Shanti Business School

Operations Management Notes

Post Graduate Diploma in Management (PGDM)

Module I: Introduction to Operations Management

Goods / Products
1) Goods can be resold
2) Goods can be inventoried
3) Some aspects of quality are measurable
4) Selling is distinct from production of goods
5) Goods are transportable
6) Often easy to automate production of goods
7) Are tangible
8) Involve less customer interaction
9) Consistent product definition

Services
1) Reselling services is unusual
2) Services cannot be inventoried
3) Many aspects of quality are difficult to measure
4) Selling is often a part of production of service
5) Service provider, not the service, is transportable
6) Service is often difficult to automate
7) Are intangible
8) Involve higher customer interaction
9) Often unique
10) Inconsistent product definition
11) Often knowledge-based
12) Frequently dispersed

Manufacturing Operations & Service Operations

Characteristic Manufacturing Service

Output Tangible Intangible
 Customer contact Low High
Uniformity of output High Low
Labor content per unit of Low High
goods or service
Uniformity of input High Low
Measurement of Easy Difficult
productivity
Opportunity to correct Easy Difficult
quality problems

Goods - Services Continuum

The goods and services continuum enables marketers to see the relative goods/services
composition of total products.

• A product's position on the continuum, in turn, enables marketers to spot opportunities.

At the pure goods end of the continuum, goods that have no related services are
positioned.
• At the pure goods end of the continuum, goods that have no related services are
positioned. At the pure services end are services that are not associated with physical
products.
• Products that are a combination of goods and services fall between the two ends.

Operations management
• Operation Management is the set of activities that relate to the creation of goods and
services through the transformation of inputs into outputs OR in other words it is the
management of all process and systems that produce goods and services for external
and internal customers.
• Operations Management is the business management function responsible for planning,
coordinating, and controlling the resources needed to produce products and services for
a company.
• It is a core function of every organization whether Service or Manufacturing, profit or
not for profit.
Operations management deals with the systematic design, direction, and control of processes.
a. “A process is an activity or group of activities that takes one or more inputs, transforms
them, and provides one or more outputs for its customers.”
 b. An “Operation is a group of resources performing all or part of one or more processes.”
c. “Supply chain management is the synchronization of a firm’s processes with those of
its suppliers and customers to match flow of materials, services, and information with
customer demand.”
Transformation Process
– Physical: as in manufacturing operations
– Locational: as in transportation or warehouse operations
– Exchange: as in retail operations
– Physiological: as in health care
– Psychological: as in entertainment
– Informational: as in communication
How is Operations Relevant to my major specialization?

How is Operations Relevant to my major specialization?

• Accounting - “As an auditor you must understand the fundamentals of operations
management.”
• Information Technology - “IT is a tool, and there’s no better place to apply it than in
operations.”
• Strategy Management or General Management - “We use so many things you learn in
an operations class—scheduling, lean production, theory of constraints, and tons of
quality tools.”
• Economics - “It’s all about processes. I live by flowcharts and Pareto analysis.”
• Marketing - “How can you do a good job marketing a product if you’re unsure of its
quality or delivery status?”
• Finance - “Most of our capital budgeting requests are from operations, and most of our
cost savings, too.”
Operations Strategy
Operations strategy
a. Specifies the means by which operations implements corporate strategy and helps to
build a customer-driven firm.
b. It links long-term and short-term operations decisions to corporate strategy and
develops the capabilities the firm needs to be competitive.

Competitive Priorities and Capabilities

1. Competitive priorities are the critical operational dimensions a process or supply chain
must possess to satisfy internal or external customer, both now and in the future.
2. Competitive capabilities are the cost, quality, time, and flexibility dimensions that a
process or supply chain actually processes and is able to deliver. An abbreviated list with
examples is provided here.

Dimension Definition Example

Low-cost Delivering a service or Costco achieves low costs by designing
operations product at the lowest cost all processes for efficiency.
possible.
Top Delivering an outstanding Rolex is known globally for top-quality
quality service or product. precision timepieces
Consistent Producing services or McDonald’s standardizes work
quality products that meet design methods, staff training processes, and
specifications on a consistent procurement to achieve consistency.
basis.
Delivery Quickly filling customer Dell engineered processes to deliver
speed orders reliable and inexpensive computers
with short lead times.
On-time Meeting delivery-time United Parcel Service (UPS) uses
delivery promises expertise in logistics and warehousing
processes to deliver on-time.
Development Quickly introducing new Zara is known by its ability to bring
speed services or products. fashions from the runway to market
quickly
Customization Satisfying unique needs of Ritz Carlton customizes services to
customers individual customers.
Variety A wide assortment of Amazon.com uses information
services or products. technology along with order fulfillment
processes to deliver a vast variety of
items to customers.
Volume Accelerating or decelerating The United States Post Office (USPS)
flexibility the rate of production can have severe demand peak
fluctuations.

Key Performance Indicators

• A set of measures that help managers evaluate a company’s economic performance
and spot the need for change in operation.
• KPIs include financial measures such as days’ cash on hand and operating income
by unit or division, as well as non-financial metrics such as average time to
respond to service calls, lead time, or percentage of sales from new products.

What is Productivity?
Productivity is a measure of the effective use of resources, usually expressed as the ratio of
output to input
Productivity = Output / Input
Output
– Sales made, Products produced, Customers served, Meals delivered, or Calls
answered
Input
– Labor hours, Investment in equipment, Material usage, or square footage

Productivity is a common measure of how well a country, industry or business unit is using its
resources.

Partial measures of productivity = Output/labor, Output/Capital, Output/ Material etc.

Multifactor measures of productivity = Output / (Labor + Capital + Energy)

Productivity and Competitiveness

• A global marketplace means more customer and more intense competition.
• The most common measure of competitiveness is productivity.
• In broader context we speak of Competitiveness in reference to other countries rather
than to other Companies, because how effectively a nation competes in global
marketplace affects the economic success of the nation and the quality of life for its
citizens.
• Increase in productivity allow wages to grow without producing inflation, thus raising
the standard of living. (How quickly a economy can expand its capacity to supply good
and services?)
• Competitiveness is the degree to which a nation can produce goods and services that
meet the test of international markets simultaneously expanding the real income of its
citizens.
Productivity Statistics Can be misleading
• Decreasing Input
• It assumes that if more input are available, output would increase at the same rate. This
may or may not be true.
• Productivity over emphasize on Output produced, not output sold. (Increasing
Inventory Issues)
• Productivity is a relative measure.

Corporate Strategy and Operations

• Strategy is how the mission of a company is accomplished.
• Provides direction for achieving a mission
• Unites the organization
• Provides consistency in decisions
• Keeps organization moving in the right direction
• Operations Management play an important role in corporate strategy.

Strategy Formulation
1. Defining a primary task
– What the firm is in the business of doing?
2. Assessing core competencies
– What does the firm do better than anyone else?
3. Determining order winners and order qualifiers
– What qualifies an item to be considered for purchase?
– What wins the order?
4. Positioning the firm
– How will the firm compete?
5. Deploying the strategy
Order Qualifiers & Order Winners
• Terry Hill has divided the criteria required in the marketplace into two groups: Order
qualifiers and Order winners.
• An order qualifier is a characteristic of a product or service that is required in order for
the product/service to even be considered by a customer.
• An order winner is a characteristic that will win the bid or customer's purchase.
• Therefore, firms must provide the qualifiers in order to get into or stay in a market.
• To provide qualifiers, they need only to be as good as their competitors. Failure to do
so may result in lost sales.
• However, to provide order winners, firms must be better than their competitors.
• Winners:
• Differentiators — performance not yet duplicated by competitors
• Competitive advantage — performance better than all or most of the
competitors
• Qualifiers
• Minimum acceptable level of performance
With time, Order Winners become Order Qualifiers

Core competencies
• Core competencies are the defining products, services, skills and capabilities
that give a business advantages over its competitors. In other words, business
core competencies are advantages that no competitor can reasonably offer or
replicate.
• “A strength that sets a business apart from its competition”
McDonald’s - Quality
Disney World - Innovation
Intel Corporation - Product Leadership
Dell - Low Cost
Honda – Engine Design
A distinctive or core competence has three characteristics:
1. It provides potential access to a wide variety of markets.
2. It increases perceived customer benefits.
3. It is hard for competitors to imitate.

Traditional and New Age Operations Competitive Dimensions

• Cost
• Quality (including Service)
• Delivery (Speed)
• Flexibility
• Service
• Delivery Reliability
• Innovation
• Coping with Changes in Demand
• New Product Introduction Speed
Examples for Operations Competitive Dimensions
• Cost or Price: “Make the product or deliver the service at low cost” E.g. Maruti
• Quality: “Make a great product or deliver great service” E.g. Amway
• Delivery Speed: “Make the product or deliver the service quickly” E.g. Dominos
• Delivery Reliability: “Deliver it when it is promised” E.g. Federal Express
• Coping with changes in demand: “Change its volume with the demand fluctuation” E.g.
Coke
• Flexibility and New Product introduction speed: “Change it” E.g. Samsung

Policy Deployment - Balanced Scorecard

• Balanced scorecard
o measuring more than financial performance
• finances
• customers
• processes
• learning and growing
 Module II: Product & Service Design
Product Design
• Product design – the process of defining the product characteristics appearance,
materials, dimensions, tolerances, and performance standards
• Product design must support product manufacturability (the ease with which a
product can be made)
• Product design – the process of defining all of the company’s product characteristics
• defines appearance of product
• sets standards for performance
• specifies which materials are to be used
• determines dimensions and tolerances
• Product design must support product manufacturability (the ease with which a
product can be made)

Design of Services
• Service design is unique in that the service and entire service concept are being
designed must define both the service and concept
• Physical elements, aesthetic & psychological benefits e.g. promptness,
friendliness, ambiance
• Product and service design must match the needs and preferences of the targeted
customer group
What is a Product or Service?
• Need-satisfying offering of an organization for customers
– Example
• P&G does not sell laundry detergent
• P&G sells the benefit of clean clothes
• Customers buy satisfaction, not goods or services
Reasons for Product or Service Design
• Economic
• Low demand, excessive warranty claims
• Social and demographic
• Changing tastes, aging population
• Political, liability, or legal
• Safety issues, new regulations, government changes
• Competitive Market
• New products and services in the market, promotions
• Cost or availability of Inputs
• Raw materials, components, labor
• Technological
• Components, production processes
Effective Design
• Effective design can provide a competitive edge
– matches product or service characteristics with customer requirements
– ensures that customer requirements are met in the simplest and least costly
manner
– reduces time required to design a new product or service
– minimizes revisions necessary to make a design workable
Product Development Process

Idea Generation
• Company’s own R&D department
• Customer complaints or suggestions
• Marketing research
• Suppliers
• Salespersons in the field
• Factory workers
• New technological developments
Idea Generation from Competitors
• Perceptual Maps
o visual method of comparing customer perceptions of different products or
services
 o
• Benchmarking
o comparing product or process against best-in-class and making
recommendations for improvements based on results.
o The benchmarking company can be in an entirely different line of business. You
can benchmark McDonald’s for Consistency, American Express for quick
payments, Xerox for its benchmarking techniques.
• Reverse engineering
o carefully dismantling a competitor’s product to improve your own product
o Ford used reverse engineering for design of Taurus automobile assessing 400
features of competitor’s products and enhancing their product including the
competitors features like Audi’s accelerator pedal, Toyota’s Fuel gauge
accuracy and BMW’s tire and jacket storage.

Feasibility Study
• Market analysis (Survey, Interviews, Focus group studies or market tests)
o How large is the market niche?
o What is the long-term potential for the product?
• Economic analysis (Estimate production cost & development cost)
o What is the expected return on investment?
• Technical/strategic analyses
o Are production requirements consistent with existing capacity?
o Are the necessary labor skills & raw materials available?
Performance specifications
• Performance specifications are written for product concepts that pass the feasibility
study and are approved for the development.
• They describe the function of the product-that is, what the product should do to satisfy
customer needs.
• The next step is prototyping
Rapid Prototyping and Concurrent Design
• Testing and revising a preliminary design model
• Build a prototype
o form design-refers to the physical appearance of a product.
o Aesthetics, image, market appeal and personal identification are also part of
form design.
o functional design-how the product performs. Reliability, Maintainability
(Serviceability) and Usability.
o production design- how product will be made
• Test prototype
• Revise design
• Retest

Concurrent engineering
Concurrent engineering can be defined as the simultaneous development of project design
functions, with open and interactive communication existing among all team members for
the purposes of reducing time to market, decreasing cost, and improving quality and
reliability.
• Old “over-the –wall” sequential design process should not be used

• Each function did its work and passed it to the next function
• Replace with a Concurrent Engineering process

• All functions form a design team working together to develop specifications,

involve customers early, solve potential problems, reduce costs, & shorten time to
market.
• Representatives from the different groups can better consider trade-offs in cost &
design choices as each decision is being made

• Development time is reduced due to less rework (traditionally, groups would argue
with earlier decisions & try to get them changed)

• Emphasis is on problem-solving (not placing blame on the ‘other group’ for

mistakes)

Quality Function Deployment

• It is an approach to getting the voice of the customer into the design specification
of a product. Product design process using cross-functional teams Marketing,
engineering, manufacturing
 • Translates customer preferences into specific product characteristics Involves
creating 4 tabular ‘Matrices’ or ‘Houses’
• Breakdown product design into increasing levels of detail
• Identify customer wants
• Identify how the good/service will satisfy customer wants
• Relate customer wants to product how’s.
• Identify relationships between the firm’s how’s.
• Develop importance ratings
• Evaluate competing products

Designing for Manufacturing

• Beyond the overall objective to achieve customer satisfaction while making a
reasonable profit is:
• Design for Manufacturing(DFM)
• The designers’ consideration of the organization’s manufacturing capabilities when
designing a product.
• The more general term design for operations encompasses services as well as
manufacturing
DFM Benefits
• Lower costs:
– Lower inventories (fewer, standardized components)
– Less labor required (simpler flows, easier tasks)
• Higher quality:
– Simple, easy-to-make products means fewer opportunities to make mistakes
Standardization
• Standardization
– Extent to which there is an absence of variety in a product, service or process
• Standardized products are immediately available to customers
Advantages of Standardization
• Fewer parts to deal with in inventory & manufacturing
• Design costs are generally lower
• Reduced training costs and time
• More routine purchasing, handling, and inspection procedures
• Opportunities for long production runs and automation
Mass Customization
• Mass customization:
– A strategy of producing standardized goods or services, but incorporating
some degree degree of customization
– Delayed differentiation
– Modular design
• Delayed differentiation is a postponement tactic
– Producing but not quite completing a product or service until customer
preferences or specifications are known
Modular design is a form of standardization in which component parts are
subdivided into modules that are easily replaced or interchanged. It allows:
– Easier to customise in mass
– easier diagnosis and remedy of failures
– easier repair and replacement
– simplification of manufacturing and assembly
Value Analysis/Value Engineering
• Analysis with the purpose of simplifying products and processes by achieving
equivalent or better performance at a lower cost.
• Focuses on design improvement during production
• Seeks improvements leading either to a better product or a product which can be
more economically produced.VA/VE does this by identifying and eliminating
unnecessary cost.
• Analysis with the purpose of simplifying products and processes by achieving
equivalent or better performance at a lower cost.
• Focuses on design improvement during production
• Seeks improvements leading either to a better product or a product which can be
more economically produced.
• VA/VE does this by identifying and eliminating unnecessary cost.
VA/VE approach involves brainstorming such questions.
• Does the item have any design features that are not necessary?
• Can two or more parts be combined into one?
• How can we cut down the weight?
• Are there nonstandard parts that can be eliminated?
Concurrent engineering
Concurrent engineering can be defined as the simultaneous development of project design
functions, with open and interactive communication existing among all team members for
the purposes of reducing time to market, decreasing cost, and improving quality and
reliability.
• Old “over-the –wall” sequential design process should not be used
• Each function did its work and passed it to the next function
• Replace with a Concurrent Engineering process
• All functions form a design team working together to develop specifications,
involve customers early, solve potential problems, reduce costs, & shorten time to
market
Quality Function Deployment
• It is an approach to getting the voice of the customer into the design specification
of a product. Product design process using cross-functional teams Marketing,
engineering, manufacturing
• Translates customer preferences into specific product characteristics Involves
creating 4 tabular ‘Matrices’ or ‘Houses’
• Breakdown product design into increasing levels of detail
• Identify customer wants
• Identify how the good/service will satisfy customer wants
• Relate customer wants to product how’s.
• Identify relationships between the firm’s how’s.
• Develop importance ratings
• Evaluate competing products
 Module III: Process Strategy
Manufacturing processes convert materials into goods that have a physical form.
1. Product-process matrix
• Three elements
• Volume
• Product customization
• Process characteristics
• A good strategy for a manufacturing structure depends first on volume.
• Customer contact is not normally a consideration for manufacturing processes,
although it is a factor for the service processes in manufacturing organizations.
• Vertical dimension deals with the same two characteristics in the customer-contact
matrix: divergence and flow
2. Manufacturing process structuring
• Process choice: A way of structuring the process by organizing resources around the
process or organizing them around the products
• Four process choices, forming a continuum
• Job shop process, high variety of products
• Batch process, higher volumes, batching of customer orders. Further differentiated
as small batch and large batch processes.
• Line process, high-volumes, standardized products, dedicated resources, repetitive
manufacturing
• Continuous production process, the extreme end of high-volumes, rigid line flows.
Primary material moves without stopping.
Job shop production
Job shop production are characterised by manufacturing of one or few quantity of products
designed and produced as per the specification of customers within prefixed time and cost. The
distinguishing feature of this is low volume and high variety of products. A job shop comprises
of general-purpose machines arranged into different departments. Each job demands unique
technological requirements, demands processing on machines in a certain sequence.
Characteristics
The Job-shop production system is followed when there is:
1. High variety of products and low volume.
2. Use of general-purpose machines and facilities.
3. Highly skilled operators who can take up each job as a challenge because of uniqueness.
4. Large inventory of materials, tools, parts.
5. Detailed planning is essential for sequencing the requirements of each product, capacities
for each work center and order priorities.
Advantages
Following are the advantages of job shop production:
1. Because of general purpose machines and facilities variety of products can be produced.
2. Operators will become more skilled and competent, as each job gives them learning
opportunities.
3. Full potential of operators can be utilized.
4. Opportunity exists for creative methods and innovative ideas.
Limitations
Following are the limitations of job shop production:
1. Higher cost due to frequent set up changes.
2. Higher level of inventory at all levels and hence higher inventory cost.
3. Production planning is complicated.
4. Larger space requirements.
Batch production
Batch production is defined by American Production and Inventory Control Society (APICS)
“as a form of manufacturing in which the job passes through the functional departments in lots
or batches and each lot may have a different routing.” It is characterized by the manufacture of
limited number of products produced at regular intervals and stocked awaiting sales.
Characteristics
Batch production system is used under the following circumstances:
1. When there are shorter production runs.
2. When plant and machinery are flexible.
3. When plant and machinery set up is used for the production of item in a batch and change
of set up is required for processing the next batch.
4. When manufacturing lead time and cost are lower as compared to job order production.
Advantages
Following are the advantages of batch production:
1. Better utilisation of plant and machinery.
2. Promotes functional specialisation.
3. Cost per unit is lower as compared to job order production.
4. Lower investment in plant and machinery.
5. Flexibility to accommodate and process number of products.
6. Job satisfaction exists for operators.
Limitations
Following are the limitations of batch production:
1. Material handling is complex because of irregular and longer flows.
2. Production planning and control is complex.
3. Work in process inventory is higher compared to continuous production.
4. Higher set up costs due to frequent changes in set up.
Line process
Manufacture of discrete parts or assemblies using a continuous process are called mass
production.
This production system is justified by very large volume of production. The machines are
arranged in a line or product layout. Product and process standardisation exists and all outputs
follow the same path.
Characteristics
Mass production is used under the following circumstances:
1. Standardisation of product and process sequence.
2. Dedicated special purpose machines having higher production capacities and output rates.
3. Large volume of products.
4. Shorter cycle time of production.
5. Lower in process inventory.
6. Perfectly balanced production lines.
7. Flow of materials, components and parts is continuous and without any back tracking.
8. Production planning and control is easy.
9. Material handling can be completely automatic.
Advantages
Following are the advantages of mass production:
1. Higher rate of production with reduced cycle time.
2. Higher capacity utilisation due to line balancing.
3. Less skilled operators are required.
4. Low process inventory.
5. Manufacturing cost per unit is low.
Limitations
Following are the limitations of mass production:
1. Breakdown of one machine will stop an entire production line.
2. Line layout needs major change with the changes in the product design.
3. High investment in production facilities.
4. The cycle time is determined by the slowest operation.

Continuous production
Production facilities are arranged as per the sequence of production operations from the first
operations to the finished product. The items are made to flow through the sequence of
operations through material handling devices such as conveyors, transfer devices, etc.
Characteristics
Continuous production is used under the following circumstances:
1. Dedicated plant and equipment with zero flexibility.
2. Material handling is fully automated.
3. Process follows a predetermined sequence of operations.
4. Component materials cannot be readily identified with final product.
5. Planning and scheduling is a routine action.
Advantages
1. Standardisation of product and process sequence.
2. Higher rate of production with reduced cycle time.
3. Higher capacity utilisation due to line balancing.
4. Manpower is not required for material handling as it is completely automatic.
5. Person with limited skills can be used on the production line.
6. Unit cost is lower due to high volume of production.
Limitations
Following are the limitations of continuous production:
1. Flexibility to accommodate and process number of products does not exist.
2. Very high investment for setting flow lines.
3. Product differentiation is limited.

Production and inventory strategies

• Design-to-Order Strategy
• Designing new products that do not currently exist
• Manufacturing to meet unique customer specifications
• Make-to-order strategy
• Make products to customer specifications in low volumes with job or small batch
processes,
• Matches up with flexibility (customization) and top quality
• Assemble-to-order strategy
• Producing a wide variety of products from relatively few subassemblies and
components after the customers orders are received
• Allows delivery speed and high process divergence
• Principle of postponement
• Make-to-stock strategy
• Feasible for standardized products with high volumes and reasonably accurate
forecasts with line or continuous flow processes
 • Holding items in stock for immediate delivery
• Combined with line process, it is sometimes called mass production
• Choice for delivery speed and low cost
Process Structure in Services
1. Nature of Service Processes: Customer Contact
a. A good process strategy for a service process:
• Depends on the type and amount of customer contact.
• Customer contact: the extent to which the customer is present, is actively involved,
and receives personal attention during the service process.
b. Dimensions of customer contact
• Physical presence (face-to-face interaction is sometimes called a moment of truth,
or service encounter)
• What is processed
 People-processing services
 Possession-processing services
 Information-based services
• Contact intensity
 Active contact: the customer is very much a part of the creation of the service,
and affects the service process itself. Dental, psychiatric services for example.
 Passive contact: the customer is not involved in tailoring the process to meet
special needs, or in how the process is performed. Public transportation,
theaters, for example.
• Personal attention
 When contact is more personal, the customer “experiences” the service rather
than just receiving it.
• Method of delivery used
 Face-to-face or telephone versus regular mail or standardized e-mail message
2. Customer-contact matrix (fitting the service processes with customer contact)
a. Customer contact and customization
• A key competitive priority is how much customization is needed
• Competitive priorities require more customization, the more the customer is present
and actively involved.
b. Process divergence and flow
• Process divergence: extent to which the process is highly customized with
considerable latitude as to how it is performed
 High divergence involves much judgment and discretion. Consulting and law,
for example
 Low divergence is more repetitive and standardized
• Process flow, closely related to divergence, may range from highly diverse to linear.
 Flexible flow means movements in diverse ways.
 Line flow means movement in fixed sequence.
3. Service process structuring (three process structures forming a continuum)
a. Front office: a process with higher customer contact where the service provider
interacts directly with the customer
b. Hybrid office: a process with moderate levels of customer contact and standard
services with some options available
c. Back office: a process with low customer contact where the service provider interacts
little with the customer
 Module IV: Layout Analysis
Facilities Layout
✓ Facility layout can be defined as the process by which the placement of departments,
workgroups within departments, workstations, machines, and stock-holding points within
a facility are determined
✓ Each process type (project, job shop, cell, assembly line, continuous) has it
corresponding basic layout
✓ Determine the best layout (one that minimizes flow*distance, or flow*unit flow cost,
…, maximizes throughput, …)
Objectives of Facility Layout
• Minimize material handling costs
• Utilize space efficiently
• Utilize labor efficiently
• Eliminate bottlenecks
• Facilitate communication and interaction between workers, between workers and their
supervisors, or between workers and customers
• Reduce manufacturing cycle time or customer service time **
• Eliminate waste or redundant movement
• Facilitate the entry, exit, and placement of material, products, or people
• Incorporate safety and security measures
• Promote product and service quality
• Encourage proper maintenance activities
• Provide a visual control of operations or activities
Basic Layout/ Structure Types
Process Layout
• A Process Layout (also called a job shop or functional layout) is a format in which
similar equipment or functions are grouped together, such as all lathes in one area
and all stamping machines in another.
• A part being worked on then travels, according to the established sequence of
operations from area to area.
• Ex: Hospitals where areas are dedicated to particular types of medical care such as
maternity wards and intensive care units.
Advantages of Process Layouts
• Can handle a variety of processing requirements
• Not particularly vulnerable to equipment failures
• Equipment used is less costly
• Possible to use individual incentive plans
• Disadvantages of Process Layouts
• In-process inventory costs can be high
• Challenging routing and scheduling
• Equipment utilization rates are low
• Material handling slow and inefficient
• Complexities often reduce span of supervision
• Special attention for each product or customer
• Accounting and purchasing are more involved
Product Layout
 • A Product Layout (also called a flow shop layout) is one in which equipment or work
processes are arranged according to the progressive steps by which the product is
made.
• The path for each part is, in effect, a straight line.
• Production line for shoes, chemical plants, and car washes are product layout.
Advantages of Product Layout
• High rate of output
• Low unit cost
• Labor specialization
• Low material handling cost
• High utilization of labor and equipment
• Established routing and scheduling
• Routing accounting and purchasing
Disadvantages of Product Layout
• Creates dull, repetitive jobs
• Poorly skilled workers may not maintain equipment or quality of output
• Fairly inflexible to changes in volume
• Highly susceptible to shutdowns
• Needs preventive maintenance
• Individual incentive plans are impractical
Fixed Position Layout
• Layout in which the product or project remains stationary; workers, materials, and
equipment are moved as needed. This is also called the project type of layout. In this type
of layout, the material, or major components remain in a fixed location and tools,
machinery, men and other materials are brought to this location. This type of layout is
suitable when one or a few pieces of identical heavy products are to be manufactured and
when the assembly consists of large number of heavy parts, the cost of transportation of
these parts is very high. Used in projects where the product cannot be moved.
• The major advantages of this type of layout are:
1. Helps in job enlargement and upgrades the skills of the operators.
2. The workers identify themselves with a product in which they take interest and pride in
doing the job.
3. Greater flexibility with this type of layout.
4. Layout capital investment is lower.
Combination Layout
A combination of process and product layouts combines the advantages of both types of
layouts. A combination layout is possible where an item is being made in different types
and sizes. Here machinery is arranged in a process layout but the process grouping is then
arranged in a sequence to manufacture various types and sizes of products. It is to be noted
that the sequence of operations remains same with the variety of products and sizes.
Cellular layouts or Group Layout
• Group technology (GT) is the analysis and comparisons of items to group them into
families with similar characteristics. GT can be used to develop a hybrid between
pure process layout and pure flow line (product) layout. This technique is very
useful for companies that produce variety of parts in small batches to enable them
to take advantage and economics of flow line layout.
• The application of group technology involves two basic steps; first step is to
determine component families or groups. The second step in applying group
technology is to arrange the plants equipment used to process a particular family of
 components. This represents small plants within the plants. The group technology
reduces production planning time for jobs. It reduces the set-up time.
• Thus group layout is a combination of the product layout and process layout. It
combines the advantages of both layout systems.
Service Layout
• The major factors considered for service providers, is an impact of location on sales
and customer satisfaction. Customers usually look about how close a service facility
is, particularly if the process requires considerable customer contact. Hence, service
facility layouts should provide for easy entrance to these facilities from the
freeways. Well-organized packing areas, easily accessible facilities, well designed
walkways and parking areas are some of the requirements of service facility layout.
• Service facility layout will be designed based on degree of customer contact and
the service needed by a customer. These service layouts follow conventional layouts
as required. For example, for car service station, product layout is adopted, where
the activities for servicing a car follows a sequence of operation irrespective of the
type of car. Hospital service is the best example for adaptation of process layout.
Here, the service required for a customer will follow an independent path.
Retail Store Layout
Also known as a layout design or store design, a retail store layout is a term used to describe
how retailers set up their merchandise, product displays and fixtures in a store. Because the
way customers interact with products affects their purchase behaviors, a retail store layout
involves strategically using the space available to influence the customer experience.
The two most important components of retail store layouts used to convert browsers to buyers
are:
Store design: The store design encompasses the intentional use of space management and floor
plans, including displays, furniture, fixtures, signage and lighting. The structure of store design
is highly influential in the customer experience.
Customer flow: The way that a customer navigates a store’s aisles is the customer flow.
Understanding customer flow and the common patterns of buyer behavior associated with the
way customers interact with merchandise is an essential part of retail management strategy
How does the Layout of a Store Affect Product Sales?
Although there’s no right or wrong retail store design, the layout that a retail store follows
should be focused on its target market, optimizing its space and showcasing its products. For
example, studies have shown that people naturally tend to look to their left first, then right.
This consumer behaviour information can be used to design a retail floor plan in a way that
subtly guides people to the right to ensure that every product gets seen.

An effective retail store layout takes shopper engagement into account and leads shoppers
around the store, rather than leaving shoppers to figure out how to navigate the aisles on their
own. A store’s layout can either guide the customer’s path past the most popular, highest-
selling items or to a section of the store that doesn’t generate many sales, depending on which
strategy will drive more profits.

Regardless of which kind of store layout best suits the store’s sales goals, designing the layout
based on customer flow and customer behaviour patterns can impact both the store’s success
and sales of your products. Those in charge of choosing a retail floor plan layout should always
consider customer traffic patterns and how they want customers to interact with products. The
following section will discuss different types of store layouts, along with their pros and cons.
Grid Layout
The grid layout is the traditional retail store floor plan that everyone is most familiar with.
Almost every grocery store, pharmacy and convenience store uses a grid layout. In most cases,
a grid layout design has several long aisles. The store will also usually place impulse-buy items
at the front of the store and other items near the back. In this way, a grid layout walks customers
by impulse-buy items on their way to and from the products they really need.

A grid layout can be helpful for directing customer flow because customers are already highly
accustomed to following the grid layout. Grouping similar products and separating different
products helps customers find the items they’re looking for quickly and avoid confusion.The
grid store layout also works to maximize product display while minimizing white space. In a
grid retail store design, the end of an aisle is one of the best places to display your products.

These features encourage customers to pick up more products as they weave their way up and
down the aisles.
Specifically, here are the pros that come with a grid store layout:

• It’s great for displaying large numbers of various types of products

• More customers can find your products because the grid design prompts them to browse
multiple aisles
• It’s a familiar layout for shoppers, making it easy to navigate
• The predictable traffic flow pattern makes it easy to place promotional items where
customers will pass them
• It allows for a wide variety of store infrastructure, such as shelving, fixtures and more
On the flip side, here are a few cons that come with a grid store layout:

• It doesn’t cultivate a unique customer experience because the layout is common

• It may be a frustrating layout for customers who want to make a shortcut to the products
they know they need
• Can be confusing for customers if the product groupings do not make sense
• Lots of merchandise lined up with few visual breaks can be overwhelming for some
customers
• Customers could bump into each other if the aisles are not wide enough

Loop Layout

The loop retail store layout, also known as the racetrack layout, creates a deliberately closed-
loop path that guides customers around the store and all the way around to the checkout. In
between the store’s entrance and the checkout, the loop walks customers past every piece of
merchandise the store has to offer. The looped path provides well-defined parameters that take
customers on a well-marked journey through the store. In this way, the loop layout easily
controls the flow of traffic and guarantees that each customer gets exposed to the most products
possible.

Although a loop store layout can be aggravating for customers who only need a few specific
items, a well-executed loop layout can tell your brand’s story in a way that disarms even the
most hurried of customers. As long as the main loop aisle doesn’t feel overly crowded, the loop
layout is a great store design for building a memorable customer experience and can help sell
more of your products.
Check out these top pros of a loop layout:

• Predictable traffic pattern allows promotional items to be placed where they will
definitely get seen
• There’s maximum product exposure for all customers
• Stores can be experimental with the journey the loop takes customers on similar to the
way a museum exhibit walks visitors through a story
• Encourages customers to spend more time browsing items and interacting with product
displays
These are the cons of a loop layout:

• Customers do not get to decide which products they go to and from because they are
set on a clearly defined loop
• It may be a frustrating layout for customers who know what they’re looking for and
want to keep their shopping trip short
• It does not promote high traffic turnover for stores that want people to get in and out
more quickly

Free-Flow Layout

Also known as the free-form layout, the free-flow layout follows its own floor plan philosophy.
A free-flow store design doesn’t attempt to control the flow of customer traffic at all. Instead,
the lax layout encourages customers to wander around free of following any pre-determined
traffic patterns. The success of a free-flow retail store design relies on taking human behavior
into account. A well-designed free-flow store layout can promote more browsing and impulse
purchases by strategically using signage, window displays, merchandise placement and
customer traffic paths.

The lack of a defined pattern that comes with choosing a free-flow layout can actually make
this type of retail store layout the most complex model. It can be easy to make poor design
choices within the free-flow framework, such as setting the shelves too close together, putting
the checkout area in the wrong section of the store or neglecting to create enough visual breaks.
The pros of picking a free-flow retail layout include:
• Is a great floor plan for small spaces because it is versatile and flexible
• Leaves more room between products for customers to roam more freely
• Creates extra space to lower the likelihood of customers bumping into one another
• Is an excellent for helping higher-end shops with less merchandise to craft a brand
identity
• When compared to other styles of store layouts, free-flow is the most likely to produce
an experiential retail space
• Works well when incorporated into smaller sections of spine and loop layouts
The following are the cons of choosing a free-flow retail layout:
• Often comes with less space for displaying products
• Can be easy to forget the best practices for retail store layout and create a floor plan
that actually turns people away from the store
• Some free-flow retail layouts can be confusing for customers to follow
Straight OR Spine Layout

Also referred to as the spine layout, the straight retail store layout is effective, easy to plan and
generates space for customers to fully peruse the store. Essentially, one main aisle — the spine
— runs down the store and connects the various sections on the rest of the floor. This store
design uses space wisely by optimizing the store walls, corner spaces and shelving fixtures to
show off products everywhere customers look.A straight retail store layout is a popular floor
plan because it is convenient and intuitive for shoppers to follow. With the right signage,
product displays and well-placed merchandise, customers are kept interested and moving down
the store’s main aisle. Because a basic straight layout helps to lure customers all the way to the
back of the store, this layout guarantees that all of the store’s products get seen.

Many small markets, department stores and food stores benefit from this retail layout because
it offers customers the chance to see everything in the store or go directly to an aisle if they
want to cut their shopping trip short. A straight floor plan can be especially beneficial for newer,
local businesses that may not have the financial means to purchase an expansive store building
or create an elaborate store layout yet.

In particular, here are the pros to a straight store layout:

• Shoppers are more likely to go all the way to the back of the store
• There’s plenty of space for displaying merchandise
• Customers have the space they need to look around at their leisure
• Custom retail displays and shelving fixtures allow every possible selling point on the
floor within a straight layout to be maximized
• As a versatile floor plan, the straight layout doesn’t require the store fixture to be
selected according to the floor plan
On the contrary, these are the cons of a straight store layout:
• Customers might move down the main aisle quickly, missing the merchandise placed
at the front or sides of the store
• It might not be as conducive to exploring aisles and discovering new products as some
other retail layout options

Assembly Line Balancing

• Assembly-line balancing often has implications for layout. This would occur when,
for balance purposes, workstation size or the number used would have to be
physically modified.
• The steps in balancing an assembly line are:
1. Specify the sequential relationships among tasks using a precedence diagram.
2. Determine the required workstation cycle time C, using the formula
o C= Production time per day / Required output per day (in units)
3. Determine the theoretical minimum number of workstations (N) required to
satisfy the workstation cycle time constraint using the formula
o Nt=Sum of task times (T) / Cycle time (C)t
4. Select a primary rule by which tasks are to be assigned to workstations, and a
secondaryrule to break ties.
5. Assign tasks, one at a time, to the first workstation until the sum of the task times
is equalto the workstation cycle time, or no other tasks are feasible because of time
or sequencerestrictions. Repeat the process for workstation 2, workstation 3, and so
on until all tasksare assigned.
6. Evaluate the efficiency of the balance derived using the formula

Efficiency = Sum of task times (T) / Actual number of workstations (N) ×

Workstations cycle time (C)
7. If efficiency is unsatisfactory, rebalance using a different decision rule.
 Module V: Forecasting Analysis

Forecasts are vital to every business organization and for every significant management
decision. Forecasting is the basis of corporate planning and control. In the functional areas of
finance and accounting, forecasts provide the basis for budgetary planning and cost control.
Marketing relies on sales forecasting to plan new products, compensate sales personnel, and
make other key decisions. Production and operations personnel use forecasts to make periodic
decisions involving supplier selection, process selection, capacity planning, and facility layout,
as well as for continual decisions about purchasing, production planning, scheduling, and
inventory.

Strategic forecasts: Medium and long-term forecasts that are used for decisions related to
strategy and aggregate demand.

Tactical forecasts: Short-term forecasts used for making day-today decisions related to meeting
demand.

Forecasting Techniques:

Forecasting can be classified into four basic types: qualitative, time series analysis, causal
relationships, and simulation.
• Qualitative forecasting techniques generally take advantage of the knowledge of
experts and require much judgment.
• Time series analysis, is based on the idea that data relating to past demand can be used
to predict future demand. Past data may include several components, such as trend,
seasonal, or cyclical influences, and are described in the following section.
• Causal forecasting, which we discuss using the linear regression technique, assumes
that demand is related to some underlying factor or factors in the environment.
• Simulation models allow the forecaster to run through a range of assumptions about the
condition of the forecast.

Components of Demand

In most cases, demand for products or services can be broken down into six components:
average demand for the period, a trend, seasonal element, cyclical elements, random variation,
and autocorrelation.

• Cyclical factors are more difficult to determine because the time span may be unknown
or the cause of the cycle may not be considered. Cyclical influence on demand may
come from such occurrences as political elections, war, economic conditions, or
sociological pressures.
• Random variations are caused by chance events. Statistically, when all the known
causes for demand (average, trend, seasonal, cyclical, and autocorrelative) are
subtracted from total demand, what remains is the unexplained portion of demand. If
we cannot identify the cause of this remainder, it is assumed to be purely random
chance.
• Autocorrelation denotes the persistence of occurrence. More speciically, the value
expected at any point is highly correlated with its own past values.

Qualitative Techniques
These techniques are most useful when the product is new or there is little experience with
selling into a new region. Here such information as knowledge of similar products, the habits
of customers in the area, and how the product will be advertised and introduced may be
important to estimate demand successfully.
Market Research
Firms often hire outside companies that specialize in market research to conduct this type of
forecasting. Market research is used mostly for product research in the sense of looking for
new product ideas, likes and dislikes about existing products, which competitive products
within a particular class are preferred, and so on. Again, the data collection methods are
primarily surveys and interviews.
Panel Consensus
Panel forecasts are developed through open meetings with free exchange of ideas from all
levels of management and individuals. The difficulty with this open style is that lower-level
employees are intimidated by higher levels of management.
Historical Analogy
In trying to forecast demand for a new product, an ideal situation would be one where an
existing product or generic product could be used as a model. There are many ways to classify
such analogies—for example, complementary products, substitutable or competitive products,
and products as a function of income.
Delphi Method
As we mentioned under panel consensus, a statement or opinion of a higher-level person will
likely be weighted more than that of a lower-level person. The worst case is where lower-level
people feel threatened and do not contribute their true beliefs. To prevent this problem, the
Delphi method conceals the identity of the individuals participating in the study. Everyone has
the same weight. Procedurally, a moderator creates a questionnaire and distributes it to
participants. Their responses are summed and given back to the entire group along with a new
set of questions.
The step-by-step procedure for the Delphi method is:
1. Choose the experts to participate. There should be a variety of knowledgeable people in
different areas.
2. Through a questionnaire (or e-mail), obtain forecasts (and any premises or qualifications for
the forecasts) from all participants.
3. Summarize the results, and redistribute them to the participants along with appropriate new
questions.
4. Summarize again, redefining forecasts and conditions, and again develop new questions.
5. Repeat step 4 if necessary. Distribute the final results to all participant.

The Delphi technique can usually achieve satisfactory results in three rounds.
 Module V: Inventory Management
• Inventory is the stock of any item or resource used in an organization and includes:
raw materials, finished products, component parts, supplies, and work-in-process
(for a manufacturing firm).In manufacturing everything that contribute to or
become part of a firm’s product output.
• In service organizations, inventory generally includes the tangible goods to be sold
and the supplies necessary to administer the service.
• Stock of items kept to meet future demand
• Purpose of inventory management
a) how many units to order
b) when to order
Importance of Inventory Management:
1. Inventories are important to all types of organizations and their employees.
a. Inventories affect everyday operations because they have to be counted, paid for, used
in operations, used to satisfy customers, and managed.
b. Inventories require an investment of funds.
c. Monies invested in inventory are not available for investment in other things.
2. Inventory a boon or bane?
a. Too much inventory on hand reduces profitability.
b. Too little inventory on hand damages customer confidence.
c. Inventory management involves trade-offs.
Types of Inventory
• Raw materials
• Finished Goods
• Work-in-process (partially completed) products (WIP)
• Spares, Tools and equipment
Inventory System
 An inventory system is the set of policies and controls that monitor levels of inventory
and determines what levels should be maintained, when stock should be replenished, and
how large orders should be.
Purposes of Inventory
1. To maintain independence of operations.
2. To meet variation in product demand.
 3. To allow flexibility in production scheduling.
4. To provide a safeguard for variation in raw material delivery time.
5. To take advantage of economic purchase-order size.
Inventory Costs
• Holding (or carrying) costs
o Costs for storage, handling, insurance, etc
• Setup (or production change) costs
o Costs for arranging specific equipment setups, etc
• Ordering costs
o Costs of someone placing an order, etc
• Shortage costs
o Costs of canceling an order, etc
Two Forms of Demand
Dependent
• Demand for items used to produce final products
• Tires stored at a Goodyear plant are an example of a dependent demand item
Independent
• Demand for items used by external customers
• Cars, appliances, computers, and houses are examples of independent demand
inventory
Multiperiod Inventory systems
 There are two types:
 Fixed order quantity models(EOQ Model-Q model)
 Fixed time period models(periodic systems or P model)
 Module VI: Supply Chain Management

Supply Chains For Services And Manufacturing

1. The goal is to reduce costs as well increase performance.
2. Supply chains must be managed to coordinate the inputs with the outputs in a firm to
achieve the appropriate competitive priorities of the firm’s enterprise processes.
3. The Internet offers firms an alternative to traditional methods for managing the supply
chain.
4. A supply chain strategy is essential for service as well as manufacturing firms.
Every firm or organization is a member of some supply chain.
1. Services
a. Driven by the need to provide support for the essential elements of the various service
packages it delivers.
2. Manufacturing
a. A fundamental purpose of supply chain design for manufacturers is to control inventory
by managing the flow of materials.
b. Suppliers are often identified by their position in the supply chain. It is important to
elaborate on the “tiers” in a supply chain and that supply chains may involve suppliers
and customers throughout the world.
STRATEGIC OPTIONS FOR SUPPLY CHAIN DESIGN
1. Efficient supply chains
a. Works best in environments where
• Demand: predictable, low forecast errors
• Competitive priorities: low cost, consistent quality, on-time delivery
• New-service/product introduction: infrequent
• Contribution margins: low
• Product variety: low
b. Common Designs: There is one popular design for efficient supply chains.
• Make-to-stock (MTS)
2. Responsive supply chains
a. Designed to react quickly in order to hedge against uncertainties in demand.
 b. Common designs: There are three popular designs for responsive supply chains.
• Assemble-to-order (ATO)
• Make-to-order (MTO)
• Design-to-order (DTO)
c. Works best in environments where
• Demand: unpredictable, high forecast errors
• Competitive priorities: development speed, fast delivery times, customization,
volume flexibility, variety, top quality
• New-service/product introduction: frequent
• Contribution margins: high
• Product variety: high
3. Designs for efficient and responsive supply chains
a. Factors for efficient supply chains
• Common designs: make-to-stock or standardized services or products; emphasize
high volumes
• Capacity cushion: low
• Inventory investment: low; enable high inventory turns
• Lead time: shorten, but do not increase costs
• Supplier selection: emphasize low prices, consistent quality, on-time delivery
b. Factors for responsive supply chains
• Common designs: assemble-to-order, make-to-order, or customized services or
products; emphasize variety
• Capacity cushion: high
• Inventory investment: as needed to enable fast delivery time
• Lead time: shorten aggressively
• Supplier selection: emphasize fast delivery time, customization, variety, volume
flexibility, top quality

Mass Customization
1. Competitive advantages
a. Managing customer relationships
b. Eliminating finished goods inventory
c. Increasing perceived value of services or products
2. Supply chain design for mass customization
a. Assemble-to-order strategy
b. Modular design
c. Postponement
• Channel assembly
Outsourcing Process
• Outsourcing: paying suppliers and distributors to perform those processes and provide
needed services and materials
• Offshoring: Involves moving processes to another country.
• Next-shoring: supply chain strategy that involves locating processes in close proximity
to customer demand or product R&D.
2. Decision Factors to outsourcing
• Comparative labor costs
• Rework and product returns
• Logistics costs
• Tariffs and taxes
• Market effects
• Labor laws and unions
• Internet
• Energy costs
• Access to Low Cost Capital
• Supply Chain Complexity
3. Potential Pitfalls
• Pulling the plug too quickly
 decide to outsource a process before making a good-faith effort to fix the
existing one.
• Technology transfer
 strategy involves creating a joint venture with a company in another country.
• Process integration
 difficult to fully integrate outsourced processes with the firm’s other processes
4. Vertical integration
• Backward integration—toward the sources of raw materials, parts, and services
through acquisitions.
 • Forward integration—acquires more channels of distribution.
• A firm chooses vertical integration when it has the skills, volume, and resources to
hit the competitive priorities better than outsiders can.
• Management must identify, cultivate, and exploit its core competencies to prevail
in global competition.
The Three Elements of Supply Chain Sustainability
1. Financial responsibility: improving the financial well-being of the firm increases its
chances of survival in a competitive world.
2. Environmental responsibility: addresses the firm’s stewardship of the natural resources
used in the production of services and products.
a. Supply chains can be designed to produce a product and then reprocess them at the
end of their lives to yield value in the form of remanufactured products or recycled
materials.
b. Supply routes can be planned to reduce the amount of energy consumed in
delivering materials or products to customers.
3. Social responsibility: addresses the moral, ethical, and philanthropic expectations that
society has of an organization.

Reverse Logistics
1. Reverse Logistics: the process of planning, implementing, and controlling the efficient, cost
effective flow of products, materials, and information from the point of consumption
2. Supply Chain Design for Reverse Logistics
a. A supply chain that integrates forward logistics with reverse logistics is called a
closed-loop supply chain
Energy Efficiency
1. Carbon footprint: The total amount of greenhouse gasses produced to support operations,
usually expressed in equivalent tons of carbon dioxide (CO2).
2. Transportation distance
a. Decrease the amount of energy consumed in moving materials or supplying
services by reducing the distance travelled.
b. Locating service facilities or manufacturing plants in close proximity to
customer populations reduces the distance required to supply the service or
product.
 c. Reduce transportation distances through route planning
3. Transportation mode.
a. The four major modes of transportation
1.air freight
2.trucking
3.shipping by water
4.rail
b. From an energy perspective, air freight and trucking are much less efficient than
shipping or rail.
4. Freight density
a. Reducing the volume that a product displaces while staying within the weight
limits of the conveyance, the firm can use fewer trucks, containers, or rail cars
to ship the same number of units.
 Module VII: Quality Management
Seven Tools for Quality Control
To make rational decisions using data obtained on the product, or process, or from the
consumer, organizations use certain graphical tools. These methods help us learn about the
characteristics of a process, its operating state of affairs and the kind of output we may expect
from it. Graphical methods are easy to understand and provide comprehensive information;
they are a viable tool for the analysis of product and process data. These tools are effect on
quality improvement. The seven quality control tools are:
1. Pareto charts
2. Check sheets
3. Cause and effect diagram
4. Scatter diagrams
5. Histogram
6. Graphs or flow charts
7. Control charts
Six Sigma Quality
Generally, six sigma quality points to very high quality levels that defects are a rarity in
operations
It also points to
• A disciplined way of handling issues in operations
• A structured way of addressing quality issues
• A path to a definite destination in the quality management journey in an
organization
The moment we talk about quality, the word six sigma comes to our mind- A number of
progressive companies are working hard to build six sigma quality level
• Motorola and GE are supposed to have pioneered this concept of 6 sigma
• Dabbawallahs of Mumbai has baffled the business world with their six sigma
quality standard in their operations involving delivering 200,000 tiffin boxes
from home to work place and again from work place back home every day.
What is six sigma?
• A mechanism to deliver near zero defect in operations using principles of process
control.A defect is an unacceptable state of a product or a service for a customer
• Defect becomes an extraordinarily a rare event
– For example a few defects in a million potential opportunity in a service
– One or two defective parts in a million that was produced in a manufacturing
shop
Why high levels of quality?
In older days, It is often uneconomical to make quality improvements since it brings down
productivity, increases cost and investment. But now a days, Productivity goes up and cost
comes down as quality goes up. This fact is known, but not necessarily to everyone. A better
quality management will leads to the following outputs as explained.

Metrics for Quality Management

• If we want defects to really become an extraordinarily a rare event we can think of
two measures:
o Manufacturing: Parts per million (PPM) defect rate
o Services: Defects per Million Opportunities (DPMO)
Number of defects
DPMO = x 1,000,000
 Number of 
 opportunities 
 for error per  x No. of units
 unit 

• Six sigma uses these two measures.

Six Sigma Program
A six sigma program requires certain enabling mechanisms for an organization
• A structured program for quality management & improvement
• Facilitating mechanisms for the Operations personnel to own, solve and
obliterate the quality problems
• Organization structure and mandate for quality improvement issue on a
continuous basis
• Organization uses DMAIC Methodology for six sigma
DMAIC Methodology
• Define
– Define the problem, the requirements, project scope
– Set goals for improvement
• Measure
– Identify variables to be measured, the type of measurement
– Data collection and synthesis
• Analyze
– Develop a set of tools for analysis
– Apply graphical tools of analysis
– Identify possible sources of variation and “vital” few root causes
– Explore means of eliminating them
• Improve
– Generate & validate improvement alternatives
– Creating new process maps for the process
• Control
– Develop control plan
– Establish revised standard measures to maintain performance
– Develop relevant training plans to maintain standards
SPC (Statistical Process Control) / SQC (Statistical Quality Control) – An Introduction
Statistics is at the core of modern quality management
– Helps operationalize some decisions and keep performance and outcome with in limits
– Provides basic framework to systematically analyze the quality problem in various business
processes
– A good mechanism to highlight either an existing quality problem or an impending problem

Variations in Business Processes

Two types of variations occur in business processes; CommonCauses & Assignable Causes
• Chance variations due to common causes – causes due to random events that cannot be
controlled
• Ambient temperature and humidity
• Normal wear and tear
Non-random variations due to assignable causes
– When observed variations are not statistically found to be due to random events, it clearly
points to the existence of assignable causes
• Errors due to operator skill level differences
 • Changes in the operating condition of an equipment
• Changes introduced in the standard operating procedure
Statistical Process Control
• Business processes always exhibit variations
– Filling a 500 gms detergent powder in a sachet
– Guest check-out time in a 5 star hotel
• SPC is a collective set of tools & techniques used to develop a quality assurance system that
enables one to make meaningful sense of these variations
Characteristics of Control Charts
A control chart is a time-ordered diagram to monitor a quality characteristic, consisting of:
1. A nominal value, or centre line, the average of several past samples.
2. Two control limits used to judge whether action is required, an upper control limit (UCL)
and a lower control limit (LCL).
3. Data points, each consisting of the average measurement calculated from a sample taken
from the process, ordered overtime. By the Central Limit Theorem, regardless of the
distribution of the underlying individual measurements, the distribution of the sample means
will follow a normal distribution. The control limits are set based on the sampling distribution
of the quality measurement.
Issues addressed thru SPC
• Key issues addressed in SPC based quality assurance system:
– How do we know whether the observed changes are due to random variations or assignable
causes?
– How does one ensure that the random events are indeed rare events?
• Centre of specification limits (Target)
• Upper Specification Limit (USL)
• Lower Specification Limit (LSL)
• (USL – LSL): Desired tolerance - This represents the “Voice” of the Customer
Customer check-out time in a 5 star Hotel: 90 ± 20 𝑆𝑒𝑐𝑜𝑛𝑑𝑠
– Target = 90 seconds
– USL = 110 seconds
– LSL = 70 Seconds
– Desired tolerance is 70 – 110 Seconds
• At the outset the questions that we need to address are:
– What is the attribute in a process that needs to be measured for the purpose of quality control?
– How should we measure for the purpose of analysis?

Measurement Methods
Attribute Based
• Simple clustering of the characteristic into a few categories (such as good or bad)
• Measurements are easy to make, quick & less expensive
• Will reveal very little information about the process
Variable Based
• Detailed observation of the characteristic (such as length, diameter, weight, time)
• This is called variable based…
• Measurement will be expensive and more time consuming
• Will provide a wealth of information about the process
Types of Charts
• For attribute-based measures we have
– p chart
– C chart
• For variable-based measures we have
– X Chart
– R Chart
Using the Control Charts
There are two questions that come to our mind when it comes to using the control charts:
– Is the process of out of control? What are we supposed to do in that case?
– Is there a way we can detect an impending out of control situation much earlier?
Acceptance Sampling
The objective of acceptance sampling is to take decision whether to accept or reject a lot based
on sample’s characteristics. The lot may be incoming raw materials or finished parts. An
accurate method to check the quality of lots is to do 100% inspection. But, 100% inspection
will have the following limitations:
• The cost of inspection is high.
• Destructive methods of testing will result in 100% spoilage of the parts.
• Time taken for inspection will be too long.
• When the population is large or infinite, it would be impossible or impracticable to
inspect each unit.
Hence, acceptance-sampling procedure has lot of scope in practical application. Acceptance
sampling can be used for attributes as well as variables.
Quality Circles
The quality circles begun in Japan in 1960s. The concept of quality circles is based on the
participating style of management. It assumes that productivity will improve through an uplift
of morale and motivations which are in turn achieved through consultation and discussion in
informal groups. One organizational mechanism for worker participation in quality is the
quality circle. According to Juran, quality circle defined as “a group of work force level people,
usually from within one department, who volunteer to meet weekly (on company time) to
address quality problems that occur within their department.” Quality circle members select
the problems and are given training is problem-solving techniques. A quality circle can be an
effective productivity improvement tool because it generates new ideas and implements them.
Where the introduction of quality circle is capably planned and where the company
environment is supporting they are highly successful.
TOTAL QUALITY MANAGEMENT (TQM)
Now-a-days, customers demand products/services with greater durability and reliability at the
most economic price. This forces producers to strictly follow quality procedures right from
design till shipment and installation of the products. So that goal of any competitive industry
is to provide a product or service at the most economical costs, ensuring full customer
satisfaction. This can be achieved through Total Quality Management (TQM), because, quality
is not a technical function, but a systemic process extending throughout all phases of the
business, e.g., marketing, design, development, engineering, purchasing,
production/operations.
As per Feigebaum, “Total Quality Management is an effective system of integrating the quality
development, quality maintenance and quality improvement efforts of various groups in an
organization so as to enable marketing, engineering, production and service at the most
economical levels which allow for full customer satisfaction”.
Benefits of TQM
The benefits of TQM can be classified into the following two categories:
1. Customer satisfaction-oriented benefits.
2. Economic improvements-oriented benefits.
1. Customer satisfaction-oriented benefits: The benefits under this category are listed below:
(a) Improvement in product quality.
(b) Improvement in product design.
(c) Improvement in production flow.
(d) Improvement in employee morale and quality consciousness.
(e) Improvement of product service.
(f) Improvement in market place acceptance.
2. Economic improvements oriented benefits: The benefits under this category are as follows:
(a) Reductions in operating costs.
(b) Reductions in operating losses.
(c) Reductions in field service costs.
(d) Reductions in liability exposure.
ISO 9000 SERIES
ISO stands for International Organization for Standardization. It is an international body, which
consists of representatives from more than 90 countries. The national standard bodies of these
countries are the members of this organization. Bureau of Indian Standards (BIS) are the Indian
representative to ISO, ISO and International Electro Technical Commission (IEC)) operate
jointly as a single system. These are non-governmental organizations, which exist to provide
common standards on international trade of goods and services.
ISO 9000 standards expect firms to have a quality manual that meets ISO guidelines,
documents, quality procedures and job instructions, and verification of compliance by third-
party auditors. ISO 9000 series has five international standards on quality managements. They
are:
1. ISO 9000 — Quality management and Quality assurance standards
2. ISO 9001 — Quality systems: Quality in design
3. ISO 9002 — Quality systems: Production and Installation
4. ISO 9003 — Quality systems: Final inspection and test
5. ISO 9004 — Quality management and systems
Benefits of ISO 9000 Series
ISO 9000 series provides several tangible and intangible benefits which are listed below:
1. This gives competitive advantage in the global market.
2. Consistency in quality, since ISO helps in detecting non-conformity early which makes it
possible to take corrective action.
3. Documentation of quality procedures adds clarity to quality system.
4. ISO 9000 ensures adequate and regular quality training for all members of the organization.
5. ISO helps the customers to have cost effective purchase procedure.
6. The customers while making purchases from companies with ISO certificate need not spend
much on inspection and testing. This will reduce the quality cost and lead-time.
7. This will help in increasing productivity.
8. This will aid to improved morale and involvement of workers.
9. The level of job satisfaction would be more.
ISO 14000
The environmental standards of ISO 14000 deal with how a company manages the environment
inside its facilities and the immediate outside environment. However, the standards also call
for analysis of the entire life cycle of a product, from raw material to eventual disposal. These
standards do not mandate a particular level of pollution or performance, but focus on awareness
of the processes and procedures that can effect the environment. It should be noted that
adherence to the ISO 14000 standards does not in anyway release a company from any national
or local regulations regarding specific performance issues regarding the environment.
Some of the standards in the ISO 14000 series are:
_ ISO 14001—Specification of Environmental Management Systems
_ ISO 14004—Guideline Standard
 Module VIII: Just-In-Time (JIT) Manufacturing& Lean Manufacturing

Just-In-Time (JIT) Manufacturing is a philosophy rather than a technique. By eliminating all

waste and seeking continuous improvement, it aims at creating manufacturing system that is
response to the market needs.
The phase just in time is used to because this system operates with low WIP (Work-InProcess)
inventory and often with very low finished goods inventory. Products are assembled just before
they are sold, subassemblies are made just before they are assembled and components are made
and fabricated just before subassemblies are made. This leads to lower WIP and reduced lead
times. To achieve this organizations have to be excellent in other areas e.g. quality. According
to Voss, JIT is viewed as a “Production methodology which aims to improve overall
productivity through elimination of waste and which leads to improved quality”. JIT provides
an efficient production in an organization and delivery of only the necessary parts in the right
quantity, at the right time and place while using the minimum facilities”.
Seven Wastes
1. Waste of over production eliminate by reducing set-up times, synchronizing quantities
and timing between processes, layout problems. Make only what is needed now.
2. Waste of waiting eliminate bottlenecks and balance uneven loads by flexible work force
and equipment.
3. Waste of transportation establishes layouts and locations to make handling and
transport unnecessary if possible. Minimise transportation and handling if not possible
to eliminate.
4. Waste of processing itself question regarding the reasons for existence of the product
and then why each process is necessary.
5. Waste of stocks reducing all other wastes reduces stocks.
6. Waste of motion study for economy and consistency. Economy improves productivity
and consistency improves quality. First improve the motions, then mechanise or
automate otherwise. There is danger of automating the waste.
7. Waste of making defective products develop the production process to prevent defects
from being produced, so as to eliminate inspection. At each process, do not accept
defects and makes no defects. Make the process fail-safe. A quantify process always
yield quality product.
Benefits of JIT
The most significant benefit is to improve the responsiveness of the firm to the changes in the
market place thus providing an advantage in competition. Following are the benefits of JIT:
1. Product cost—is greatly reduced due to reduction of manufacturing cycle time,
reduction of waste and inventories and elimination of non-value added operation.
2. Quality—is improved because of continuous quality improvement programmes.
3. Design—Due to fast response to engineering change, alternative designs can be quickly
brought on the shop floor.
4. Productivity improvement.
5. Higher production system flexibility.
6. Administrative and ease and simplicity.