maybe form of a problem
statement and then we have to deduce certain information from the statement. We have
to find out that Cc Co values, we have to find out D and then do the same calculation in
order to find out the economic order quantity. So, let us again see whatever is already
given to us.

(Refer Slide Time: 12:58)

So, we can see here annual demand for parts is 10,000 units per annum which is given to
us, ordering cost that is Co is given to us; that is rupees 36 per order, also the cost per
unit is given to us rupees 2 per unit and inventory carrying cost is 9 percent of the unit
cost of the product. So, inventory carrying cost is rupees 0.18 per unit. Now based on
this if you see, we have got the information we know D that is the annual usage or annual

883
demand, we know the ordering cost and we have calculated with the simple calculation,
the carrying cost per unit also.

Annual demand for parts (D) = 10,000 units/annum

Ordering cost = Rs. 36/order
Cost per unit = Rs. 2/unit
Inventory carrying cost = 0.09 x 2 = Rs. 0.18/unit

Now if we know these three quantities; that is the demand, annual demand, the ordering
cost per order and the carrying cost per unit very easily we can calculate the economic
order quantity. Now economic order quantity; that is Q optimum is given by twice of
ordering cost multiplied by the annual demand divided by the carrying cost. So, square
root of that.

(Refer Slide Time: 14:00)

So, if we put all these values here 2 into 10,000 into 36 divided by 2 into 0.09; that is
0.18 that we have already calculated. So, we get 2,000 units as the economic order
quantity. Now once EOQ is known, annual demand is known to us, it is easy to calculate
how many times we must order. So, here also annual demand is 10,000, economic order
quantity is 2,000. So, without much difficulty we can say 5 times we have to order in
order to meet this demand of 10,000.

Economic order quantity = (EOQ) = Qopt = 2CoD/Cc

= 2(10,000)(36)/((2*0.09) = 2000 units

884
(Refer Slide Time: 14:46)

Now, optimum number of orders that is, as I have already told that our annual demand
divided by Q optimum; that is 2,000. So, 10,000 divided by 2,000 is equal to 5. So; that
means, that 5 times we must order in order to meet the annual demand. Now, the third
question was to calculate the T minimum. So, minimum total cost of inventory per
annum. So, T minimum is equal to the ordering cost multiplied by the demand divided
by the order quantity.

Optimum number of orders = D/Qopt. = 10000/2000 = 5

Tcm (minimum total cost of inventory per annum) = CoD/Q + CcQ/2

= (36 x 10000)/2000 + (2 x 0.09 x 2000)/2

= 180 + 180 = 360 Rs./annum

So, in our case when we are talking of minimum, we will take Q as Q optimum plus the
carrying cost into the average order quantity; that is Q by 2. So, if we put all these values
our ordering cost is rupees 36 per order, annual demand is 10,000, then our economic
order quantity that we have calculated is 2,000. So, plus 2 into that is a unit cost
multiplied by 9 percent of that that is 0.09.

So, that unit cost into the 9 percent of; that is our carrying cost that we have already
calculated 2 into 0.09 into the economic order quantity; that is 2,000 average value of
that divided by 2. So, if we add this, so we get 360 rupees per annum as the cost of

885
managing the inventory. So, this is maybe two simple problems we have taken, based on
the economic order quantity. There can be different types of problems that can be solved
using the EOQ model.

So, we have seen that there are a few parameters; maybe sometimes some parameters
may be given to us additional parameters we have to calculate. So, here in most of the
cases we have seen three things are given to us, we are given the annual demand, we
have been given the ordering cost for placing a single order, we have been given the
carrying cost for carrying any particular component or part of carrying cost per unit is
given.

So, we can very easily calculate the economic order quantity and from there we can very
easily calculate the minimum, total cost required for managing the inventory. Now
suppose some of you may be wondering that TC minimum in our case is ordering cost
multiplied by the demand divided by the order quantity plus carrying cost multiplied by
the quantity and average of that; that is Q by 2. Suppose this Q value, we do not know
and we do not know the formula also, we are ordering at our free will whatever
requirement we see we place an order.

So, our Q is not fixed or it is not may be economic order quantity, it is some random
quantity that we have decided and we are following that, we are still meeting the annual
demand of 10,000, but we are not following the economic order quantity, we are using it
at a random level only. So, if you see in the previous two problems, we have calculated
how many times we have to order based on the economic order quantity in both the
cases.

Fortunately, we have taken, we have seen that the annual demand is 10,000 and the
economic order quantity comes out to be 2,000. So, number of orders becomes 5. So, the
materials manager know that we have to order 5 times in a year to satisfy this annual
demand of 10,000 components and our total cost will also be minimum.

Now, my question is that, this Q, suppose we do not know and that number of orders also
is not fixed. So, Q is variable, we are changing Q today, we have ordered 5,000, maybe
next month we are ordering 400 then for next 4 months we are not at all ordering. Then
again we are ordering maybe 5,000 components together. So, we do not follow any
specific sequence number of orders, number of components to be ordered in a single

886
order. So, we are not using any scientific method of inventory management, we are doing
it randomly.

So that may lead to; in most of the cases, may lead to spending extra money for
managing the inventory in, maybe very few cases our intuition, may be such that we are
successful in spending less money as per the scientific method that, maybe 1 percent or 2
percent cases. Only in most of the cases when we are doing random ordering we are not
following the scientific system of materials management.

We will be overspending only and that thing we want to explain with the help of an
example and that example is now we are going to cover.

(Refer Slide Time: 20:04)

So, this we are trying to understand now with the help of a problem and on your screen
you see the problem 3 for today. So, whatever I have explained that if we are not
following the scientific method of inventory management, we may be overspending on
our materials management. So, that overspending sometimes may not be good for the
organization. I must say not sometimes, almost all times, it is not good for the
organization to spend extra money or the money that could have been easily saved by
following a scientific method of materials management.

So, this we will try to help explain with the help of this example. So, this x y z
corporation currently practices the following system for procurement of an item. So, this

887
is the current method of materials procurement. So, you can see number of orders placed
in a year. So, they are placing 8 orders in a year, ordering cost is rupees 750 per order.
Each time they order 250 units carrying cost is 40 percent of the cost per unit and the
cost per unit is given as rupees 40.

So, you can see whatever information is required for calculating the economic order
quantity, they already have, but they are not finding the economic order quantity,
because they are not using the scientific method of materials management. So, what they
are doing? They are following this policy, they have framed this policy and they are
following it. We will try to see that if they follow a scientific method of managing the
materials by using the economic order quantity model what will be the total cost, and
following the current method what is the total cost and what is the difference of
materials? What is the difference in the cost of materials management?

So, what is the question here? The question is, we have to comment on the ordering
policy of the company and estimate the loss to the company in not practicing the
scientific inventory policy. We have to comment on this policy that the company is
following and then we have to compare it with the scientific policy, and see that; what is
the loss to the organization by not following the scientific policy of inventory
management.

So, whatever information is given here, you can see number of orders placed in a year is
8 ordering cost is given. Each time order quantity is given carrying cost is given in terms
of the percentage of the cost per unit and cost per unit is also given the information; that
is available is as per the previous problem only. Now let us see what is a given data?
Given data is already on your screen.

888
(Refer Slide Time: 22:55)

Annual demand is given, annual demand we can calculate very easily, because 8 times
they are ordering 250, they are ordering or 250 units they are ordering every order. So, 8
orders of 250 units each; that means, that the annual demand is 2,000 units ordering cost
is rupees 750 per order and the inventory carrying cost is 40 percent per unit cost; so, 40
percent of rupees 40; that is rupees 16 per unit.

Annual demand = 250 x 8 = 2000

Ordering cost = Rs. 750/ order

Inventory carrying cost = 0.4 x 40 = Rs.16/unit

So, in the previous slide we can again see carrying cost is 40 percent of the cost per unit
and cost per unit is rupees 40. So, from here very easily, we can calculate the carrying
cost. Now you can see that these three quantities are only required for calculating the
economic order quantity and the equation is. I think we have solved 2 3 problems. We
have seen the derivation also, simple derivation in the previous session.

All of us know; it is square root of 2 into the ordering cost multiplied by the annual
demand divided by the carrying cost, everything is available with us, but still the
company is not following the scientific policy of inventory economic order quantity.

889
(Refer Slide Time: 24:17)

If they calculate, this will be the economic order quantity; that is 2 into the ordering cost
multiplied by the annual usage or annual demand divided by the carrying cost; this
comes out to be 433 units. Now you can see that EOQ is 433 units, but the company is
ordering only 250 as the single order.

Economic order quantity = (EOQ) = Qopt = 2CoD/Cc

= 2(750)(2000)/((16) = 433 units

So, therefore, we can see that the economic order policy is giving us some other value;
that is 433 units, but they are following their own policy of ordering 250 units in a single
go. So, how this is going to affect financially, we can see, because this formula has been
calculated for total cost being minimum. So, we can calculate the total cost; that is Tcm
minimum, minimum total cost for inventory per annum.

(Refer Slide Time: 25:15)

890
So, this we can see as per standard formula we have been using it today quite often. So,
Co into D divided by Q plus Co into average order quantity. So, our Q coming here is
433. So, with this we know that ordering cost is 750 per order multiplied by the demand
is 2,000 per annum divided by economic order quantities 433 plus carrying cost is 40
percent of the per unit cost; that is 40. So, 40 percent of 40 comes out to be 16 multiplied
by the economic order quantity 433 average of that divided by 2.

Tcm (minimum total cost of inventory per annum) = CoD/Q + CcQ/2

= (750 x 2000)/433 + (16 x 433)/2

= 3464.2 + 3464 = 6928.2 Rs/annum

So, our inventory cost or total minimum cost is coming out to be rupees 6928 per annum.
This is as per the economic order quantity model. Since we had all the values we are
studying EOQ, we know how to calculate EOQ and how to calculate the total cost based
on EOQ and this is the minimum total cost, but as per the company policy, they are using
Q as 250 and number of times they are ordering is 8.

So, if they use Q other things remaining same, the ordering cost remains same, 750 per
order annual usage is 2,000 carrying cost again is rupees 16; that is 40 percent of the unit
cost; that is rupees 40 only Q is changing. So, Q we are using a scientific method as 433,
but they are using it as 250. So, let us see if we use it as 250, what is the cost.

(Refer Slide Time: 26:57)

891
So, total inventory cost under present system, what they are using annual ordering cost
plus annual inventory carrying cost. So, annual ordering cost we can see 8 times. They
are placing the order multiplied by 750 is the ordering cost per order. So, that is 6000
plus the average value of the order quantity; that is 250. Their ordering was average
value 250 by 2 multiplied by the carrying cost that is 16; that is 40 into 40 percent of the
per unit cost; that is 40 percent of 40 that is rupees 16.

Total inventory cost under present system

= Annual ordering cost + Annual inventory carrying cost

= 8 x 750 + (250/2) x 16

= 6000 + 2000 = 8000 Rs.

So, this value comes out to be rupees 8,000. So, they are following a policy in which the
total inventory cost is coming out to be rupees 8,000, but as per the economic order
quantity, the cost is coming out to be somewhere near 6,900 rupees. So, what is the loss?

So, the loss to the company is in not operating the scientific way is 8,000. They are
currently spending following the current inventory policy, but as per EOQ, it is 6,920.
So, at least 1,100 rupees approximately or 1,071 rupees approximately, they are losing
by not following the scientific policy of inventory management. So, with this we
conclude the today’s session with a moral that scientific methods definitely give us an
edge over the intuitive methods.

892
Loss to the company in not operating scientific inventory policy

= 8000 – 6920.2 = 1071.72 Rs.

And in this case, we have seen that if the company follows the scientific method of
inventory management, they will definitely save certain money and that money can be
used for any other useful purpose. In our last session on materials management, we will
focus on other problems related to materials management and then we will enter into the
last week of our discussion on this course on operations management.

Thank you.

893
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 55
Production Quantity Model

Namaskar Friends, welcome to session 55 in our course on operations management. So,

we are going to finish the discussion for the eleventh week with today’s session and we
are left with one more week of discussion on this important topic that is, operations
management and in the next week, our focus primarily will be on the advanced
techniques that are being developed for operations management.

In this week if you remember, we have covered different types of techniques, tools that
we can use for materials management. In this particular week if you look back, we can
see what we have covered. We have covered different types of topics starting from the
fundamental aspects of materials management in which we have seen, why do we need
to manage the materials or the flow of materials within an organization; starting from the
procurement going through the process or the usage and finally, the accounting of the
materials. Everything we have to manage.

Why because, this has a bearing on the overall efficiency and effectiveness of our
operations. We have seen that we have to classify the materials into different categories.
Two examples we have seen and for one of them we did some calculations also, that was
the ABC analysis in which we have classified the materials as the high value and low
usage and low value and high usage based on the usage of materials in the company. So,
A, B and C and B was the intermediate class. So, we had a class materials B class and C
class, and C class materials were having low monetary value associated with them, but
had high usage in the industry. Also, we have seen VED analysis, in which we have
classified the materials as vital, essential and desirable.

Then we shifted our focus on the economic order quantity and we have seen that if we
order our materials in a special manner, in a specific manner, in a scientific manner; we
can save lot of money for the organization and we have seen that EOQ model helps us to
calculate the economic order quantity, which will optimize or rather, I must say will
minimize the total cost of materials or inventory management and in that we have seen

894
the different examples that we have, to have an information about the carrying cost, the
ordering cost and the order quantity based on which we can plan our materials
management strategy or policy when to order, how much to order, how many times in a
year to order.

All these answers can be got through scientific materials management. In the last session
if you remember, we have taken different types of numerical problems related to the
economic order quantity model and you have seen in the last problem that we undertook,
that we solved, we have seen that if we follow the EOQ model, we are able to save the
money instead of randomly selecting a number and ordering it. It is always better that we
use a scientific method of managing our inventory or inventory policy must be based on
scientific logic.

In today’s class, our focus primarily would be to sum up the theory related to materials
management. One or two examples we will see and we will try to wrap up the things,
whatever we can cover related to materials management. As in the very beginning of this
week I have told that materials management is a very huge large concept involving lot of
tools and techniques, but the most common ones we have tried to address in the last 2
years. In the last 2 hours of discussion, today being the last half an hour of discussion, so,
we will try to see production quantity model which is slightly different from the
inventory management model of EOQ.

So, in production quantity model there are a few theoretical background characteristics
that we will try to understand here. So, first we will need to define the production
quantity model how it is different from the economic order quantity in production
quantity model? And inventory system in which an order is received gradually.

(Refer Slide Time: 05:09)

895
If you remember in the economic order quantity model that we discussed in lecture or
session 3 during this week, if you remember we have seen that there is an order quantity
which is there on the Y axis and on X axis, we have time. We are using the material that
is the demand rate and as soon as we reach the reorder level, we reorder the amount that
is equal to the order quantity and if within a specific lead time, that is on X axis, the
material arrives at our destination or at our facility or at our factory and once that date or
the contracted date is there, we receive all our order quantity at once and our inventory
level again goes to the top.

So, demand rate is constant; demand rate we have assumed and then, all the material is
received at once and our inventory level goes back again to the top, that is, up to the
order quantity and again we use the material. Start using the material as soon as we reach
the reorder level, we reorder the consignment or we reorder the amount or the volume of
materials required. Within a lead time we receive that material and again our inventory
level goes to the top that is equivalent to the order quantity.

In case of production quantity model if you see an inventory system in which an order is
received not at once, but it is received gradually, so we can say that there will be a
production or there will be a rate at which we will be receiving our inventory or
receiving our order or receiving our components or parts or whatever we have ordered it
is not received all at once as inventory is simultaneously being depleted. So, we are using
the material as well as we are receiving the material also. So, both things happen
simultaneously.

896
So, it means non instantaneous receipt model. So, whatever material we have ordered,
we will receive it but we will receive it over a period of time. Maybe, we start receiving
our material, suppose we have ordered 700 parts and we start receiving those 700 parts
on Monday. So, on Monday, suppose we receive 100 parts, Tuesday 100, Wednesday
100, Thursday 100. So, in 7 days, we receive 100 parts every day. So, we receive 700
parts not all at once, we will receive 700 part all at once in economic order quantity
model, but in production quantity model there will be a production rate that will be 100
parts per day; total 700. So, our production run will be for 7 days. So, we are receiving
our 700 parts as 100 parts per day in 7 days.

So, we are simultaneously, whatever is available in our inventory we are using it, but we
are also receiving other material. So, it means that it is a non instantaneous receipt
model. That means that the assumption that Q or our order quantity is received all at
once is relaxed in case of production quantity model. So, here we use two terms p that is
the daily rate at which an order is received over time. So, as I have given an example,
700 parts ordered, 100 parts received per day in 7 days, we receive our 700 parts.

So, our production run is for 7 days and our production rate is 100 components or parts
per day; that is p and d is the daily rate at which inventory is demanded and in the
previous model that we have studied economic order quantity, the demand rate remains
constant. So, we have p and d these two terms we are going to use when we are going to
derive an expression for the optimum quantity, that is or the optimal quantity that we will
call as the economy quarter quantity Now, whatever I have explained in the beginning of
today’s session, here it is explained graphically.

(Refer Slide Time: 09:53)

897
On Y axis, we have the inventory level or the quantity and on X axis we have time. So,
we have time on X axis and we have quantity on Y axis. So, this is a top level that is q,
that is Q into 1 minus d by p. Now, d is the demand rate and p is the production rate. In
our case, d and p were 0 that we have covered in the economic order quantity and we
have taken it as Q only. So, we start from q, we go to the reorder point, we order it,
within a lead time we receive the material and again, our level rises to q, but now it will
never rise to Q because d by p will definitely be some quantity.

So, d suppose is the demand rate, it can be suppose 50 components per day and
production rate is suppose 100 components per day. So, 50 is demand rate p. So, 50 we
are using 100 we are receiving. So, 50 by 100 it comes to 1 by 2; so, 1 minus 1 by 2 that
is 1 by 2. So, it will be our maximum level can be Q by 2, because we are receiving also
as well as we are using also. So, the average inventory level at any given time will be Q
by 2, because if you remember in economic order quantity we have seen that when we
multiply it by the carrying cost, we always multiply the average value of the quantity not
the total value of the quantity.

So, it will we always multiply it by Q by 2Cc into Q by 2 and for order quantity, we
multiply Co, that is the ordering cost into the annual demand divided by C divided by; we
can see in the next slide we calculate it Co into D divided by the overall quantity.

(Refer Slide Time: 11:44)

898
So, Co into D divided by Q; so, here again coming back to the same slide, we can see Q
minus 1 by d by 2 d by p, sorry, and Q by 2 into this is average inventory level in case of
the production quantity model. So, this is you can see here, we are receiving the order
from this point to this point. So, order receipt we are not receiving the order all at once.
So, if we receive the order all at once from zero, the value should rise directly to Q, but it
is not happening. We are receiving the material here as well as the demand is also
constant. So, begin order receipt here and end of order receipt here.

p = production rate d = demand rate

Qopt = 2CoD/Cc

899
So, there is a period of time in which we are receiving our order that we have already
placed. So, now, you can superimpose these two graphs together and you can try to
understand that what can be the difference between the economic order quantity model
and the production quantity model. The only difference the only major difference is that
here; the order is not received at once or instantaneously. It is received over a period of
time. Now, we have to calculate the Q optimum that is what will be the optimal quantity
which will minimize the total inventory cost.

So, here we can see here we have p that is a production rate the rate at which we are
receiving our material that we have ordered, d is the demand rate already I have
explained. So, maximum inventory level as I have already told, it is Q can be the
maximum, but we are using also we are using that is a demand rate and p is the
production rate at which we are receiving.

So, Q minus Q p by d, q into 1 minus d by p, which was there in the previous slide,
which was the maximum inventory level which is shown. Here, Q into 1 minus d by p,
this will be the maximum inventory on any given day according to the production
quantity model. So, Q into 1 minus d by p this is a maximum inventory level average
inventory level. Obviously it is Q by 2, 1 minus d by p.

So, the total cost now as in case of economic order quantity we have written an equation,
similarly we can write an equation in case of production quantity model also. So, total
cost is equal to the ordering cost into the annual demand divided by Q that is the
maximum inventory level plus Cc into Q that is our rate at which we are using minus 1
minus d by p divided by 2.

So, Co into D divided by Q that is our ordering cost and Cc into Q by 2 that is average
value into 1 minus d by p that is a quantity which has been added because we are
continuously, receiving the consignment and as well as we are using the material or the
inventory also. So, some of you may be wondering and this has come to my mind that
why we are having Q here and Q into 1 minus d by p here.

So, what I believe that here whatever we are ordering, we are ordering, our ordering
procedure is not changing, the only thing that is changing is that we are receiving the
material over a period of time. So, our ordering cost as in case of economic order

900
quantity remains the same and the quantity that we are ordering is also remaining same.
So, Q remains same here and old demand remains same, ordering cost remains same.

So, ordering cost multiplied by that demand divided by the maximum inventory level or
the order quantity that remains the same, but what is changing here the changing
phenomenal or the changing thing here is the Q into 1 minus d, because now
continuously we are using the material as well as we are receiving the material over a
period of time and that period of time is called as the production run.

So, similarly equating these two things, we can calculate Q optimum, which will be
twice the ordering cost multiplied by the annual demand divided by the carrying cost into
1 minus d by p; d is the demand rate p is the production rate. So, as per this, now we can
calculate, try to understand with the help of a numerical problem.

(Refer Slide Time: 16:28)

Now, here we can see similar problem is given here the production quantity model.
Carrying cost is dollar 0.75 per yard, the demand is 10000 yards. The similar problem we
have taken for EOQ also, the ordering cost is dollar 150, the demand rate is 10,000
divided by 311, that is we are working; suppose 311 days in a year, so, 10,000 is the
annual demand as given in the problem D is equal to 10000 yards.

So, 10,000 is our annual demand divided by 311. So, per day we have calculated the
demand rate with small d. So, small d is 32.2 yards per day and production rate is 150

901
yards per day. So, according to that we can calculate the optimum value 2 into Co into D
as per the formula. So, if we put all the values here, we can see that we get the Q
optimum as 2256.8. So, we can safely assume 2,257 yards.

Cc = $0.75 per yard Co = $150 D = 10,000 yards

d = 10,000/311 = 32.2 yards per day p = 150 yards per day

So, TC we can see here, the total cost we can calculate, it is coming out to be as per the
Q optimum value. We will put Q optimum value here, we will put Q optimum value
here, putting this 2,257 yards at this point and this point annual demand, we know
ordering cost, we know demand rate, we know production rate, we know if we put all
these values here, we get the total cost as dollar 1329.

So, we can see the total cost can be calculated. Now, suppose instead of 2,257 yards, the
company takes any other value random value or any value based on the intuition, we
may find out that the total cost will certainly be more than this cost. In rare of rarest
example, it can be that intuitively somebody has decided on a particular quantity and has
been able to achieve the minimum total cost as compared to this scientific method of
total cost, then we can calculate production run that for how many days, this material we
will be receiving.

So, we can calculate that. So, 2,257 we have to receive; this is a total material that we
have ordered and then, our production rate is already given 150 yards per day. So, 150
we will divide it by 150 yards per day. So, we will get that 15.05 days per order. So, if I
have ordered today and the lead time is suppose 10 days, after 10 days I will start
receiving the order, but the production run will not be maybe single day; that all 2,257
yards are received the same day. No, they will be received over a period of time and that
time is given as 15 days per order.

902
So, once we have ordered our production run will continue for 15 days. If you see this
figure begin order receipt and order receipt. So, there is a difference between the two in
case of economic order quantity EOQ model. This line is straight when we receive the
model, sorry, when we receive our order everything is received on the same day. Now,
this is something number of production runs how many times we need to run our
production? So, we can see annual demand is 10,000.

(Refer Slide Time: 20:14)

So, economic order quantity that we have calculated is 2,257. So, 4.43 runs per year. So,
approximately we can say, if we round it off 5 runs per year are required to meet this
annual demand of 10,000 units or 10,000 yards. So, maximum inventory level also, we
can calculate the maximum inventory level is Q into 1 minus d by p which we have seen
in the graph also; graphically we have represented this thing.

So, that will be 2,256.8 multiplied by 1 minus. What is this d? d is the demand rate that
is, 32.2 yards per day; from where we have calculated this? 32.2 came when we have
divided the annual demand. The annual demand was 10,000 and we have divided it by
311 working days. So, 10,000 divided by 311 working days, we can easily calculate that
what is the demand rate per day. So, the demand rate per day is 32.2 and whenever we
are ordering, so, everyday we are receiving 150 yards per day. So, 150 that is a
production rate; so, demand rate divided by the production rate. So, that value comes out
to be 1772 yards.

903
So, on any given day, whenever we have the maximum inventory level that will be 1772
yards; now, maybe we have another important topic which we need to cover. All of us
must understand that that is the concept of quantity discounts. Now, in quantity discounts
we know that whenever if we order more, we get a discount. If we order, maybe you can
relate it to your daily life also.

(Refer Slide Time: 21:56)

Suppose, you order something- if you buy maybe 3 chocolates, you may get it at a higher
price, but if you buy 30 chocolates, a pack of 30 chocolates you may get certain discount
on that. So, the price per chocolate may reduce if you are buying in bulk or if you are
buying in a large number. So, the quantity discounts can be made use of when we are
managing our materials. So, if we are a continuously manufacturing company, there is a
continuous manufacturing or mass manufacturing happening in our organization.

904
We know that every year this much quantity we need to procure, so, instead of ordering
too many number of times, we can take advantage of the quantity discounts that are
available by the material with the discount and we can store it, but we have to do a trade-
off that the storing cost or the carrying cost of that inventory must not outweigh the
advantage that we are getting from the discount.

So, we have to do a trade off, but certainly there are circumstances where if we take
advantage of the quantity discounts, we will always be able to save a good amount of
money for our organization. So, here we can see the price per unit decreases as order
quantity increases. So, we will try to understand this with the help of an example. The
total cost you can see we know this as per the economic order quantity model, ordering
cost multiplied by the annual usage or annual demand divided by order quantity plus the
carrying cost multiplied by the order quantity divided by 2 or the average order quantity
Q by 2 plus P into D. Now, D is the annual demand and P is the per unit price of the
item.

Price per unit decreases as order quantity increases

TC = CoD/Q + CcQ/2 +PD

where

P = per unit price of the item

D = annual demand

So, you can see that, this all other things remaining same this P will change when we are
ordering more number of parts or components or materials. So, P is price per unit of the
item. All other things remaining same; annual demand remains same; this p will change
per unit price if we order more. Suppose, we order 100 or less than 100, this is the price
if you order more maybe, if you order 200 and more, this is the price. So, price will
change with the order that we are placing and accordingly, we can take use of or make
use of or take advantage of that quantity discount possible. This is you can say very clear
depiction of the quantity discount model.

(Refer Slide Time: 24:45)

905
You can see the order size if it is visible to you or I will read it for you. Order size 0 to
99; so, if you order less than 100, you get a price of dollar 10 per part; if you order 100 to
199, you get dollar 8, if you order 200 plus in a single go, you get a price of dollar 6. So,
you see if you increase the number of parts you are ordering once, price comes down. So,
200 and more parts you order your prices number sorry your price is dollar 6 only, but if
you order less than 100 your price is dollar 10. So, we can take advantage of this quantity
discount and this bottom graph, bottom part of the graph is almost the same.

Quantity Price
1-49 $1,400
50-89 1,100
90+ 900

So, if the quantity is increasing, you know, the ordering cost will reduce. So, as I have
explained the, if for the whole year you are ordering once, your order, your ordering cost
will be less, but if you order 3 times, your ordering cost will be more. So, if the ordering
quantity is increasing, your ordering cost comes down, but your carrying cost increases.
Why carrying cost will increase because, suppose in January only you order for the
whole year, you have to maintain that inventory throughout the year.

So, your carrying cost will increase with the order quantity, but your ordering cost will
reduce with the increase in the ordering quantity and these three curves represent the
total cost curve. So, here we can see, therefore your quantity is greater than 200, this red
line, the last red line it represents that quantity is 200 or more. So, if your quantity is 200

906
or more, this is your total cost curve if quantity is between 100 and 200. This is your
total cost curve and if it is less than 100, this is your total cost curve. So, we can see that
if we order 200 or more, we definitely can get advantage, our total cost will be less. So,
here we can try to understand this with the help of an example.

(Refer Slide Time: 27:06)

Quantity 1 to 50 or 1 to 49 means less than 50 dollar 1,400, from 50 to 89; 1,100 US

dollars in 90 plus 900 dollars. So, you can see that the price is reducing when the
quantity that you are ordering is increasing. So, ordering cost is dollar 2500, carrying
cost is dollar 190 per computer and d or the annual demand is 200.

So, we have I think got all the information available. So, as per the economic order
quantity, Q optimum is 2 into Co that is ordering cost into the annual demand divided by
the carrying cost. So, if we calculate we get 72.5 number or 72.5 PCS, we must order in
order to take advantage of the economic order quantity. This Q optimum will lead to the
minimum total cost of inventory management. So, for Q is equal to 72.5, we can now
calculate the total cost. We know the price also the price from here. We can calculate
72.5 PCS, means it is lying between 50 and 89. So, 72.5 is there, so we can calculate. Co
is known to us ordering cost, annual demand is 200 known to us, Q optimize have 72.5.
Carrying cost is also known to us, that is, dollar 190 Q optimum we have calculated.

Co =$2,500 Cc = $190 per computer D = 200

907
So, we calculate it is dollar 233,784. So, this is our, we can say that cost that is the total
cost, but if we do the calculation, we can see that Q is 72.5 the price, P here what we,
what P will, we will take P, will be 1,100 dollars; 1,100. I think I am correct; P will be
1,100 because our Q is 72.5, but if we know that if we order 90 and plus our price will
come down to 900 USD or the dollar.

So, we can see that if we order Q equal to 90 and do the calculation for price 900. P is
900. D is 200 only, that we have already know Q optimum, we have already calculated.
So, if we calculate for Q equal to 90 Q optimum is 72.5, but here we are using Q as 90
because if we order 90 plus our price comes down to 900, so, our P here, that is our
price, is 900. Now, because we are ordering 90, so 900 and D is 200.

So, P is 900, D is 200, rest all other things Q will change only. Q will instead of 72.5,
now, we will be using Q as 90 and we can see our total cost has reduced substantially.
So, this is the importance of the quantity discounts that we can take advantage of. So,
very quickly, we can just understand the concept of safety stock or maybe just revise
these words safety stock is the buffer added to and on hand inventory during late time?

908
(Refer Slide Time: 30:30)

So, we need to keep some safety stock in order to keep our operations up and moving or
operations going on continuously. Stock out is an inventory shortage which is a problem
or which will lead to the break in the continuity of the operations or the manufacturing
process service level probability, that the inventory available during lead time will meet
the demand.

So, we have an element of probability also that during lead time, lead time is the time
when we have placed the order and the order is yet to arrive and we are using them,
whatever available whatever material is available in the inventory. So, service level is the
probability that the inventory available during lead time will be able to meet the demand.

909
(Refer Slide Time: 31:30)

Level of inventory at which a new order is placed

R = dL
Where,
d = demand rate per period
L = lead time

So, reorder point we can calculate R is equal to d; d is the demand rate which we have
seen in the production quantity model also and L is the lead time. So, reorder point we
can see it. Suppose, the demand rate is 5 components per day and lead time is also 5. So,
our reorder point will be 25. So, whenever we reach that, only 25 components are left.
We must place an order why because demand rate is 5 and we will get our order after 5
days. So, 5 into 5 that is 25. So, 25 components mean that we have to reorder; otherwise,
we will reach a situation of stock out if we do not have any safety stock.

(Refer Slide Time: 32:14)

910
So, here we can see this is our reorder point R variable demand with a reorder point. So,
here we can see in all our previous examples, economic order quantity production,
quantity model we have seen that the demand rate has been linear or continuous, this line
has been linear that we have assumed, but if it is non-linear we have a problem. We do
not know that when that demand can be more, when the demand can be less.

And in that situation, many times this situation on your graph represents a stock out we
do not have any material. This is our zero level of the material. So, we do not have any
material here. So, in order to overcome this thing, we usually keep a safety stock. So, in
order to absorb this demand, because this is a non-linear demand, here we do not know
that if the demand is linear, it is easy to calculate the reorder point as well as we will
mostly not be going to a situation of a stock out, but if it is a non-linear demand there can
be more demand. We do not have the material.

So, it in those situations we keep a safety stock and this colored stock. Here, colored
portion represents the safety stock and here we can see in case of a non-linear demand
rate, even if we have the safety stock, we can manage it. Even if we have level reach the
zero level inventory, our safety stock and absorb this demand because of the non-
linearity in the demand rate. So, this is the way we can manage our materials and can
keep our operations up and going.

So, with this I conclude the today’s session and we have covered today the production
quantity model, we have covered a numerical problem associated with the production

911
quantity model, we have tried to understand the concept of reorder point, we have tried
to understand the concept of quantity discounts; that if we order our material beyond a
particular value our price comes down and we must take advantage of those quantity
discounts. And finally, we have understood the concept of safety stock, that if our
demand rate is non-linear, there is a tendency of a stock out and in order to avoid that
stock out and to ensure healthy service level, we must always have a safety stock.

Thank you.

912
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 56
Just in Time (JIT)

Namaskar Friends welcome to session 56 in our course on Operations Management.

Currently we have discussed the materials management in the previous week and now
our focus will primarily be on the advanced topics that are used, or the advanced
techniques that are used for operations management. First one of them is just in time
usually which is called as JIT, we will discuss what is JIT. What are the various
functions of JIT? Where it is applied? We will try to understand JIT with the help of a
very simple case study, and try to see the advantages and drawbacks of JIT.

In the last week our focus primarily will be on the topics which are the current interest
area in the manufacturing sector, in the operations management. We will see today we
are going to start with JIT. In the next session our focus will be on Kanban system. Then
we will focus on materials requirement planning may be two sessions will be required to
cover the MRP and finally, we will move toward the enterprise resource planning that is
ERP.

So we are now at the fag end of our course and we have covered almost all topics that are
related to managing the operations in an organisation. Starting from product design and
development to sales forecasting, then the selection of a facility planning or selection of
a location for establishing a factory, then the layout designing, then we have covered the
aspect of production control. We have seen the project management concept with help of
CPM and PERT.

Then we have seen project scheduling, we have covered materials management, then we
have covered in the 11th week the various may be formulas, numericals that can be used
while managing our materials in the organisation. Now, we will see in this particular
week that how materials can be managed in a more efficient and effective manner with
the help of a centralized system that we call as the materials requirement planning
system. How it works? What are the inputs for MRP system? What are the outputs of a
MRP system? And what is a ERP system? How it can manage all the different functional

913
domains of an organisation such as finance, such as marketing, such as sales, all as well
as the manufacturing materials management everything incorporated into a one
centralized management system, so that will be the last session of this week.

So, today we are going to start finally, the discussion for the last week of our course that
is Operations Management. And today we are going to study about JIT; just in time.
Basically the JIT concept is focussed on making use of our resources in the most
efficient and effective manner, minimising the wasteful expenditure, minimising the
wasteful usage of materials, minimising the time, making and taking advantage of the
lead times that are there for the supplies. So, overall focus will be on making best
possible utilization of the resources that are available at our disposal. So, let us try to
understand what JIT is all about, and how it can help the organisations to take advantage
of this concept.

(Refer Slide Time: 04:18)

So, just stay in time as you can see on your screen. Focus is that only what is needed,
nothing more. So, whatever is exactly required that must only be considered may be
everything else which is a wasteful in terms of expenditure or time or material or
manpower must be avoided. To have only the right materials parts and products in the
right place at the right time.

So, only has been highlighted here why? Because we have to focus on the right
materials; which means the wrong materials should not be there, right parts, right

914
products. So, whatever materials are required only those should be focused upon;
whatever is not required may not be considered at all. Then the second is at right place;
wherever they are required these materials must be available at that place and at the right
time.

So, I think three important questions are there: What? Where? And when? So, JIT tries to
answer it that what exactly is required, where it is required and at what time it is
required. So, may be that these three questions that what is required? Where it is
required? When it is required? Sorry I think I have said what as the last question. So,
three questions are there again I will reiterate or maybe I will again emphasize on the
three question that what is required that is what is the right material that is required,
where it is required, what is the location, where the material is required. And when it is
required that is the time domain that at what particular time the material is required.

So, we will also try to understand this with the help of materials requirement planning in
our subsequent discussion where we will see that once we know that the product has to
be delivered by a particular date, how do we offset the other operations as well as the
material procurement process, so that we are able to meet the deadline. So, here also JIT
will focus on the three aspects that what are the materials required they must be available
with us, where they are required at which particular section of the organisation they are
required and when they are required.

So, all this has to be optimized and if we are able to optimize these three things that what
is required, where it is required and when it is required? Our overall production process
will become optimized and we will be able to be set good standards of productivity. We
will be able to efficiently and effectively manage our operations with high degree of
productivity.

915
(Refer Slide Time: 07:18)

So, just in time manufacturing is a philosophy rather than a technique by eliminating all
waste and seeking continuous improvement, it aims at creating a manufacturing system
that is responsive to the market needs. So, we can see that here our focus will be the
elimination of all waste and always seeking continuous improvement, always looking at
areas where we can improve, where we can minimize the waste, waste may be in terms
of time, it can be in terms of resources, and it aims at creating a manufacturing system
that is responsive to the market need.

So, whatever is the demand in the market our manufacturing system must be responsive
to that needs. As and when there is a demand our system must respond in the most
efficient and effective manner and whatever is required in the market we must be able to
satisfy that demand, we must be able to tap that demand, we must be able take advantage
of that demand, so that we earn profit for our organisation.

And JIT is one such philosophy which will help us in making our system responsive to
the customer demand. So, according to Voss, JIT is viewed as: “A production
methodology which aims to improve overall productivity through elimination of waste,
which leads to improved quality” So, three important words are overall quality has to be
improved. How it can be improved by elimination of waste that is second important point
and then if your productivity is good, your waste is less; your quality will automatically
be high. So, all these three things productivity will improve, waste will reduce and

916
quality will be high. This we will focus when we will see the advantages of applying the
JIT philosophy in the operations management system.

(Refer Slide Time: 09:23)

Then the seven wastes this has been adopted from Attaining Manufacturing Excellence,
This is Robert W. Halls Book, so the seven wastes that can be focussed on are the waste
of over production. As we have seen as per the definition of JIT, we must be responsive
to the demand, so it means that we can avoid the waste of over production. If we are
responsive we know as soon as the demand will be generated or it is created in the
market we will be able to respond to that demand, so need not go for over production.

So, we can avoid the waste of over production, waste of waiting must be avoided using
the JIT philosophy, waste of transportation, waste of processing itself, waste of stocks,
waste of motion, waste of making defective products. So, as we have seen that if we
apply the JIT philosophy, we are able to eliminate a lot of waste, some of the types of
waste are listed on this slide.

So, it is difficult to explain each and every waste with the help of an example, but I will
advise all the learners, all the readers or all the audience that you can focus on certain
case studies. We will also try to see one case study here where we will try to eliminate
some of these waste in order to improve the overall productivity of the operating system
or of the operations. So, we will that some of the waste like waste of transportation.

917
There may be some unnecessary movement of the material within the organisation
because of a specific layout that we are using in the organisation.

So, if we modify the layout the waste of transportation can be reduced. Similarly, waste
of motion there can be a person who has to move unnecessarily in the on the factory or
on the shop floor in order to fetch certain materials. This is because the tool grip is at a
distance from the place where he is working. So, the system can be redesigned in such a
way that tool grip is integrated with his operation station or with his station, so that the
unnecessary motion of this worker is avoided because that is a wasteful motion of that
worker which can be avoided. So, JIT will focus on systems where we will try to avoid
all these types of wastes.

(Refer Slide Time: 12:03)

Now, claims from JIT. If we apply the just in time philosophy what can be achieved? So
it claims to reduce the inventory, reduce the work in process if you remember we have
seen how inventory is defined or what all materials fall under the classification of
inventory. In our previous week where we have seen materials management, we have
seen what is WIP? So, reduced inventory, reduced WIP, shorter lead times, not too early
not too late. So, whatever material is ordered it is ordered in such a way that it arise at
our premises, or at our location just in time that is when it is required. It is not going to
happen that we order the material and store lot of material in the inventory.

918
So, it is not too early and not too late. If it is late then our production process may stop
which is one of the drawbacks of JIT. If it is too early we may have to pay for the
carrying cost of that inventory or the product that we or the part or component that we
have received too early when it was required. Suppose it is required on 30th September,
and we have received it on 30th of June. So July, August, September; 3 months carrying
cost we have to pay for that material. So, whatever material we are procuring must arrive
just in time may be when it is going to be used not too early as well as not too late.

So, JIT is a result businesses want, not a starting point. So, we want to may be achieve
such a system where the things are managed in the most efficient, effective and
productive manner where there is no wastage in terms of materials, time, motion
transportation, human work or man hours. So, all kinds of wastage is avoided. So, there
that is the way you can say the system that we want to create with all such philosophical
concept.

Similarly, there is a concept of lean manufacturing also; where we focus on making our
system thin and lean, shedding all the excess baggage that the system is getting in terms
of waste. So that is also similar concept where our focus is to eliminate the waste, to
make our system lean, to make our system agile, to make our system more responsive to
the customer need. But here the focus is lean manufacturing is to ensure that our process
is smooth things are wherever they are required they are available at that time there is no
weightage, there is no stoppages, so all that is the overall objective of our JIT
philosophy.

919
(Refer Slide Time: 15:06)

Now, JIT action areas let us see develop people; we need to increase the skills and
productivity of our work force. Eliminate waste in all areas, optimize materials handling
and production flow, control the tooling, increase the quality, improving continuously.
So, we can see that we can focus on all our resources. You see we are focussing on
people, we are focussing on all types of waste that is there in the system.

We are focussing on material handling and production flow. Our focus is again on tools.
So, if we are able to focus on all these states or all these important components of the
manufacturing system, we are definitely going to improve the quality of our product as
well as we have to focus that whatever quality we are producing today, we have to
continuously improve that quality, continuously improve the way we are doing the work,
the way our operations are being done in the organisation, so that we are able to find the
exact combination of man material machine equipment which will deliver the best
product which will have the company to earn profit in the long run. So, action areas are
materials we need to focus, material handling we need to focus, people we need to focus,
quality we need to focus, time we need to focus. So, if we focus on all these actionable
areas we are definitely going to benefit by applying this concept.

920
(Refer Slide Time: 16:50)

So, develop the pipeline flow the work to shorten it. Eliminate multiple locations,
contract the plant layout, eliminate the pipeline failures, reliability, quality, and people
are the focus areas here. Reduce the changeover times and lot sizes significantly, use
mind technology before applying the high technology. So, we can see that we have to go
step by step by step.

So, we have to focus on plant layout also, we have to see as I have told you in one case a
person has to move from one place to another place to fetch his tools and this he may
have to do 100 times in a day. So, if we can eliminate these two multiple locations, and
combine the work station and the tool crib in such a way that this unnecessary motion is
avoided that is also falling under the JIT concept. So, plant layout we will try to
understand, we will try to see that how the change in the plant layout can help us achieve
better production flow

So, we have to see that what is the reliability of our system? What is the quality? What
are the skill set of the people? How we can improve our work force in order to match the
requirements that are there for the production? So, we have to see the changeover times
may be when the product is changing or the there is a product design change; changeover
time must be minimum.

For example, we see that flexible machines are being used these days which can adapt to
the product changes very quickly. CNC machines are being used where you only need to

921
change the program as required by the product design change and you need not focus on
changing the machine itself which was the case may be some 50 years ago. So, today we
have a program which is written for a specific product. For example, we can say this
pointer is being manufactured, this is being machined suppose, although it is a plastic
part suppose it is being moulded.

Now there is a change in the shape of the pointer, we only need to change the design, we
only need to change the drawing, we need to change the tool path, and accordingly a new
program will be created and which can be used for manufacture, the changeover time has
to be minimum. And similarly that is one point with respect to the product design
change.

Other thing can be suppose we are working we are using a particular type of fixture, we
need to change the size of the product that we have to machine. What we need to do? We
need to changeover from that particular product to another product that time must be
minimized. So, we can go for fixturing arrangements which are auto clamping type, we
can the fixtures to universal type of fixture which can be used for clamping varied type
of products, so, that our time that goes in to the changeover is minimum.

And if you remember the concept of group technology the focus is on this set up and put
away time only. Our focus must be that actual machining time should be maximum and
this setting up time and putting away time should be minimum. So, this time
optimization is also a focus that we must, may be understand in context of the JIT. So,
the lot size is also may be reduced. In most important thing is that we have to use our
common sense that where wasteful things are happening or where is the waste and how it
can be eliminated before we apply the high end technology in to the production system.

922
(Refer Slide Time: 20:48)

Now, this is you can see traditional production line, 6 people are working here, these are
all the work stations, the square and the rectangular boxes represent the work station.
And this blue circles and ellipses they represent the people or the working area of a
particular person. So, if we count these blue circles or ellipses we can see 1, 2, 3, 4, 5,
and 6. So, 6 people are managing this total production line. So, the layout, you can see
slightly cluttered type of layout. How we can improve this?

(Refer Slide Time: 21:29)

923
First pass work cell design. So, different cells have been created and one person has been
made in charge of a particular cell. So, now the same work is being done only by 3
people by the concept of work cell design.

(Refer Slide Time: 21:45)

Finally, we can see second try work cell design, we have arranged the machines in a
particular order and a single person can also operate these machines. So, the basic idea to
emphasize here is that if we see the application areas of JIT, it was that we can improve
the productivity of our employees; we can improve the skill set of our employee. So,
here we can see instead of 6 people managing a cluttered work space, one person can
manage a better organised work space. We can improve the skill sets of that person; we
can give him adequate bonus, adequate salary, adequate hike in his package.

But he will be able to manage the whole production line singlehandedly; which means
that we have been now able to organize our production in such a way that man hours
relating to 5 people have been saved which was a kind of a waste because of the system
in which we have planned our layout. So, a re-layout or may be a modification in the
layout has helped us to eliminate the extra work force that was employed because we
were not able to manage our production flow line in the efficient and effective manner.

924
(Refer Slide Time: 23:14)

Another advantage you can see floor space reduction that is also nearly 60 percent. So
earlier you can see this is the earlier layout and this is the modified layout where 50
percent space can also be saved. So, the space wastage has been saved, the motion
wastage of the different employees has been saved and the number of employees have
been reduced. So, overall our system has become more productive, more efficient and
more effective.

(Refer Slide Time: 23:49)

925
So, this is a documented savings as per the case we have taken. The reduction was
reduced by 95 percent, scrap was reduced by 62 percent, work in process was reduced by
91 percent, changeover time was reduced by 78 percent, and labor cost as percentage
sales reduced by 41 percent. So, you can see that these are the savings that have been
done.

So, labor was saved changeover time got reduced, work in process got reduced, scrap
was reduced, rejection was reduced, which mean the overall quality of the product also
improved. And if the quality is improving the customer will be more satisfied and brand
name of the company will also be higher in the eyes of the customer. So, we can see that
simple modifications can help us to manage our operations in a better manner.

(Refer Slide Time: 24:42)

Now this is a simple way of continuous flow production, this is being depicted by the
water stream of water. So, this is supplier and this is our traditional flow production
process and we have these buckets here, where our material is getting stored
unnecessarily; these three buckets we can see. This is just analogous representation of
our production flow line and it is being represented by the flow of stream of water.

So, unnecessarily it is getting stored here which could otherwise be avoided and when
we use the JIT philosophy this is our suppliers. We get the material at the right time, at
right place and in right quantity, and we can see we can have a continuous flow
production line. So, material is flowing without being stored at any other place. So, here

926
we have buckets of material which we can say is the inventory that we have to manage if
we are not following the JIT philosophy, but if we are following JIT there are no such
stagnant ponds representing the inventory.

(Refer Slide Time: 26:01)

Now, principles of JIT manufacturing, so it integrates with total quality management,

production management, supplier management, inventory management, as well as
human resource management. So, we can see it is an overall concept of improving our
operations making our operations more effective, efficient and productive.

(Refer Slide Time: 26:21)

927
Now, what are the benefits of JIT we can see? I will read it out for you as we have seen
with the help of examples also in the stream production flow stream with the help of
water. In case of JIT we do not have any stagnant ponds; which means that we have
minimum or no inventory in case of JIT under ideal scenario. So, our inventory will be
less, quality will be more. We have seen that the rejections are very less, so our overall
quality of the product will be more. Costs will be less because if you see now 6 instead
of 6 people only 1 person is managing the total production line as in the case we have
seen, so that is showing some savings in terms of the input cost.

And therefore, the cost of the product can be managed. So, lower cost will be there,
space requirements we have seen in the case study, 50 percent space is saved if we use
our common sense and if we do a proper scientific layout of our machines and
equipment. Shorter lead time, increased productivity, greater flexibility, improved
vendor relations. So, we can that if we apply the JIT concept we will be having several
advantages.

Now, what can be the disadvantages of JIT? First thing is because we are ordering the
material not too early and not too late, so, sometimes danger of disrupted production due
to non-arrival of supply. So, since we are ordering just in time, so there can be a problem
if we do not get our supplies do not get our raw material well in time. Then it will lead to
loss of sales. Why? Because demand is there, our production line is responsive but we do
not get the material at the right time. So, we will lose those sales, highly dependent on
suppliers. So, suppliers have to be fully responsive and proactive in satisfying our
requirement of the raw material.

(Refer Slide Time: 28:25)

928
Less time for quality control on arrival of materials because we do not want materials to
be stored at any given time they have to come and they have to be used in the most
effective manner. So, sometimes we may not be able to exercise a very good quality
policy on the incoming raw materials. Increased ordering and administrative cost; so, if
you remember in the previous week we have discussed materials management, there we
have seen the ordering cost.

So, ordering cost is directly multiplied by the number of orders. Since we are not going
to store the materials for a longer period of time, because we want reduced inventory. So,
we will have to give number of orders. So, the number of orders if will increase the
overall ordering cost may increase, may lose bulk bind discount; so if you remember in
materials management we have seen that there is a concept of quality discount that if you
order beyond a particular number of product you will get some discount.

But here since we are ordering in chunks, since we are ordering in small lot sizes, small
batches, we may not be able to take the advantage of the quantity discount. But all this,
whatever disadvantages we have barring the disruption of the supplies; all other may be
increase in the ordering cost or may the quantity discounts that we are not able to avail
by applying this philosophy. These type of disadvantages are over weighed or are may be
taken care by the advantages that we derive out of applying this philosophy.

So, may be within this short span I think I have tried to explain in 20, 25 minutes the
basic concept of JIT that is to make our systems more efficient and effective. Eliminate

929
all types of waste that are there in the system. And ensure a smooth production flow line
within the organisation. With this we close today’s session. In next session we will
discuss the concept of Kanban followed by materials requirement planning.

Thank you.

930
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 57
Kanban System

Namaskar Friends, welcome to session 57 in our course on Operations Management. As

we are aware currently, we are discussing the 12th week of our topics in our course on
operations management. In the last week, our focus is on the topics that are much
relevant in efficient and effective management of operations. In the previous session, we
have covered just in time and we have seen that how just in time can be used or what is
the importance of this philosophy in the overall management of operations. We have
seen that the productivity improves if we are able to eliminate all kinds of wastes that are
there in the overall production chain.

So, the focus is primarily on providing the materials, the type of materials required at the
specific time in the specific quantity at the specific place. So, if we are able to streamline
our production flow or production flow line, I think we will be able to save lot of money
for our organization. In just in time, if you remember in the previous session, we have
written seven types of waste. So, we can avoid the wastage in terms of manner, we can
avoid the wastage in terms of time, we can avoid the wastage in terms of unnecessary
motions of machines and equipment as well as human beings or the workers working in
the organization. Similarly, for materials also we can optimize our inventory or we can
totally eliminate the inventory by asking for materials or ordering for materials just in
time.

So, that concept if we overall philosophically we implement the concept of JIT, we can
save lot of resources which in turn will make our manufacturing or our operations more
productive, more efficient, and more effective, efficient and productive.

Similar is the concept of Kanban which is a kind of a signalling technique, where a

signal will be generated whenever there is a requirement for a particular machine or an
equipment. So, based on the signal system the pull system, the overall we can say
efficiency of the system will be improved. So, we will see that if we have a pull type of
system, wherever suppose there are three machines in a line. So, in normal system what

931
we do we input the material in the first machine, it processes the material and sends it to
machine 2, then the machine 2 sends it to machine 3, so kind of a push type of system
exists.

But in Kanban, we have a pull type of mechanism that when machine 3 will be free. It
will send a signal to machine 2 regarding the quantity, the part, the product that is
required at station 3 or at machine 3. And the machine 2 will then send that material to
machine 3, so that is kind of opposite to our conventional push type system, here the
signaling technique is used to have a pull type of a system. So, in today’s session maybe
a very brief session of 25 minutes, we will try to understand the basic concept of
Kanban, and we will try to see that what are the advantages, if we use this signaling
system.

So, earlier there may have been cards or trucks, or maybe bins which were used as the
signaling mechanisms. But today because of the advancements in the field of information
technology, we can use integrated systems in which say triggers can be you can say
initiated, in the case of emails or fax, or SMS is or maybe on the screens the things may
start to flash. So, maybe the intern information technology and internet, and the
computer systems have made the life much easier for dissemination of information or
maybe sharing on of information, among the various workstations within the factory or
the organization.

So, today the information sharing or the signalling systems may be entirely different
from the systems that were followed maybe 20, 25 years ago because of the
developments in the field of information technology. But still the basic concept that the
signal must be triggered, whenever there is a requirement at a particular station that basic
the method of signalling may change. But the basic philosophy will remain same, that
whenever there is a requirement, there must be a signal to the preceding section, that yes
now the material may be sent, and I am ready to receive the material, and process the
material.

Otherwise without any information the material is produced, and it is sent to the next
station where it gets piled up, there are delays, there are unavoidable delays though all
these type of may be delays; which can be avoidable unavoidable. Normally lead to
unproductive environment or unproductive ecosystem in the organization, and therefore

932
these type of delays can easily be avoided with the concept of Kanban, moreover we can
always optimize our inventory if we use the Kanban system.

So, we will see a structured advantages of Kanban system in our today’s session, there
are number of good books in which you will have the detail related to the Kanban
system, but we will try to understand the basic concept that how Kanban can be used for
the advantage in managing the operations.

(Refer Slide Time: 06:41)

So, let us quickly first see that what is the concept of Kanban from where it originated,
so Kan means card and ban means signal, so it is a card based signaling technique which
is used in the industries, so card system that controls production and inventory. So, in
this case we have a pull type of system visual pull means, because we have cards or
containers, or buckets, so they these are the signalling techniques which will help us to
pull the kind of materials that a particular the workstation needs. For example, there are
two work-station, so the second workstation whenever it is free, it will send a signal, in
the form of a bucket or in the form of a card, or in the form of a container or in the form
of a flash, or in the form of maybe internet message or SMS.

So, the mode of communication may be different, but the message will be sent to the
previous workstation, that yes there is a requirement of 100 components of type 4 or type
5, whatever is the nomenclature for the articles or the component that this is the
requirement at my station or at this station. And then it will become the responsibility of

933
the previous workstation to supply that material to the next work station, or to the current
workstation where from where the signal has been generated. So, it is a pull type of
system whereas, in the previous cases in most of the industries we have a push type of
system that whatever is produced at workstation number 4 will be sent to the workstation
number 5, this is what I understand from the concept of Kanban.

(Refer Slide Time: 08:28)

So, card systems, so there can be different options with Kanban, we can have electronic
Kanbans, in current scenario most commonly used like fax or emails warehouse or part
racks so that is another way the racks where the parts are stored can also be used as
signals. Then Kanban boards which can be magnetic or cards. So, the boards can also be
used as a signalling mechanism, then containers different colours can be given to the
containers depending upon the product types can also be used as a signalling mechanism,
flow through racks can be used as a signalling mechanism or supplier boxes can be used
as a signalling mechanism. So, we have different types of mechanisms which can be
used for signalling the requirement or signalling the completion of a particular product or
the menu processing of a particular product.

(Refer Slide Time: 09:24)

934
Now, there are different types of Kanbans like Kanban square which is a marked area
designed to hold items. Then there is signal Kanban, triangular Kanban used to signal
production at the previous workstation. So, we have to send a signal to the previous
workstation that the production may start. So, it is used to signal production at the
previous work station. Material Kanban used to order material in advance of a process as
we have seen in our section on materials management that we have to offset, and our
offset will help us to order the material. Now, suppose the product has to be ready by
September 30th it may require 5 days of processing.

So, what we will order we will order the and the or ordering lead time for the material is
another 10 days. So, when we must order? So, we must order at least 15 days in advance,
so that 10 days is the ordering lead time. So, if we order before 15 days after 10 days the
material will arrive at our premises and then 5 days for of processing, so we will be able
to supply on the due date. So, similarly the material Kanban is used to order the material
in advance of a process of the signal will be generated that yes the material is required.

Supplier Kanban; this is can be a mechanism any type of mechanism that we have seen
in the previous; it can be e-electronic Kanban like fax or email. So, it will rotate between
the factory and the supplier. So, we will be communicating with our suppliers regarding
the requirement of the material. And if you remember all concepts are interrelated in JIT
or JIT that we have discussed in the previous session. One of the major drawbacks was
that if the supplier is not able to supply the material well in time our overall process may

935
suffer and there can be a stock out in the industry, and we may not be able to produce as
per the requirement.

So, if we have a supplier Kanban system effective means of communication with our
suppliers, the problem of stock out can be minimized. And we will be able to have a one-
to-one interaction and we will be able to get our material well in time in order to maybe
have our continuous production line and minimize the effect of a stock out.

(Refer Slide Time: 11:58)

Now, Kanban types we can see with the figure also here. Production or in process
Kanban provides production instructions for the work center. As I have already discussed
that if there are three workstations from third workstation, we will send a signal to the
second workstation regarding the requirement. So, provides production instructions for
the work centers tells the workers exactly the quantity and that and the type of the part to
produce.

So, the signal will be sent maybe for example, it is not a line type of layout. So, line type
of layout means that only one type of product is being produced. Now, there can be a
process type of layout in which we have different types of products being produced on
the same machine. Now, this machine may be producing five different types of products.

So, may be as per requirement a signal will be sent to the previous workstation that now
type 3 or P3 or product 3 is required or may be subassembly of product three is required.

936
So, as is given in second point it tells the workers exactly the quantity that is may be 100,
200, 300 parts and the type of part to be produced, so that signal will be sent to the
previous machine and accordingly the machine will produce 200 parts of type of part or
may be subassembly which needs to be produced.

Used for work centers that produce only one-part number or have minimum setups in
spite of multiple part number production. So, usually in case we will have more efficient
and effective signalling system if the machine is producing one-part number only, but the
volume may change 100, 200, 500, 10,000. So that number is immaterial, but it will be
more effective if only one part is being produced because then once we flash the signal
that 500 parts are required the process or the equipment or machine will start processing
the quantity as per requirement. So, this is used for work centers that produce only one-
part number or have minimal setups in spite of multiple part number production.

So, we can have a rectangular one-piece flow production or triangular for small lot
production. The different types of Kanban or signals can be sent. So, if you have one-
piece flow production, you will send a rectangular Kanban or a rectangle can represent
that and a triangular can represent small lot production.

(Refer Slide Time: 14:44)

Then there is a withdrawal Kanban inter process Kanban, we can see that delivers orders
for parts from a preceding process specifies quantity and type of parts to deliver from
location A to location B. So, we can see that we can have an inter process type of

937
Kanban which can ensure us a timely delivery of material from location A to location B.
So, the quantity and type of parts will be mentioned and accordingly the things will be
supplied from one station to another station when a Kanban is initiated or a signalling
has been initiated.

Then there can be supplier Kanban same as inter process Kanban accepted signals
conveyance of part from an outside supplier. So, supplier Kanban is a communication
between the company and the supplier. Whereas, inter process Kanban is within the
organization as it specifies the quantity and type of parts to be delivered from location A
to location B.

(Refer Slide Time: 15:51)

Now there can be other types of Kanban which can be job order Kanban issued for each
job order. Through Kanban when two processes are very close it does not make sense to
issue two Kanbans used where one process directly feeds the next process. So, maybe if
on a conveyor belt type of Kanban conveyor belt type of material handling system or the
process line, we can use a through Kanban. So, if there are two processes happening
need not issue two Kanbans.

Common Kanban when a withdrawal Kanban is used as a production ordering Kanban if

the distance between two process is very short and share the same supervisor. So, we can
issue a common Kanban also where are withdrawal Kanban is used as a production
ordering Kanban if the distance between the two processes is very short and share the

938
same supervisor. Emergency Kanban, it is a temporary type of Kanban when there is a
defector problem can be withdrawal or a production type of Kanban. So, we can see the
different types of signalling techniques are there depending upon the function we have
named different types of Kanban job order Kanban, through Kanban, common Kanban,
emergency Kanban. So, these are different types of maybe signalling techniques which
are used for a specific purpose.

(Refer Slide Time: 17:16)

Now determining the number of Kanbans, number of Kanbans is equal to the average
demand during lead time plus the safety stock divided by the container size. So, N is
equal to dL plus S divided by C.

Number of Kanbans =

N =

Where,
N = Number of Kanbans or containers
d = Average demand over some time period
L = Lead time to replenish an order
S = Safety stock
C = Container size

939
So, we can see that average demand during lead time. So, we can see that d is the
average demand over some period as we have seen in our maybe previous week when we
were discussing materials management; we have seen there the lead time and the demand
rate. So, here we can see the small d represents the average demand over some period of
time. So, it is a demand rate only because it is over a period of time. So, we can say may
be 100 components per week, 500 components per month. So, this is d is the average
demand over some time period.

Then lead time to replenish an order that is L plus S that is a safety stock. So, this will be
a number safety stock will be a number demand rate multiplied by the lead time. So,
demand rate in the denominator we have time and it is being multiplied by the lead time.
So, time into time which means the number only. So, we will have number here. And C
is the container size, so that will be having some dimensions. So, we will see that how
many is the number of Kanban. So, container size can also be a number which can be
500 or 700 or 2000.

So, we can see that we have here safety stock demand rate and lead time which is giving
us one number divided by the container size in terms of a number. So, we will get what
is the number of Kanbans that are required specifically when we are using it as a
signalling mechanism that what will be the number of Kanbans required to be sent to
complete to optimize our process line.

So, well, let us try to understand this with the help of an example. One more thing I must
address here that if we if we see what we have discussed in the beginning today, there
can be different types of Kanban signalling mechanisms and one of them can be the
containers or here the Kanbans can be the containers. So, the that is the calculation of the
number of containers that are required for satisfying this type of demand rate. So, we
have safety stock demand rate lead time and the container size. Once we know this data,
we can calculate the number of containers which will signal the manufacturing or
production at a previous station.

940
(Refer Slide Time: 20:03)

So, we can see the question here determining the number of Kanbans, you can see the
question, d is the demand rate which is which was I have already told numbers with
respect to time. So, 150 bottles per hour is the demand rate. L is 30 minutes that is 0.5
hours half hour. S is what a safety stock that is 0.10 percent I think of 150 into 0.5. So,
this is d into L that is 10 percent of the demand rate into the lead time. And our container
size is 25 bottles. So, as I have already told that container size will also be a number
depending upon the size of the container which is 25 bottles.

d = 150 bottles per hour

L = 30 minutes = 0.5 hours

S = 0.10(150 x 0.5) = 7.5

C = 25 bottles

Solution

941
So, here we can see it was given in the problem that the number of containers we have to
calculate depending upon the demand rate, the lead time, the safety stock as well as the
size of the container in terms of number. So, here we can calculate dL, d moderate is 150
bottles per hour multiplied by the you can see lead time which is half an hour plus our
safety stock is 7.5 which is 10 percent of dL, so again we have the calculations here that
is divided by the container size that is 25 bottles. So, d into L plus F divided by C that is
the container size. So, we calculate this it comes out to be 3.3 Kanbans or containers. So,
we can round up to 4 to allow some slack or down to three to force an improvement.

So, here we can see that we using a standard formula or standard mathematical technique
we can calculate the number of containers which we need to send as a signal in order to
raise a demand which in this case our signalling system is the number of containers. One
more thing I think which I have not been able to make very clear here is the S that is a
safety stock is a percentage of the d into L which is the 10 percent of d into l that the
demand rate and the lead time.

(Refer Slide Time: 22:39)

Now, tips for effective Kanban we can quickly have a look at these. So, first thing is
replenishment process to be balanced to reduce risk of over stocking or potential stock-
outs. So, in order to have effective Kanban system. We must keep in mind that the
replenishment process has to be balanced in context of that we must not be over stocking
or there may not be a situation of a stock-out with that we do not have materials for

942
further processing or the production may stop. So, stock-outs also have to be avoided
over stocking also has to be avoided.

No part to be produced without Kanban signal and cards to always accompany container
from the supplier side until it is out of the Kanban staging area. So, it means that nothing
will be produced until and unless there is a signal to start the production. Or until unless
there is a trigger to start the production. So, if you do not have a signal there is no need
of production. As soon as a Kanban is issued the production must start. Each container
must have a separate Kanban card with part number description and location of
consumer and producer. So, maybe a Kanban system should have the complete
information the number of parts desired where they are desired, so all that information
must be there with the Kanban signalling system. No part to be produced without a
Kanban signal which I have already explained.

(Refer Slide Time: 24:11)

Parts to be pulled through succeeding workstations or process. So, there will not be any
push type of mechanism here the parts have to be pulled through the succeeding
workstations. So, no defective part to be sent to the succeeding workstation or process.
Amount of output produced should correspond to quantity withdrawn by succeeding
workstation. So, whatever suppose there are two workstations, so whatever workstation
two is desiring that must only be the output of workstation one. So, amount of output
produce should correspond to the quantity withdrawn by succeeding workstation.

943
Suppose workstation two raises a Kanban of 100 parts, so workstation one must produce
100 parts only.

(Refer Slide Time: 25:00)

Now, what can be the benefits of Kanban very quickly we can see provides quick and
precise information, provides quick response to changes, avoids overproduction,
minimizes the waste, maintains full control of the process, delegates responsibilities to
the workers. Now, workers have to issue the Kanbans as per the requirement and it
balances the line as well.

(Refer Slide Time: 25:26)

944
Now, the benefits of Kanban again the primary benefits are that it eliminates
overproduction, why, because it is a pull type of mechanism whenever there is a
requirement only, then the pull system will initiate the process of production at the
preceding section or preceding workstation, or preceding machine produces only what is
ordered, when ordered and the quantity ordered.

So, it is a pull type for as is that demand similar signalling mechanism will be issued, and
the production will be according to what is actually desired. So, produces only what has
been ordered in whatever quantity it has been ordered and when it has been ordered. So,
whenever there is a demand only then the production will take place.

(Refer Slide Time: 26:13)

The secondary benefits of Kanban are it increases the flexibility to meet the customer
demand, because now the machines are not only producing whatever has been mandated
during that day, the machines will become more flexible depending upon the signalling
mechanism, wherever, in whatever demand is being generated they will produce the
things accordingly. So, reduction in scheduling by production control and manufacturing,
competitive advantage by sequencing shipments to customers what they want, when they
want, and in order they want it. So, now, you can very easily plan your dispatch
sequence also, because now you know that how you are going to signal the requirement
as per that only the production planning and control will become a bit easier in this
context.

945
So, that we are able to produce what the customer wants, in what order we have
committed with our customers, what is a time line for each and every customer. So,
accordingly we can use this signalling technique to trigger the manufacturing or
production, so that we are able to satisfy our customers or to honour our commitments
and contracts with our customers. So, we can see that in broader context of operations
management, if we apply the Kanban system or the pull type of signalling system, it will
help in the better management of our operations and in nutshell will improve the
productivity of our organization. So, with this, we close the today’s session. In our next
two sessions, our focus will be on the materials requirement planning system.

Thank you.

946
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture – 58
Materials Requirement Planning (MRP)-I

Namaskar friends. Welcome to session 58 in our course on Operations Management.

And currently we are discussing the last week of our discussion as all of you know that it
is a 12 week course; and currently we are in the 12th week of discussion related to our
course on Operations Management. As you are aware in the last week of our focus is on
some advancements in the area of operations management and we are learning the
various tools and techniques which help us in better managing our operations or in better
management of our operations. We have already seen the concept of J I T that is JIT as
well as the concept of Kanban.

Today, we are going to start our discussion on materials requirement planning which is
an important part of operations management. And if you remember in our previous week,
our complete focus was on materials management only. And we have seen that, what is
the objective, scope, responsibilities of the materials management department. Then we
have seen the classification of materials based on ABC classification or VED
classification. We have seen that we can classify the materials in any organization based
on the value of these materials or components or parts or based on the usage of these
parts.

Then we have seen that how much we must order? When we must order? What must be
our ordering cycle? Then we have seen the production quantity model through which we
have seen that the material may not be arriving at our premises all at once, but we may
have a production run through which we are receiving the material every day. So that
was our basic summary of what we have already covered. But these days there are
software available, there are advanced methods available which help the organizations in
the better management of the materials.

So, as we see in today’s session, the materials requirement planning that is MRP, we are
going to plan our materials in a better manner, so that we are able to take advantage of
the computational methods that are available at our discretion these days. So, with the

947
help of integrated systems, we can manage all the materials in an organization at a single
place or in other words we can say that there can be a central management system which
can manage the complete supplies, the usage of the material within an organization.

So, instead of doing the things manually and doing the calculations of economic order
quantity using mathematical formula to calculate the economic order quantity, we can
use a system which will automatically trigger the orders that whenever the material or
the quantity level goes beyond the reorder point, it will automatically trigger an email or
an SMS to the supplier that we require this much quantity within a lead time of this much
this many days or this many weeks. So that type of automated material management
systems are these days available. And one of such systems is the materials requirement
planning system which we are trying to understand in today’s session.

So, our primary aim is to understand that what is materials requirement planning, what
will be the inputs to this system, what will be the output from this system, and how any
organization can make use of the MRP system. So, the complete discussion on MRP we
have divided into two sessions. So, we are going to cover the materials requirement
planning. The first part we are going to cover today and the next part we are going to
cover in the next session.

(Refer Slide Time: 04:39)

So, let us start our discussion and try to understand the very definition of the concept of
materials requirement planning. So, on your screen, you can see that materials

948
requirement planning is determining the number of parts, components and materials
needed to produce a product. For example, you can take maybe any simple product and
you can see that what are the materials that are required for making that product.

Simply we can take the example of a household wooden chair. So, if we take the
example of a chair we require certainly wood for making the chair of the carpenter will
require raw wood, for making the chair then he will require certain nails certain
adhesives, then he may require certain tools that will be required for making the chair.
So, here we will break down the complete product into the individual components and
these components will be planned by the system that when which component must be
available in order to ensure the timely manufacturing of the product that in our case can
be a wooden chair.

So, the example of a wooden chair can be used to explain the concept of MRP that you
need to have wood this much quantity of wood. So, if you want to give a back support or
maybe a cushion at the back you require the cushioning material also. If you want to
have a colored cloth, you require a colored cloth also on top of the cushion. So, whatever
are the materials that are going to go into the product that will be planned in a very, very
systematic manner, the orders will be placed automatically, the material will be received
before it is required in the assembly process. So, once again I am reading the definition
that I that is given the very first sentence that explains materials requirement planning.
So, the materials requirement planning is determining the number of parts, components,
materials needed to produce a product.

So, first thing is we need to know that what is required to manufacture the product. MRP
provides time scheduling information specifying when each of the materials parts and
components should be ordered or produced. So, we are going to use the time domain also
that if we require the product to be ready by 30th of September we need to do the
offsetting that when the individual components that are required to be assembled for
making the product must be ready. From there we will offset that when the materials that
are going to be used for making these components must be ordered. So, that they sub
components can be produced by a deadline and then finally, these sub components are
assembled together to make the product by September 30th 2017.

949
So, this will give us all the timeline that what must have must happen in order to ensure
the completion of the manufacturing process by the due date. So, here this will be
automatically triggering the different points or the different checkpoints in order to
ensure the timely delivery, before delivery I must say the timely order of the materials
and then ensure the timely delivery of the materials, then the timely conversion of these
materials into the final product.

So, in these two sentences we have tried to highlight the overall picture of materials
requirement planning. That materials requirement planning is determining the number of
parts, components and materials needed to produce a product number one. And number
two provides time scheduling information specifying when each of the materials parts
and components must be ordered or produced. As per the APICS dictionary MRP
constitutes a set of techniques that use bill of material, inventory data and the master
production schedule to calculate the requirements for materials.

(Refer Slide Time: 08:54)

Now, some of you may be wondering that it is a very complicated definition or maybe
there are number of words that we do not know in this definition, yes, true, some of the
words may be new as for example, the bill of material. So, we are going to understand
what do we mean by bill of material. All of you know the inventory data in week 11, we
have used the one-word inventory; quite comprehensively you know that what is

950
inventory, what makes up the inventory and what do we mean by inventory data, what is
the service level, what is the safety stock, I think all this we have covered in week 11.

So, this inventory data is not new to you, but yes the master production schedule may be
new, maybe because we have covered this I think in week 9, we have seen that, what is a
master production schedule that also we have covered in one of the sessions. So, we need
these three inputs. We need master production schedule, we need the inventory data, we
need the bill of materials. So, all these three are the inputs to the materials requirement
planning MRP.

So, once we have these three data or these three inputs, the master production schedule
will give us certain outputs, outputs will be primary outputs as well as the secondary
outputs that we will cover in the course of our discussion today as well as in the next
session. So, but basically in order to use MRP we require three types of inputs, and all
these three types of inputs are given on your screen that is the bill of materials, the
inventory data as well as the master production schedule.

So, now you can yourself imagine why this is required. The master production schedule
will give us the time deadlines or the timeline of manufacturing of the individual
components which finally have to be assembled into the final product, which machine is
going to operate or who is going to be operating that particular machine all that will be
there in the master production schedule. In the inventory data, we will have what is our
inventory level available, what is the you can say q that is usually we call the order
quantity available with us, what is the demand rate, how we are using our inventory,
what is our safety stock, when is the next order going to arrive at our premises all that
will be the inventory data that is what is the current status of materials available with us
that will be our inventory data.

And the bill of materials is the first and the foremost thing that we must have. The bill of
materials will give us that what is required suppose I have taken an example of a wooden
chair, for a wooden chair how much wood is required, how many nails are required, how
much adhesive is required, how much cushion material is required, how much meter of
cloths is required, so all that will be the bill of materials data. So, we will try to
understand all these three inputs one by one that is what is bill of material, what is

951
inventory and what is the master production schedule and how these will influence the
overall materials requirement planning system.

(Refer Slide Time: 12:31)

Now, material requirement planning system we are going to discuss based on a master
production schedule. So, one thing already all of us know and we have already discussed
it in week 9. Based on the master production schedule a material requirement planning
system, what it will do? Master production schedule is already available with us.

So, what will MRP do? It creates schedules identifying the specific parts and materials
required to produce the end items. Now, end item is our final product. So, we have to use
certain specific parts and materials that will go into our final product. So, MRP will
create the schedules that once the final product has to be made, when the individual parts
must be ready, when the sub assemblies must be ready, so that by the deadline our final
product is ready.

So, MRP will create schedules identifying the specific parts and materials required to
produce the end item. Determines the exact unit numbers needed. Then determines the
dates when orders for those materials must be released based on the lead times. So, now,
once we input based on the forecasted demand, based on the orders by the customer, if
we input that this many number of products have to be produced by 31st of December
2017, the system will calculate that what is the requirement of the individual parts and
components that need to be assembled for making the final product. When they must be

952
ready, and in order to make these materials what is the raw material required, when an
order must be placed for this material, so that when we start the manufacturing of the
individual parts and component we have the raw material available with us.

So, offsetting will be done from the deadline. So, deadlines in this example that I have
taken is 31st December 2017. And prior to that all back calculations will be done, and
the system will automatically trigger the invoice or maybe an order to the suppliers that
you have to supply the material by this and this date, then the manufacturing of that
particular component will start. And finally, this component will be assembled by the
other component or assembled with the other component to finally, make our product or
consignment or our may be the overall package ready for delivery.

So, the MRP system, we can say will help us in creating or identifying the schedules for
material procurement, material usage then production, also it is going to help us as you
have seen that it determines the exact unit numbers needed, it will also determine that
day it will determine the dates when orders for those materials must be released based on
the lead time.

So, lead time is that today if we order for our material, it may arrive at our organization
after 10 days. So, the 10 day will be the lead time for that material. So, this also we will
try to understand that what is a lead time and what is a manufacturing lead time. So, it
will help us to automatically control our materials management system, so that we are at
ease controlling the other aspects, the materials management part will be taken care by
the MRP system.

953
(Refer Slide Time: 16:30)

Now, this is the MRP inputs on your screen you can see. From where will the system get
an idea that how many parts have to be produced. So, it will be from the sales forecast.
So, sales forecast is one important thing that is an important part. Then the customer
order, so we have two inputs for the master production schedule. So, master production
schedule will have the input that how many units have to be produced. And therefore, I
have addressed I have highlighted this point earlier also that all the things that we are
discussing in operations management are interrelated to each other.

How these are interrelated? If you remember we have already discussed the concept of
sales forecasting. What are the different methods of sales forecasting? If you remember
we have seen that there are qualitative methods of sale for sales forecasting, there are
quantitative methods of sales forecasting. So, those forecasting methods will be helpful
here. Once we identify that what is the exact amount of product or exact number of
products that we have to produce, based on that the master production schedule will
create a schedule that when the manufacturing must start in order to achieve the deadline
of manufacturing a particular product. So, we always work with deadlines in the
company. So, or in the organization here the MPS will take the input from sales forecast
or it may also get the input from the direct customers, based on that the master
production schedule will create a schedule.

954
So, you can see the sales forecast is something where we are not directly interacting with
the customers, but there can be companies which directly book orders from the customer.
So, that is I think a better method of our forecasting. So, if we know what we have to
produced based on that we have our MPS system that is a planning or a system or a
schedule that will plan the manufacturing of our product or the timeline will be fixed by
the master production schedule as we have seen in our previous discussion during week
9. So, first input is the master production schedule.

Second input is as you can see the inventory status file. So, if you remember as per the
APICS dictionary we have seen that there are three inputs to the materials requirement
planning. First one is as per our diagram here we can see the one is the master production
schedule, the input to the MRP system. Then inventory status file is another input to the
MRP system. And the bill of materials is another input to the MRP system.

So, in our APICS dictionary, the definition we have seen that three inputs are there.
Another as per that definition the inputs were the master production schedule, the
inventory data as well as the bill of materials. So, here again these three inputs have been
depicted graphically that master production schedule is one input, but master production
schedule has further inputs that is a sales forecast and the customer’s order.

Based on that we have the master production schedule which is an input to the MRP
system. Then inventory status file will give us the exact amount of materials available,
what is a safety stock all that data will be available in the inventory status file. And bill
of materials will be that what exactly are the materials required. So, MRP system then
will give us the timeline the order when the order must be placed, how much must be the
order, so all that thing that we calculated in the previous week using the EOQ model,
using the production quantity model, those things will be automated in the MRP system,
things will be automatically triggered depending upon the level of inventory available in
the organization.

So, bill of material we will try to understand this with the help of a diagram in our
subsequent slides today. We will see that what is a bill of material. So, for any product
whatever is the individual requirement of parts and components will comprise the bill of
material or will be a part of the bill of material. And once we have these three inputs,

955
MRP system will generate output. And that output would be very helpful for the
organizations to manage their operations. So, inputs we have tried to understand.

Now, let us see the individual inputs, because I have explained in abstract manner that
what is bill of materials, what is inventory data, what is master production schedule. But
now let us see them one by one that what individual input to the MRP system is and
better we better understand the concept that if we know that we have to implement an
MRP system we must know that what type of information we must have as an input, so
that to take advantage of the versatility, take advantage of the maybe the system that will
help us in the better management of our operation.

(Refer Slide Time: 22:12)

So, let us take the first input as we have seen the master production schedule. So, it is a
list of items, indicating end products to be produced. This contains item name, quantity
to be produced and the timings of completing the production. So, you can see that master
production schedule will give us the following information which will be used by the
master which will be used by the materials requirement planning system. So, it is a list of
items, indicating end products.

So, what we have to produce that will be in the master production schedule. This
contains the item name that is maybe the company name or the code. Quantity to be
produced, if you remember in the previous diagram we have seen that sales forecasting is
an input to the master production schedule, so that quantity the number of products to be

956
produced can come from the sales forecast or directly from the customer orders. Quantity
to be produced and the timing for completing the production as I have taken an example
that December 31st 2017 may be the due date for completing the production of a
particular item, so that completion date must be known and how much we have to
produce that must be known.

Based on the estimations of product demand that is sales forecast, so that we have
already seen in the previous diagram that master production schedule will take its input
from sales forecasting or from the customer’s order. So, two things are important here in
this slide. One thing is that we need to know the number or the quantity that is going to
be produced. And the other thing that is when that product has to be delivered or when
that quantity has to be shipped or has to be delivered to our customer.

(Refer Slide Time: 24:05)

So, here we can see just one example of master production schedule for products P6 and
P8. So, there are two products this is a code for the product that is P6, another product is
P8. So, we can see in the rows we have product 6, product 8 and then September, this is a
week’s 1, 2, 3 and 4 weeks where we can see. In week 1 product 8 is required in the
quantity 40; and in week 2, product 6 is required in the quantity 70. And in last week of
September, both are required in 100 and 60 quantities each; 100 for product 6, and 60 for
product 8. So, this is maybe a kind of master production schedule weekly demand or

957
weekly production requirement is mentioned here that what is the exact requirement for
the product 6 and product 8 in the weekly basis for the month of September.

(Refer Slide Time: 25:13)

Now, this is a first input that is master production schedule which will go into the MRP
system. The second input is the bill of materials file. What is the third input, I think very
quickly I have asked so all of you must know that there are three inputs basically for a
MRP system, first one is master production schedule, second one is the bill of materials
and third one is the inventory status file. So, bill of materials file you can see it provides
a list of materials and their quantities required to produce the end items.

Again referring back to our example of production of a chair or manufacturing of a

wooden chair, what are the individual components or parts required to manufacture the
wooden chair will comprise of the bill of material along with their quantities. So, it
provides a list of materials and their quantity is required to produce the end items. It
contains the list of finished products, material needed for each finished products in units,
assembly structure sub-assemblies parts and material.

So, bill of material will give us maybe everything, for example, for making a table we
require suppose four screws and four nuts, everything four screws, four nut everything
will be mentioned in the bill of material. What will be the tabletop, how many legs the
table will have, what will be the material of the leg, all that will be mentioned suppose

958
we are manufacturing a table. So, all individual parts and component along with their
quantity will be mentioned in the bill of material file.

Bill of material file is revised every time there is a change in the product design or
specification. So, as soon as we changed the design, for example, we are initially
manufacturing a table with three legs or a three legged wooden table we are
manufacturing as soon as we change the design to four legs, our bill of material file has
to change because now we have four legs a tabletop maybe the dimensions of the
tabletop may change, and therefore, the material requirement for the tabletop as well as
an additional leg will change. So, therefore, the bill of material file has to be revised
whenever there is a design modification. So, by now we know that what is the master
production schedule, how it looks like, what is the bill of materials file that we can try to
understand with the help of this example.

(Refer Slide Time: 27:45)

Here, you can see suppose we have to produce or manufacture product A. So, we have
sub-assembly 1, sub-assembly 2, sub-assembly 3. And these sub assemblies are further
made up of component X and Y, again X and Z, Y and Z, and there is one component Y
that directly goes into product A.

So, here we know that there are three sub assemblies, each sub-assembly what is the
material requirement or what type of material is required, and in what quantity it is
required. So, here we can see for each product A, X is required in two numbers; Y is

959
required in three numbers and Z is required in two numbers. So, this way we can see that
we have to always keep our bill of materials file ready in order to ensure that our master
or our materials requirement planning system functions properly.

Then the third input is the inventory status file. So, three inputs are there for any
materials requirement planning system to work efficiently; two inputs already we have
seen the master production schedule and the bill of materials file, the last one is the
inventory status file.

(Refer Slide Time: 29:02)

It provides a computerized record of each material, physically held in the system. So, it
is a computerized inventory management file that gives an idea about the inventory level
available within the organization. There will be only one inventory status for individual
material, even if it is used at different levels of production or in different end products.
So, every material will have single status only. This material may be required in two or
three different products but the level of material required that is the quantity of material
available in the factory or in the premises will be same, and it will be managed centrally.
So, again I am reading I think there may be some confusion; there will only be one
inventory status for every material.

So status is suppose, 525 components of part B are available. So, that 525 accounts for
525 parts irrespective of that whether this part is being used in three different products or
five different products, 525 is the central number available within the organization, even

960
if it is used at different levels of production or in different end products. So, that in the
level has to be centrally the same.

(Refer Slide Time: 30:43)

Now, the inventory status file usually indicates the material code, it indicates the material
name, inventory on-hand that is physically available with us, inventory on-order that is
ordered but yet to arrive at our premises, and customer order for the items. So, suppose
there is a demand for a particular item within the organization that data also the
inventory status file must be able to update and that will be used by our materials
requirement planning system for performing the planning operation of the materials that
what is the current status of the materials that are physically available, how much have
been ordered all this will be the input to the MRP system to plan for the future that how
and when based on the master production schedule, what materials will be required,
when they will be required so that the production runs continuously.

So, basically we will have three inputs to any materials requirement planning system and
three inputs we have discussed I think in detail. We know that we must have the master
production schedule as an input, we must have the bill of materials as an input, and we
must have the inventory status file as an input to the MRP system. And if we are able to
accurately provide the information required by the MRP system, our system will be able
to help us to better manage our procurement process, better manage our usage process,
better manage our manufacturing or operations within the organization which will lead to

961
an improvement in the overall productivity as well as the operations will be managed
more efficiently and effectively without any stoppages or undue breakages in the overall
process, because of the lack of materials or the stock out of materials.

So, with this we come to the close of today’s session. In our next session, we will start
our discussion from what where we are leaving today. We will try to understand that
what are the outputs of the MRP system and we will also try to see that how the MRP
system works, and what are the advantages and limitations of the MRP system.

Thank you.

962
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 59
Materials Requirement Planning (MRP)-II

Namaskar friends, welcome to last but one session in our course on Operations
Management. We are currently in the 12th week of discussion, in the course. And we are
focusing on some of the advanced tools, advanced methods techniques that are used for
managing the operations in the best possible manner. And in that context, we are
covering the materials requirement planning.

And in the previous session, we have seen the basic concept of materials requirement
planning, and how it can be used by the organizations for better management of their
operations. We have seen that the materials requirement planning system works on a set
of input, and then it utilizes the information that it derives from the inputs to convert it
into some tangible outputs, which help the organization in decision making related to
management of materials as well as the operations.

Now, we have seen in the previous session that materials requirement planning is usually
dependent upon three important inputs. The first important input is the master production
schedule; and in master production schedule, the input is the sales forecasting or the
customers demand. So, the first important input to our MRP system is the master
production schedule, the other input is the inventory status file. We need to know that
what is the inventory level in the organization, what is the current level of materials
available, what is the quantity of materials available, how many materials are being used,
how much material has been ordered to the vendors, so all that status file is required as
an input for the MRP system.

And the third input is the bill of materials that depends upon the final product structure.
Now, we have to manufacture a product which suppose has five different sub
components. So, bill of materials will give the number of sub components, which means
that what is required for making the end product, as well as give us the number of
individual components required for making the complete product.

963
So, if you remember in the previous session, we have seen that three inputs are going
into the MRP system, and the MRP system then works on this input and tries to produce
output, which is helpful for the decision making process in the organization. So, based on
these three inputs, how the system will work, and what type of outputs we will derive,
and what will be the advantages and limitations of the MRP system that we are going to
understand in today’s session.

So, let us begin our discussion with the concept of lead time, because it is the most
important factor that governs the working of the MRP system. Now, lead-time is the time
spent between ordering a particular component, or a batch of components from till the
time we receive the delivery at our organization or in our factory. So, the time gap
between placing an order and receiving an order is basically the lead-time, and that is
very very important, because the MRP system works on this lead time, because it
generates an auto trigger that the manufacturing must start on a specific date, and this
input comes from the master production schedule.

So, once we know that manufacturing of a particular component that has to be, fitted into
the final product must start on this particular date. The system must know that; what is
the lead-time for procurement of materials that are required to start the manufacturing of
this component. So, if we know that the lead-time is 10 days, so 10 days prior to the date
of manufacturing of this component a trigger must be sent to the vendor that product is
going to be manufactured, this much number of components are required by such and
such date.

So, once these components or parts arrive then the manufacturing can start on these
components, and then these components will further become a part of our final product.
So, lead-time is very very important in case of materials requirement planning. So, we
will start our discussion with materials requirement planning, specifically focusing on
the lead-time.

964
(Refer Slide Time: 05:14)

Now, lead-time first we need to understand what is lead time, it is the time needed for
completing the job from the initial stage to the final stage. Now, the job can be
procurement of materials, so suppose we are procuring the materials, so the lead-time
will be the time starting from the ordering of the material to the final receipt of the
material. So, the ordering lead-time you can see start of purchasing process to receipt
from the supplier those time gap between the ordering to the receipt is called as the lead-
time. Manufacturing lead-time is usually the processing of part through the machines,
specified on the route sheet.

So, we know that there are different sequences of operations to be done on a material to
convert it from a raw material into the final product. So, the manufacturing lead-time is
that the how much time is required to manufacture that part, following the sequence of
operations which have already been laid out. The most important part in MRP system is
that we must know both these lead times, the ordering lead-time, as well as the
manufacturing lead-time. Now, based on this lead-time how the MRP system will work,
so how MRP uses the lead-time data is explained with the help of this simple diagram.

965
(Refer Slide Time: 06:42)

Let us start from our final product, on x-axis we have time, final product is required on
maybe this seventh day. Now, we must know that when the sub-assembly 1 is needed,
we have to offset in this direction and then there has to be some time gap, because this
sub-assembly 1 needs to be assembled to some other part or a basic structure to get our
final product.

So, we know that when our sub-assembly 1 must be ready, so that the final assembly
operation may take place. Now, we must know that we have to place an order for the
sub-assembly 1, because for manufacturing the sub-assembly 1 or for processing the sub-
assembly 1, we may take some time or we may I must say, we will definitely require
some time to process this sub-assembly 1.

So, once we place the order for sub-assembly 1, we have a time gap here during which
the sub-assembly 1 will be manufactured, and for manufacturing of sub-assembly 1 or
for assembling of sub-assembly 1, we need the start of production which is given here.
And finally we have to order the raw material, which is required for sub-assembly 1. So,
the total overall start of production is here, sub-assembly 1 is another part that will go
into the final product, so this is just an example to explain how the lead-time data will be
used.

So, start off production to the final product, this is the manufacturing lead-time. And here
we can see that order of material and maybe the final delivery of material this is the

966
ordering lead-time. So, we need to understand that we have ordered the material here, it
will take some time to arrive and then our production may start, so from sub-assembly 1
needed and place order for sub-assembly 1, this is showing us the manufacturing lead-
time. And ordering of the raw material and receipt of the raw material for starting the
production is giving us an example of the ordering lead- time. So, we will make use of
both the manufacturing lead-time also, as well as the ordering lead-time also, and we
offset from the final delivery schedule.

So, we have final product required on this day, so we will calculate the offset, when what
must happen in order to ensure, the final delivery of the product. Now, there can be
different types of demand based on which we will produce our master production
schedule, so there can be dependent demand, and there can be independent demand, so
that we need to understand. Because based on that only our further inputs to the master
production, sorry first is the master production schedule, inputs to the master production
schedule and also our input to the materials requirement planning system will depend
upon the type of demand.

(Refer Slide Time: 10:24)

So, the demand basically in case of our materials requirement planning, can be of two
types dependent demand, product demand related to other items and as item is
component of the other products. So, the product demand related to other items, as item
is a component of the other product. So, I think the language is slightly complicated, but

967
maybe I can try to explain it with the help of an example, suppose our end product or our
final product is a car. So, the number of cars that are required that will be our
independent demand. Independent demand means, because we will use any given
method of sales forecasting or demand forecasting to find out, that how many number of
cars are going to be sold in the next year or in the financial year 2018-19.

So, for a particular period of time what is going to be that demand that is our
independent demand, but once we have finalized that independent demand, our
dependent demand will be that how many steering systems are required, how many
wheels are required, how many chassis are required, how many seats are required. So,
our independent demand is the demand of the car, but all other things that are going to go
into that product will be our dependent demand, that we are going to understand with the
help of a diagram also. And then the other type of demand can be the lumpy demand, the
demand is sudden or a large quantity increment, so as to make a batch of final product.

So, lumpy demand can be that it has suddenly been generated, so we have to
immediately respond to that kind of demand. And our MRP system should be flexible
enough to absorb that demand do the calculations, order the materials and finally, able to
satisfy that demand that is lumpy in nature that has just reason, because of maybe some
exigency or some emergency. But in most of the cases, we will see that there will be a
independent demand; and there will be a dependent demand. And our MRP system will
be easily able to absorb that demand, and sort out the materials as well as the operational
issues related with the demand.

968
(Refer Slide Time: 12:43)

So, let us take an example, on your screen that is independent and dependent demand, in
the previous slide we have seen dependent demand. Here we can see the difference
between the independent and the dependent demand.

So, independent demand is the final product as I have taken an example of a car, so A is
representing our car. This is independent demand from where we will get, we will get
this number from sales forecasting we may use any method, we may use qualitative or
any quantitative method of forecasting, we can use averaging method or time series
forecasting model. So, any method we can use to get this number A, once we have this
number A, now all other things that are required that will go into the manufacturing or
assembly of A will represent our dependent demand. Because once we know that so
many number of cars have to be assembled, we will definitely be able to calculate that
what are the other sub part, sub assemblies that will be required to meet this demand.

So, the dependent demand into component parts is given. So, B may be in 4 numbers is
required C, as 2 numbers are required for B, further we require D and E the numbers are
also given. So, basically the summary is as is given on your screen, the independent
demand is uncertain. So, always in forecasting we have seen that many times we may not
be able to forecast accurately; we may be over forecasting or under forecasting. So, the
independent demand is uncertain that is for A, whenever we are forecasting we may not
be able to forecast accurately, but the dependent demand is certain, if we know how

969
much or how many number of A products we have to make, we can certainly calculate
how many B will be required, how many C will be required or what will be the sub
components required to make the final product.

So, the independent demand is uncertain there is a may be kind of probability required or
maybe there will be some probability of focusing on the exact number. But the
dependent demand, we will be certain in nature, because it is being calculated from the
independent demand.

(Refer Slide Time: 15:16)

Now, this is a continuous versus lumpy demand. Our MRP system will work perfectly in
case of a stable demand, but will have to be adjusted in case of a lumpy demand.

970
(Refer Slide Time: 15:27)

Now, how the MRP works, there are a few terms that are we are that we must know.
First term is the bucketing, now what is bucketing, at what time and in what quantity of
product is needed, so that is the answers that we try to look at. MRP starts with
consolidating period requirements for different end products, these time periods are
called the buckets. Add service spare parts, which are not included in the MPS that is a
master production schedule. So, first is the buckets that are the time periods, as in the
first sentence we have written, at what time, and in what quantity a product is needed.

So, this time MRP starts with consolidating period requirements for different and
products, and these time periods are called buckets. So, first is the time domain that we
need to fix up, because then only we will be able to order our materials, we need to
check the level of inventory available within the organization.

So, first thing is the time frame has to be fixed for end products as we have seen, in the
previous to previous slide, we have tried to see the concept of lead-time. Our end day has
to be fixed and then we offset, all the other operations we try to make use of the
manufacturing lead-time, we try to take use make use of the ordering lead-time. But first
and foremost is we need to have the time interval, and the time domain fixed for each
and every operation that is required to deliver the product or to manufacture the product,
and these time periods are called the buckets.

971
Then the part explosion each item exploded into constituent materials, if you remember
the previous slide, we have seen there is a product A, which requires certain number of
parts B, part C then part B also further require another parts, so that is the parts
explosion, we must know that in order to make the final product. What are the different
types of sub components, sub-assemblies required within the sub-assemblies, what are
the other nuts, bolts, screws and what are the other things required in making that sub-
assembly, what are the individual parts required? So, we explode the complete product
into its individual sub-assemblies and further into components and parts. So, each item is
exploded that is divided into the constituent materials parts, components, etcetera.

Then offsetting, so we know now, by now how the MRP will work, time domain is fixed,
the number of parts that are going to, go into the final product is also fixed.

(Refer Slide Time: 18:27)

Now, the concept of offsetting, displacing requirement by a period equal to the lead-time
of the product and therefore, I have explained this concept in the very beginning of
today’s session, that once the date final date is fixed. We know how many parts are
required using the parts explosion, now we will offset that this is a final delivery date,
before this sub assembling is required by this date, final assembly will take this much
time, then for sub-assembly to be ready this is the manufacturing lead-time. Today we
order the material 10 days lead-time for the receipt of the material. We will offset our
ordering cycle accordingly. So, we will offset our different operations in time domain, so

972
that we are able to meet our deadline of supplying our consignment or the batch of
products to our customer.

Aggregation finding cross requirement for each component or raw material. So, MRP
will calculate it will find out that what is the gross requirements of material. May be
same component may be required in five different product lines, so it will aggregate, it
will make the complete requirement, because we if you remember we have seen in our
materials management, there is a concept of quantity discounts. So, instead of ordering
the material for each product, their company may like to aggregate, the material
requirement across the product lines and take advantage of the quantity discounts that are
available with the vendor. So, that is the aggregation it will do finding gross
requirements for each component or raw material; then netting, so netting means that
currently there will be some inventory stock available with the organization.

So, it will see that the gross requirement and the inventory level available, what is the net
requirement, because some parts already we have in our inventory gross requirement also
we know through the system, so what is the net requirement, net requirements will be
whatever is a gross requirement minus, what is the inventory on hand that is whatever is
available minus, some we want to keep as the safety stock and some inventory available
with us might have been allocated to some other product lines or to some user.

So, we will see that what we have in hand, how much if we want to keep as a safety
stock, how much we have committed to some other product lines, so whatever is already
committed, say safety plus whatever is available, this is one summation and what is
required is another summation, what is the difference is finally, that we would like to
have or that we would like to order. So, this is the way the system will do the
calculations, and then will give output which will be useful for the company.

973
(Refer Slide Time: 21:36)

Now, it will work out of procurement schedule, the requirement is now advanced by a
lead-time for final assembly. Lot sizing is done, this is used to consolidate the
requirements in pre-specified lot sizes, so that the economic order quantity may be
ordered. So, we can see that once we know the gross requirement, we can see, we will
make it in lot sizes, so that we can take advantage of the economic order quantity.

Now, this is the way the system will do certain maybe calculations or maybe functional
decision making and finally, it will generate a output. So, lot sizing and then aggregation,
and gross requirements, and then offsetting and all the bucketing all this will be done.
And finally, our output will come in the form of primary outputs, as well as the
secondary outputs.

In primary outputs, we will get a planned order schedule, which will be the final output,
output in the terms of that we will have an idea that how much material have to be
ordered and on which date, so that our final product delivery schedule is fixed, it is met
and we are able to honour the commitment that we have done to the customer. So, that
planned order schedule will be one output of our MRP system, another output will be
changes to the planned order sometimes the things may not go as per our planning.

So, whatever minor major modifications have been done in the planned schedule that
will also be our primary output, but apart from the primary output, we will definitely get
a secondary output also which will be the planning reports, the performance reports may

974
include that what was planned, what was actually executed, what was the difference,
whether the difference is acceptable or if it is not acceptable, what are the reasons for
those differences, so all that will be coming in the performance report.

(Refer Slide Time: 23:22)

And then the exception report may be there, that if there is certain exceptions that have
been done, in the planned order schedule, why they have been done, so those reports will
also be the output.

(Refer Slide Time: 24:05)

975
Now, let us see one by one the outputs that the MRP system will generate. So, primary
outputs you can see, planned order schedule this is used to determine the future
production and supply at supplier’s end along with guide for in- house production
schedule.

So, we will be able to get a planned order schedule, as we have seen and used to
determine the future production and supply at supplier’s end. So, we will be able to tell
the supplier that at what duration of time, what will be required, when we are going to
order, so all that things will be available at hand on our system as an output of the MRP
system. And as well as within our organization also, we will be able to fine tune or
maybe decide on our production schedule. Changes in the planned order modifications in
previously planned order. As I have already told that we have a planned order, but
because of certain changes or certain modifications there may be certain changes in the
planned order that will also be covered as a MRP output.

(Refer Slide Time: 25:10)

Now, secondary outputs are exception reports I have already explained, I just read it out
for you, used to point out serious discrepancies such as late or overdue orders.
Performance report will give you use to determine, agreement between the actual and the
programmed usage and cost.

So, what is the difference or whether it is in agreement. Planning report used for future
planning of inventory. So, once we use the MRP system we will get these outputs.

976
(Refer Slide Time: 25:46)

Now, what are the benefits let us quickly see, read the benefits all of them are self-
explanatory, understanding the effect of changes in future periods, improved customer
service, reduction in leadtime, increase in productivity, reduced purchasing cost, because
if you remember we have seen that gross, we will do the gross aggregation of the
requirement, and then we will may be able to take advantage of the quantity discounts.
Reduced purchasing cost can be achieved, improve production and supply schedules,
because now it is automatic, so it is not human intervention is minimum.

So, as soon as the inventory level goes beyond a particular point, auto order or may be a
triggering point will be there, which will bring the order into effect, so our production
and supply schedules will improve. It will reduce the manufacturing cost, because
stoppages because of the stock out of materials will be less, because the material
procurement is now being handled automatically, less scrap and rework higher
production quality.

So, we can see that if we implement the MRP system directly or indirectly there are
going to be many advantages, and these advantages will lead to overall effective and
efficient management of our operations. So, we can explain each one of these with the
help of an example, but maybe I will leave it for readers to just look for case studies,
where the use of MRP system has let to improvements in the operations management of
the organization.

977
(Refer Slide Time: 27:32)

But there are certain drawbacks of the MRP system also, so this we can see that if there
is inaccuracy in supplier’s lead-time, maybe we know that today we have placed the
order, after 10 days we will get our receipt of order, but if we are not getting it in 10
days, it will certainly affect our further operations, because we have done all the
offsetting calculations based on our due date of delivery to our customer.

So, if our supplier is not giving us the material, in the agreed lead-time we will be at loss,
so that can one drawback. MRP depends heavily, on correctness of lead-time data and
therefore, we started our discussion today with the lead-time only. Then sometimes our
inventory data or inventory status file may not be up to mark and therefore, if we have
wrong data from the inventory status file, MRP system will be not be able to work
efficiently, and may give us erroneous results, and similarly inaccuracy in manufacturing
lead-time. We know that the route sheet is available with us; this particular product has
to undergo five different operations. And this must require 7 days in as a manufacturing
lead-time, but if it takes 10 days our MRP system, whatever system we are following you
may not be able to give us the desired result.

So, the change in the customer’s demand, change in workload of factory may lead to
inaccuracy in the manufacturing lead-time. So, there are certain drawbacks associated
with MRP system also.

978
(Refer Slide Time: 29:09)

Then the inaccuracies in the bill of material structure, sometimes there can be change in
design, components substitution without recording. So, our bill of materials file is
changing is not changing, but the product has changed, again it will lead to
malfunctioning of the MRP system. Because any change in the bill of materials file must
definitely be accounted in the MRP system, in order to get the accurate results or
accurate order scheduled or the planned order schedule, which is the output of the MRP
system.

(Refer Slide Time: 29:51)

979
So, finally, we can conclude our discussion on MRP, as that MRP is a computerized
inventory control, as well as production planning system. That scheduled component
items as needed, which will track inventory and help a company in many other aspects of
business. So, it is computerized materials management system as well as helps us in the
production planning also, and it will help us minimize the human intervention in the
material management function of operations management.

(Refer Slide Time: 30:23)

Now, the conclusion can be advancements further like MRP II and ERP have been able
to link the manufacturing with other areas of business such as finance and marketing. So,
materials requirement planning focus much on the materials aspect or materials
management aspect of operations management. But there are advanced systems, which
integrate the complete operations of the organization, including the finance and
marketing aspects also, and such systems enterprise wide systems or centralized control
systems are also available.

And in the next session, that is the last session of the course, we will be discussing one
such system that is the enterprise resource planning or ERP system.

Thank you.

980
 Operations Management
Dr. Inderdeep Singh
Department of Mechanical & Industrial Engineering
Indian Institute of Technology, Roorkee

Lecture - 60
Enterprises Resources Planning (ERP)

Namaskar Friends. Welcome to the last session of our course on Operations

Management. And today our focus is on enterprise resource planning. In the last week,
we have discussed the latest trends in operations management, we have covered the
concept of JIT that is just in time, we have covered the concept of Kanban, we have
covered the concept of materials requirement planning, and today we are discussing the
enterprise resource planning.

So, in these two and half hours, we have just tried to discuss or we have just tried to
highlight the important concepts that have developed in the last 10 to 15 years time in the
field of operations management. Most of the companies these days are focusing on these
concepts to make their system more robust, to make their systems more efficient
effective and productive. They want to minimize the waste either in terms of manpower,
or in terms of money, or in terms of time, or in terms of maybe the other kinds of waste
that may be creeping in the industry that may be the unnecessary movement of men and
machines, may be unnecessary utilization of space, or unnecessary may be say wastage
of space.

So, the optimization may be in terms of money, man, machine, movement, anything, but
the focus these days is to make the systems more and more efficient, to make the
production more and more effective, and in overall maybe the target has been to improve
the productivity of an organization.

So, in the last maybe 59 sessions, our focus has been on both the theoretical aspects also,
we have tried to cover the numerical problems also wherever possible, and overall we
have tried to give a picture of the complete operations starting from what has to be
produced, that has to be decided in the product design and development stage. Then how
much has to be produced, we have answered in the sales forecasting or demand
forecasting session; where we must locate our organization or our factory, we have
discussed in plant location. Then how our machines have to be laid out, we have

981
discussed in plant layout. Then how to manage the time for manufacturing? We have
covered in project management in terms of CPM and PERT. Then we have seen, the
production control sequencing scheduling of our operations, thereafter we have covered
the quality concept we have covered the materials management aspects.

So, currently we are covering the JIT, Kanban, materials requirement planning or MRP
and ERP systems. So, basically we have tried to address all aspects related to the overall
concept of operations management. And today the last topic that we are going to cover is
going to integrate, all the functions related to the operations or the process of conversion
of a raw material into the final product. So, the complete enterprise has to be managed as
a single entity, and all the resources have to be planned have to be executed centrally, so
that the information is available with all stakeholders within the enterprise, in order to
better coordinate cooperate, as well as execute the work related to the organization.

So, our focus today will be to understand the basic concept of enterprise resource
planning, most of the time we have heard this word ERP, and most of the engineers
know the word ERP, we will try to understand it from the context of the manufacturing
unit that where the product is getting converted into the final, or maybe the raw material
is getting converted into the final product. And we will try to see that what are the
advantages we can derive, if we have a centrally managed system, instead of a
decentralized system where we have different nodes of information, and sometimes there
may be lack of coherence between the different nodes of information.

So, it is always better that you have a central facility where you have all the information
available, and this central facility can control , the overall operations of the organization.
So, let us now try to understand the concept of enterprise resource planning, in the next
20 to 22 minutes.

(Refer Slide Time: 05:40)

982
So, enterprise resource planning what is the definition, now ERP is a process of
managing all resources, now all resources means men, machine, equipment, material,
money so everything included. So, ERP is the process of managing all resources, and
their use in the entire enterprise in a coordinated manner, so everything has to be
centrally coordinated, all the resources in terms of man, material, machine, money,
equipment has to be controlled centrally. And it is a complete enterprise wide control
mechanism, it is not distributed control; it is a centralized control of a system or of the
organization.

So, again for your understanding I will again read the definition, a ERP or enterprise
resource planning is a process of managing all resources, and their use in the entire
enterprise in the coordinated manner. What is ERP now, the practice of consolidating an
enterprise’s planning, manufacturing, sales and marketing efforts into one management
system?

(Refer Slide Time: 06:56)

983
Now, you can see the planning activity or the planning part, the manufacturing part, the
sales part, the marketing part even the financial part, the human resource department all
have to be coordinated and integrated into one central management system. It combines
all databases across departments into a single database that can be accessed by all
employees. Here I would slightly like to emphasize that the access, may be limited to
different levels of hierarchy, or different levels within the organization. Maybe the top
level management may have access to more information, as compared to the bottom
most level of hierarchy within the organization.

So, maybe the access may be limited in context of the designation of the various
employees, but all the databases will be integrated into one single central management
system. So, ERP automates the task involved in performing a business process, so you
have now a central management system, and it will help you to better manage all the
processes involved in running a business.

(Refer Slide Time: 08:34)

984
Now, major reasons why one should go for an ERP system, it integrates the financial
information, integrates the customer order information, standardize and speed up the
operations or the processes, reduces the inventory, standardized HR information or
human resource information. So, maybe these are just few of the reasons for adopting
ERP. The advantages when we will see, we will ourselves be able to make a long list of
reasons why a company must go for an ERP system.

(Refer Slide Time: 09:13)

Now, let us take an example, the source is given here, it is from the slide share dot net, a
presentation which is available you can go through the complete presentation, download
the presentation and look at the other aspects of ERP system there. But from the

985
explanation point of view, this is a conventional maybe system without an ERP system in
place.

So, here normally what happens is this is the customer, so the customer orders a part, so
to the sales department, then sales department gets in touch with the warehouse, the
checking the availability whether we have the ordered part available with us or not.
Suppose it is not available again, it will send an order to the purchasing department,
purchasing department will get in touch with the vendor, and then the vendor will
produce the part, and then we may be able to supply the order. Similarly, there will be
accounting department also which will be the complete loop.

So, we have seen that once we have placed an order here, how it will function. First of all
order the part, we check for the parts, parts are not available, we need the parts, we will
send an order to the purchasing department, purchasing department will get in touch with
the vendor. So, once the parts are procured we ordered the parts, call back to the sales
that we do not have the parts in stock and then we will give an information, we have
ordered the parts. So, the sales department will be in touch with the customers and
updating them, regarding the status of their order.

So, maybe we can see that there are different nodes of information or different sources of
information at different positions. But we want to integrate them into the common
system, so that the sales department can directly check that, what is the status of stocks,
whether we must take the order or we must postpone the order, or we must go for maybe
back ordering, we can talk to the customer that we will be able to meet the target by such
and such date. Because at the sales department only they must be able to check in the
centralized management system, that what is the stock of the material available, and that
is the basic concept of enterprise resource planning. And in today’s scenario where IT
enabled manufacturing is being done, or IT enabled management is being done.

It is very easy to check sitting in the sales office that what is the stock of material
available, in the warehouse? So, that is basically the overall concept of integrating, all
the functions into one function of management. So, all functions such as finance, sales,
marketing, production or HR, have to be integrated into a single function.

So, here we can see the information travels quite a lot, from one section to the another
section, then to the third section, and then to the next section, and this flow of

986
information sometimes may be distorted things may get delayed. So, these things can be
avoided if we integrate all these functions into a common single platform, and that is the
major objective of enterprise resource planning.

(Refer Slide Time: 13:14)

So, here we can see a typical business process that whatever was happening, in the
previous diagram. A typical enterprise has many departments or business units, these
departments continuously communicate and exchange data with each other as was
happening, in the previous diagram sales department gets an order they get in touch with
the warehouse, the warehouse get in touch with the purchasing department, purchasing
department gets in touch with the financial department or accounting department, then
they get in touch with the vendors.

So, you can see there are different business units are different departments who are
interacting with each other. The success of any organization lies in effective
communication and data exchange within the departments, as well as associated third
party such as vendors, outsourcers or the customers. So, this is a kind of a decentralized
system where there is communication among the various departments or the business
units.

Now, what can be the problems, this is the system which is already existing every
company is having a most of the companies, which do not have a ERP system, have a
decentralized system only, and what can be the problems associated with such

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companies, we can see numerous disparate information system are developed
individually over the time.

Integrating that data becomes time and money consuming, so we do not have an
integrated data at a single place. Inconsistencies and duplication of data is there,
sometimes we do not have a consistent data for example, in a particular college there is
an academic office, and there is a student welfare office. Many times there is
inconsistency in data; the student welfare office may have a different number of students
registered with them. And the dean academic office, may have our academic office, may
have a different number of students registered with them. So, you have an inconsistency
within the same institute, two different offices; have two different number of students at
the same time, which may be the inconsistency in the data.

(Refer Slide Time: 15:23)

So, high inventory is involved usually, because we do not have online data or a
centralized data available with us, and material and human resource cost is also high.
Now, how we can overcome these problems of the decentralized system, we can do this
with the help of a centralized system.

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(Refer Slide Time: 15:41)

Where we can see the customer’s order the parts. The sales department has the inventory
data already available with them, so they can check that whether they can take the order
or they can refuse the order, or they can negotiate with the customer regarding the due
delivery dates of the order. Now accordingly once they check even if the material is not
available, immediately a message can be sent to the purchasing department, which will
immediately order to the vendor, and the vendor will ship the parts to the warehouse and
which will be booked in the inventory, and the order can be may be honoured or order
can be delivered as per the contract agreement, or as per the understanding with the
customer.

So, basically we can see if we have a centralized system, immediately the trigger will be
sent to all the responsible departments, or business units which will start their function
immediately, and we will be more responsive to the customer’s demand as compared to a
decentralized system. And it will help us to be more efficient and effective, we will be
able to save time, we will be able to save the resources, we will be able to save the
money for the organization. So, we will try to list down all the advantages of this
centralized management system vis-a-vis the decentralized management system.

(Refer Slide Time: 17:18)

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So, what is the key observation here, data is maintained at a central location and is
shared with all the departments. Departments have access information, data of the other
departments also. So, here one department can have or check the data of the other
department also. So, therefore, you have a completely transparent system in place,
wherever all data is available for everybody to use, as well as take decisions accordingly.

(Refer Slide Time: 17:54)

Now what can be the benefits of the centralized system let us try to understand. It
eliminates the duplication discontinuity and redundancy in the data; moreover, I would
like to add another word that is inconsistency in the data. So, duplication discontinuity

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and redundancy on top of that inconsistency in the data. So that is something which is
maybe possible using a centralized system.

Provides the information across departments in real times, as soon as some material has
been shipped from the inventory, immediately the people in the purchase department can
get an idea, that this is the status of inventory available in the warehouse and how they
should respond in order to replenish the inventors. So, real time data exchange is
possible with between the various departments.

Provide control over the various business processes, increase productivity I think this
productivity efficiency, effectiveness all these words I have used may be number of
times in our discussion, because these are the keywords with which we try to manage the
operations. If we do not use scientific methods of managing our operation, still the
operations can be managed, but what we are compromising on, we will be compromising
on the efficiency, we will be compromising on the effectiveness of our operations, we
will be compromising on the productivity.

So, therefore, I have emphasized on these words again and again, so that whatever we
are doing our major focus is to earn profit for our organization. Again if we implement
the ERP system, it will help us to increase the productivity, it will help us in better
inventory management, it will promote quality, reduce the material cost, as well as it will
boost our profit. So, overall benefits definitely will be there, if we go for a centralized
management system, or the enterprise resource planning system.

Better customer interaction, increased throughput, improves customer services. So, we

can see that we are able to respond to the customers in a more, maybe effective manner,
if we are having the ERP system in place.

(Refer Slide Time: 20:23)

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The ERP implementation may be, we may not be able to discuss in detail, but very
quickly, we can see that how an ERP can be implemented. So, it will surely be one of the
biggest IT project that most companies have ever handle, so why because it is a big
project, where all data has to be integrated into one single platform. Data may be related
to the employees, in context of employees also, their live records have also to be made
online, their gratuity, their PPF, EPF, their retirement date all details of HR also has to be
integrated.

So, I have just taken one example, that is HR department when it has to be integrated
into the main system, what all requirements are there, what type of data will be required
for each and every employee all data has to be entered. Similarly, for purchase
department all rules, all checks, all balances, all quality control processes everything has
to be entered for the purchase department also because all the different organs or
functions of the organization have to be integrated into a single platform.

So, you can see this will be one of the biggest project for any or biggest IT project for
any company, so it changes the entire company. So, it is not going to affect maybe one
section of the company, or one department or business unit of the company, it is going to
affect all the company, all sections, all business units, all departments of the company. It
will have repercussions in all departments, and divisions of the organization. It is
essential that all the clip key, all the important players, all the key players understand the
scope of the project, and this is an IT or information technology related project. Now

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there are majorly four phases of ERP implementation, whenever a company decides to
implement ERP these are the four stages.

(Refer Slide Time: 22:23)

The first stage is the concept or the initiation, or the kickoff of the ERP project, then the
development, implementation, closeout, operation and maintenance common to most of
the IT based projects.

Now, what are the costs involved in ERP training cost is involved, now because
everything has to be managed on the system paperwork will be eliminated or it may even
lead to paperless management in the organization. So, training is required for each and
every worker to understand that how he needs to operate under the ERP environment.

(Refer Slide Time: 22:51)

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Integration and testing cost is involved, because now you have to integrate all the
functions of the organization into one single platform. Data conversion, data analysis,
consultant’s costs we need to pay replacing best and brightest staff after implementation,
there may have to be maybe re reallocation of responsibilities and accountable to some
of the staff members, who may become redundant after the implementation of the ERP.
Implementation teams can never stop, because always they will be finding new and new
things which can be integrated. And then you have to wait for return on investment,
because the overall project will be a costly project, it will require investment on part of
the organization and organization will always look to get their ROI as quickly as
possible.

(Refer Slide Time: 23:51)

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Now, what are the benefits lets quickly see the benefits, it will improve integration,
flexibility will be more now, because everybody has access to all type of data within the
organization. Errors will be less here, because automated system, computer driven
system improved speed and efficiency, I must say speed and efficiency of decision
making will become fast, because now all information is available to you on your
desktop. Complete access to information, lower total cost in the complete supply chain,
so the cost will reduce, shorten the throughput times, the manufacturing excellence can
be achieved, sustained involvement and commitment of the top management, because
now the top management has access to all the information at a single source.

So, we can see that there are a number of benefits that we can derive, out of
implementation of a ERP system.

(Refer Slide Time: 24:50)

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Now, other benefits are reduce a stocks to minimum, so it will reduce our inventory,
enlarge the product assortment, improve product quality, provide more reliable delivery
dates and higher service to the customer, efficiently coordinate global demand, supply
and production. So, we can see that we can coordinate the global demand, because if we
have seen the diagram, you try to understand from the diagram that we are able to
coordinate now with the customers in a better manner as compared to a decentralized
system.

So, we can see that there is a long list this list can further be improved or appended, and
we can further highlight the advantages that we can draw by implementing that ERP
system.

(Refer Slide Time: 25:42)

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Now, there are few risks involved with risk with the ERP implementation that it is
expensive, because the system has to be customized as per the four rules regulations,
functions, procedures of a particular organization. Because all organizations have their
own set of rules, guidelines, procedures that have to be integrated now into the standard
platform that is available, so it is expensive because of the cost of customization, that is
involved it is time consuming, because all data has to be integrated, and therefore
requires lot of time, great risk for the organization, because sometimes the system may
be functional for, so many years things must already have been optimized. And now we
spend some money to further integrate the things together the benefits that we accrue out
of making huge investment, may not commensurate with what we have thought of or the
benefits that we are deriving after implementation of ERP.

Then transfer of knowledge is one also risk involved, and then acceptance within the
company is also very very important, because many times we all the employees have that
concept of resistance to change, and therefore once they have to change from the normal
filing system to a new type of a filing system, which is software based. Sometimes the
employees may feel that the previous system was much better as compared to the new
system, and therefore may not feel very very comfortable with the ERP way of working
within the organization. But still we can say, that wherever the companies have adopted
the ERP system, they have been benefited in numerous terms, inspite of making huge
investment the companies have gained profit, and ROI has been achieved by most of the
companies. And in future also companies are focusing their attention on centralized
management system, because it gives us number of benefits. So, with this I conclude the

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today’s session, as well as I conclude the course on operations management. We have
completed 12 weeks of our discussion, and I think the course must have been enjoyable
for all of you, it has been enjoyable for me as well as my team, and we have also learned
a lot during the course.

All your queries, questions are welcome, because a single topic that we take there can be
different perspectives of looking at that particular topic. Different books, different
sources, websites may give different aspects of the topics, but what I believe as a teacher;
the basic fundamental remains the same. In case you feel that there is something which
needs to be addressed from a slightly different perspective, you can write on the
discussion board, and me as well as my team would be more than happy to discuss to see
that whether the things need improvement or we can have a look at a topic from a
different perspective or a different angle also.

So, it is a learning process for all of you as well as for me as and my team. So, it has
been a pleasure discussing all these topics, and I wish that whatever we have discussed
will be of help to all of you, in overall improvement of your knowledge in this field of
operations management.

Thank you.

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