Introduction to Operations Management

Meaning
Operations management (OM) is the administration of business practices to create the
highest level of efficiency possible within an organization. It is concerned with converting
materials and labour into goods and services as efficiently as possible to maximize the profit
of an organization. Operations management teams attempt to balance costs with revenue to
achieve the highest net operating profit possible.

System Concept
A system is an arrangement of components designed to achieve a particular objective (or
objectives) according to plan. The components may be either physical or conceptual or both,
but they all share a unique relationship with each other and with the overall objective of the
system. A health care delivery system, for example, has doctors and physical facilities plus
conceptual operating policies which combine to ultimately provide patients with a specified
level of medical care.
A systems approach to operations management problems places strong emphasis upon the
integrative nature of management responsibilities, recognizing both the interdependence
and the hierarchical nature of subsystems.
TYPES OF SYSTEMS
System is classified in various ways.
a. According to the Creation

• Natural system: Existing naturally- solar system, river system etc.

• Man-made system: Transportation system, lighting system. Man-made system is
designed and operated by man. The man utilizes the inputs taken from the natural
systesystem.

b.According to the Flexibility

• Flexible system: The system which is adjusting to maintain the balance or equilibrium
between the system and is changing environment. Example: most of the life forms,
economic, political and social systems.
• Rigid system: which cannot be modified or will not adjust for modification. Example:
highway. Even the man tries to build some flexibility into every system designed or
constructed. Example: Building.
c.Based on Human Involvement

• Manual system: A production system completely man operated one. Example: Coir
thread making.
• Automatic machine system: completely automated.
To have equilibrium, man-machine relationships exist for production.
d.Based on System Output:

• System that produces: a production system

• System that serves clients/ customers: hospital, restaurant, etc.

Transformation Process
Transformation process is any activity or group of activities that takes one or more inputs,
transform and adds value to them and provides output for customers.

Transformation process includes:

• Changes in the physical characteristics of materials or customers

• Changes in the location of materials, information or customers
• Changes in the ownership of materials or information
• Storage or accommodation of materials, information or customers
• Changes in the purpose or form of information
• Changes in the physiological or psychological state of customers.
Type of transformation:

• Manufacture – the physical creation of products (for example cars)

• Transport – the movement of materials or customers (for example a taxi service)
• Supply – change in ownership of goods (for example in retailing)
• Service – the treatment of customers or the storage of materials (for example hospital
wards, warehouses).
Nature of outputs:

• Tangibility
• Transportability
• Storability (can be stored)
• Customer contact
• Simultaneity
• Quality

The Transformation Model

Organisations produce goods and services by converting input into outputs via a process
known as the transformation process.
Some inputs are used up in the process of creating goods and services. Others plays a part in
the creation process but are not used up.

Type of inputs:

• Materials
• Information (e.g. Consultancy firms and accountancy firms)
• Customers (e.g. Hairdressing, Hospitals)

Evolution of Operations Management

Craft production

• parts were unique hand-made products of high quality,

• products were customized to each particular customer.

• However, damaged parts were hard to replace and productivity was low.

Lean production
• Many of the ills of mass production (waste, over-production, long cycle times, etc.) were
redressed with the development of the Toyota Production System (TPS), which has become
the model for lean production systems.
• emphasizes smooth and small batch flow

• little inventory of work-in-process

• short cycle-times and
• the creation of a system suitable to meet the demands of a market.
Mass production
At the beginning of the 20th century, Ford implemented mass production, in which
cars in production flowed continuously along an assembly line. Parts were standardized and
machines replaced hand-made fabrication methods. However, the ability to customize
products was lost
Functions of Operation management
• Finance- Finance plays a main function in operations management. The operation manager
should not waste finance in unproductive tasks. He should ensure that all finance of the
organization is utilized for the manufacturing of useful goods or services which may satisfy
consumer wants.
• Operation– The function of operation management is basically concerned with planning,
organizing, directing and controlling of daily routine operations of an organization. The
operation manager ensures that all activities are going effectively and efficiently.
• Strategy– The strategy formulation is also the main function of operation management. The
operation manager should have pre-planned tasks. Formulation of plans and tactics helps the
organization in optimizing their resources and developing a competitive edge over
competitors.
• Product Design– It is the duty of operations manager to design the product according to the
market trends and demands. He should ensure that innovative techniques are incorporated
within the product and its quality is maintained.
• Maintaining Quality– Operations managers should ensure a better quality of products. The
manager should not compromise with the quality of Products. They should work on quality
management and should supervise all tasks. If any defects are found they should take steps
to rectify such defects.

Goods and Service Operations

Definition of Goods

Goods refer to the tangible consumable products, articles, commodities that are offered by
the companies to the customers in exchange for money. They are the items that have physical
characteristics, i.e. shape, appearance, size, weight, etc..

Example: Books, pen, bottles, bags, etc.

Definition of Services

Services are the intangible economic product that is provided by a person on the other
person’s demand. It is an activity carried out for someone else.

Example: Postal services, banking, insurance, transport, communication, etc.

The basic differences between goods and services are mentioned below:
 1. Goods are the material items that the customers are ready to purchase for a price.
Services are the amenities, benefits or facilities provided by the other persons.
2. Goods are tangible items i.e. they can be seen or touched whereas services are
intangible items.
3. When the buyer purchases the goods by paying the consideration, the ownership of
goods moves from the seller to the buyer. Conversely, the ownership of services is
non-transferable.
4. The evaluation of services is difficult because every service provider has a different
approach of carrying out services, so it is hard to judge whose services are better than
the other as compared to goods.
5. Goods can be returned to or exchanged with the seller, but it is not possible to return
or exchange services, once they are provided.
6. Goods can be distinguished from the seller. On the other hand, services and service
provider are inseparable.
7. A particular product will remain same regarding physical characteristics and
specifications, but services can never remain same.
8. Goods can be stored for future use, but services are time bound, i.e. if not availed in
the given time, then it cannot be stored.
9. First of all the goods are produced, then they are traded and finally consumed,
whereas services are produced and consumed at the same time.

Mass , Craft and Lean Production

Mass Production:
Mass production is the manufacturing of large quantities of standardized products, often
using assembly lines or automation technology. Mass production facilitates the efficient
production of a large number of similar products. It is also referred to as flow production,
repetitive flow production, series production, or serial production. In mass production,
mechanization is used to achieve high volume, detailed organization of material flow,
careful control of quality standards, and division of labor.

• Mass production is the manufacturing of large quantities of standardized products,

often using assembly lines or automation technology.
• Mass production has many advantages, such as producing a high level of precision,
lower costs from automation and fewer workers, higher levels of efficiency, and
prompt distribution and marketing of an organization's products.
• Henry Ford, founder of the Ford Motor Company, developed the assembly line
technique of mass production in 1913.
Craft Production:

Craft production is a method of creating goods by hand, often with simple tools. This type of
production was widely used prior to the industrial revolution, and is still practiced around the
world. Unlike mass production, craft production results in items that are each unique in small
ways, since they are made by hand one at a time. Craft produced goods can vary in quality,
though they are often thought to have higher production values than mass produced versions.
It is often possible for a craftsman to achieve certain effects or levels of detail using
techniques that are not viable in mass production. Craft production is very time consuming
and its quality was unpredictable.
Eg: Making of Clothes.
Advantages and disadvantages of craft production.

Lean Production:
Lean production is an approach that focuses on cutting out waste, whilst ensuring quality.
This approach can be applied to all aspects of business from design, through production to
distribution. Lean production aims to cut costs by making the business more efficient and
responsive to market needs. This approach sets out to cut out or minimise activities that do
not add value to the production process, such as holding of stock, repairing product and
unnecessary movement of people and product around the business. Lean production
organization in the manufacturing plants of Japan, but has now been adopted well beyond
large and sophisticated manufacturing activities.

The key aspects of lean production are;

• Time based management
• Simultaneous engineering
 • Just in time production(JIT)
• Cell production
• Kaizen (Continuous improvement)
• Quality improvement and management.

Advantages

• Lead times are cut

• Damage, waste and loss of stocks/equipment are lowered
• A greater focus on customer needs
• Improved quality through the introduction of kaizen and quality circles
• Lower costs and contribute to improved profits
• Staff are more involved and potentially more motivated
• Working environments are safer and cleaner

Disadvantages

• The business may struggle to meet orders if their suppliers fail to deliver raw materials
on time
• The business is unlikely to 'bulk buy' its raw materials and, therefore, it may lose the
benefit of achieving economies of scale
• Buffer stocks are minimal and this may lead to the business having to reject customer
orders requiring delivery immediately
Formulating operation strategy
Formulating operations strategy The operations strategy is a tool for getting competitive advantage.
The following points should we consider while formulating operations strategy;

• Modularity of problems: Big problems can be broken into small problems which can be
handled effectively.
• Enticement to diversification: the enticement to diversify must be kept in mind.
• Identification of acceptably achievable key objective: It is necessary to identify the key
objective and plan to satisfy the customers.
• Organization structures should serve the customer: a structure should be built in such a way
that the analyst of the needs of the customers become exhaustive. Finally, the SWOT analysis
should be made in the light of various elements of business and management.

PRODUCTS AND SERVICE DESIGN

Products and services fuel your business with the revenue they generate. Because they are at
the heart of your business operations, it’s important to take a calculated, strategic approach
to designing your products and services.

Service design is the coordination and combination of people, communication, and material
components to create quality service. Product design is the combination of manufacturing
capabilities with product and business knowledge to convert ideas into physical and
usable objects. Physical Product design is the combination of manufacturing capabilities
with product and business knowledge to convert ideas into physical and usable objects.

STAGES OF PRODUCT DESIGN

Product is a multi-stage process that involves various activities at each and every step.
The most common stages are discussed below.

1. Design Brief

This is the initial stage and entails brief definition of attributes of the product. It often
involves imaginary ideas and concepts.

2. Product Design Specification

At this stage, the desirable characteristics of the products are stated and specified, for
example, product outlook, size, weight, aesthetics, branding, quantity and quality of
different components to be used in manufacturing the product as well as general
structure of the product.

3. Concept Design

This is where the conceptualized ideas are turned into a real physical product through
manufacturing and operation processes. This stage starts with constructing concept
design of the final product.

4. Process Selection

Process selection concerns determining which production techniques to be used, the

most appropriate processes and production flow lines. Production flow design deals with
integrating production capacity and technological deficiencies in the production process.

5. Testing

This is where the new product undergoes inspection, evaluation and examination to
determine its feasibility for further production. Testing also helps detect any drawbacks,
product weaknesses and other aspects of the product that may require further
improvement and development.

6. Actual Mass Production

At this stage, the new product may undergo minimal redesigning or changes depending
on its features and the extent to which it meets the pre-determined or stated
specifications. This stage also involves mass production of the new product after the
manufacturing engineers are satisfied with its development.

SERVICE DESIGN

This refers to the process of planning and coordinating the various components required
in effective provision of services, for instance, the employees, financial resources that
facilitate this provision of services, infrastructure such as supply chain networks among
others. Service design aims at improving the interaction and relationship between an
organization and the consumers. Just like product design, it relies on the needs and
requirements of the potential consumers.

Process selection

• The ways organizations choose to produce or provide their goods and services.
• It involves choice of technology, type of processing, and so on.
• It influences
• Design of work systems
• Equipment
• Layout of facilities
• Capacity planning

• Project process- selecting location

 • Job Shop- high variety low volume customization

• Batch Production-high volume-less variety (text books)

• Line production/Repetitive- volume too high, variability less(assembly line)

• Continuous production- oil refinery

Selection of process depends on:

➢ Level of customization

➢ Resource flexibility

➢ Capacity intensity
 Module: 3
Capacity

CAPACITY

Capacity is the maximum level of output that a company can sustain to make a product or
provide a service.

• Depending on the business type, capacity can refer to a production process, human
resources allocation, technical thresholds, or several other related concepts.
• No system can operate at full capacity for a prolonged period; inefficiencies and
delays make it impossible to reach a theoretical level of output over the long run.
Eg.: A commercial sewing machine can operate efficiently for 1500 to 2000 hours a
month. When the company forecast indicates spike in demand, the machines can be
operated for more than 2000 hours. This however, increases the risk of breakdown –
machine downtime – decreased production. Thus capacity management should plan for
machine operation in relevant ranges.

• Capacity assumes a constant level of maximum output. This production level assumes
no machine or equipment breakdowns and no stoppages due to employee vacations or
absences.
• This level of capacity is not possible, as in reality there will be machine downtimes,
employees absenteeism, etc.
• Companies should thus use practical capacity, which accounts for repair and
maintenance on machines and employee scheduling.
• Capacity can be broken down in two categories: Design Capacity and Effective
Capacity. Design Capacity refers to the maximum designed capacity or output rate.
Effective capacity is design capacity minus personal and other allowances.
 • Capacity management requires proper understanding of the work flow and all the
processes. Procurement to manufacturing to sales, and all storage and
transportation in between.
• Bottlenecks can occur in the system, hindering full capacity utilization.
• Eg.: Flow of traffic – 4 lane highway with a 2 lane bridge.
Bottlenecks create delays. Delays may mean the loss of a customer order and possibly the
loss of future business from the client

CAPACITY MANAGEMENT
• Capacity management refers to the act of ensuring a business maximizes its
potential activities and production output—at all times, under all conditions. The
capacity of a business measures how much companies can achieve, produce, or
sell within a given time period.
• Manufacturing Capacity example: An automobile production line can assemble
250 trucks per month.
• Service capacity example: A restaurant has the seating capacity to accommodate
100 diners.
• Since capacity can change due to changing conditions or external influences —
including seasonal demand, industry changes, and unexpected macroeconomic
events — companies must remain nimble enough to constantly meet expectations
in a cost-effective manner.

• Implementing capacity management may entail working overtime, outsourcing

business operations, purchasing additional equipment, and leasing or selling
commercial property.

• Companies that poorly execute capacity management may experience diminished

revenues due to unfulfilled orders, customer attrition, and decreased market share.

• Capacity Management also requires proper utilization of space.

• Eg.: Company has 500 employees across 3 floors. Company downsizes to

60% capcity (300 employees). 40% os office space is now unused and firm
incurs more per unit cost than before. Ideal to reallocate employees to 2 floors.
 • Eg.: Restaurant with space to seat 100 customers at a time, lays out seating
arrangements inefficiently and can now only seat 85 at a time.

• Capacity utilization rate measures the percentage of an organization's potential

output that is actually being realized. This reflects the attainment of potential.
• Capacity Utilization Rate = Actual Output x 100

Potential Output

CAPACITY UTILIZATION

• Interpretation of the capacity utilization rate: A number under 100% indicates

that the organization is producing at less than its full potential.
• A company that has a utilization rate of less than 100% can, at least theoretically,
increase its production without incurring the additional expensive overhead costs
that are associated with purchasing new equipment or property.
• Thus, in times when demand is strong, the capacity utilization rate informs the
company how much they can step up production without incurring additional per-
unit costs.

WORK STUDY

• Work study is the investigation, by means of a consistent system of the work done
in an organization in order to attain the best utilization of resources i.e. Materials,
Machines, Men and Money.
• Work study may be defined as “The systematic critical, objective and imaginative
examination of all factors governing the operational efficiency of any specific
activity in order to achieve/ effect improvement.”
• Work study is one of the basic techniques of improving productivity.
•
In order to resolve this aspect, work study aims:
 • To analyze the work in order to achieve work simplification and
thereby improving productivity of the system.
• To have optimum utilization of resources i.e., 4 Ms.
• To evaluate the work content through work measurement.
• To set time standards for various jobs.

• Proper planning requires knowledge about the time required to do a particular

task. Time is thus a critical factor that has to be monitored to ensure that deadlines
are met, appropriate quantities are estimated, proper business arrangements made,
etc.
• Work study is not a theoretical concept, but a practical one that deals with
humans. Thus the success of the work study depends on the relation between
management and employees. This is essential, since work study might suggest
changes and people are generally resistant to change. The employees must have
confidence in and trust the work study team for the proposals to be accepted
willingly

ADVANTAGES OF WORK STUDY

 More production with less effort so goods/products are available at

cheaper rates.
• Better equipment utilization leads to marked increase in the total
production without addition of new resources, thus productivity may
improve.
• In industries, work study is considered as a tool of improving productivity by way
of:
• Resource utilization to a satisfactory level.
• Capital investment to introduce latest technology.
• Better management of the system.
WORK STUDY TECHNIQUES

METHOD STUDY

• It is the critical examination and systematic recording of ways of doing things in

order to make improvements.
• It simplifies the job and develops more economical methods of doing it.

WORK MEASUREMENT

• It is the application of techniques designed to establish the time for a qualified

worker to carry out a task at a defined rate of working.
• It determines how long it should take to carry out the work.

WORK STUDY PROCESS

 METHOD STUDY
• Selection of Work/Job to be Studied
• Collection and Recording of Necessary Information
• Critical Examination of the Existing Method
• Develop the New Improved Method
• Install the Improved Method
• Maintain the Improved Method
WORK MEASUREMENT

• Divide jobs into elements

• Observe and record each element (use any technique)

• Set up unit time values, by extending observed time into normal time for each unit.

• Evaluate relaxation allowance and add the same to the normal time, for each element
to get the work content.

• Ascertain the frequency of occurrence of each element in the job, then multiply the
work content to it. After that total the times to reach the work content of the job.

• Add contingency allowance, wherever required, to get the standard time for
performing the job.

WORK MEASUREMENT

Work measurement is the application of techniques designed to establish the time

taken for a qualified worker to carry out a specific job at a defined level of
performance

WORK MEASUREMENT MEANS:

 Find out the different elements of the production process

 Find out the time taken by each element
 Fix the standard time for performing the production process

The estimated time, needed by a qualified worker for carrying out the task,
at a normal rate, is known as the standard time. The standard time acts as a
benchmark for productivity
 PLANT LOCATION

• Plant location refers to the choice of region and the selection of a particular site
for setting up a business or factory.
• An ideal location is one where the cost of the product is kept to minimum, with a
large market share, the least risk and the maximum social gain. It is the place of
maximum net advantage or which gives lowest unit cost of production and
distribution.
• Plant location is a strategic decision – difficult to change once implemented.

LOCATION ANALYSIS

• Locational analysis is a dynamic process where entrepreneur analyses and

compares the appropriateness of sites or alternative sites with the aim of selecting
the best site for a given enterprise.
• It consists the following:
• Demographic Analysis: It involves study of population in the area in
terms of total population (in no.), age composition, per capita income,
educational level, occupational structure etc.
• Trade Area Analysis: It is an analysis of the geographic area that
provides continued clientele to the firm. He would also see the
feasibility of accessing the trade area from alternative sites.
• Competitive Analysis: It helps to judge the nature, location, size and
quality of competition in a given trade area.
• Traffic analysis: To have a rough idea about the number of potential
customers passing by the proposed site during the working hours of the
shop, the traffic analysis aims at judging the alternative sites in terms
of pedestrian and vehicular traffic passing a site.
• Site economics: Alternative sites are evaluated in terms of
establishment costs and operational costs under this. Costs of
establishment is basically cost incurred for permanent physical
 facilities but operational costs are incurred for running business on day
to day basis, they are also called as running costs.

BREAKEVEN POINT

• The breakeven point is the level of production at which the costs of production
equal the revenues for a product.
• A break-even analysis is a financial tool which helps a company to determine the
stage at which the company, or a new service or a product, will be profitable.
• It is a financial calculation for determining the number of products or services a
company should sell or provide to cover its costs (particularly fixed costs).

COMPONENTS OF BREAK EVEN ANALYSIS

• Fixed Costs - Fixed costs are also called overhead costs. These overhead costs
occur after the decision to start an economic activity is taken and these costs are
directly related to the level of production, but not the quantity of production.
Fixed costs include (but are not limited to) interest, taxes, salaries, rent,
depreciation costs, labour costs, energy costs etc. These costs are fixed
irrespective of the production.

• Variable Costs - Variable costs are costs that will increase or decrease in direct
relation to the production volume. These costs include cost of raw material,
packaging cost, fuel and other costs that are directly related to the production.

MANAGERIAL USE OF BREAKEVEN ANALYSIS

When starting a new business

 • break-even analysis helps in deciding whether the idea of starting the business is
viable. It will force the startup to be realistic about the costs, as well as provide a
basis for the pricing strategy.
• A break-even analysis helps to review all financial commitments to figure out
your break-even point, so as not to miss out on any expenses. This helps to reduce
number of surprises in the future or atleast to be prepared for it.
• It helps to know how much needs to be sold to be profitable and helps set revenue
targets and plan for capacity accordingly.
• Helps in better pricing of the product.
• Helps to make realistic decisions based on facts.
Existing Business:
• Expansion - Creating a new product, especially if the product is going to add a
significant expenditure / adding more facilities, etc
• Divesting – non performing products (stop production) / subsidiaries (shut down) /
shut down business
• Changing the business model (like switching from wholesale to retail), the costs could
change considerably and breakeven analysis will help in setting the selling price.
• It helps to know how much needs to be sold to be profitable and helps set revenue
targets - Analyzing different price levels relating to various levels of demand – helps
determine what level of sales are necessary to cover the company's total fixed costs.
• It helps to determine the impact on profit on changing to automation from manual (a
fixed cost replaces a variable cost).
• It helps to determine the change in profits if the price of a product is altered and helps
in better pricing.
• It helps to determine the amount of losses that could be sustained if there is a sales
downturn.
• It helps to determine remaining/unused capacity of the company once the breakeven is
reached. This will help to show the maximum profit on a particular product/service
that can be generated.
• Helps to make realistic decisions based on facts.

MAKE OR BUY DECISION

• A make-or-buy decision is a strategic and operational level choice between
manufacturing a product internally (in-house) or purchasing it externally (outside
supplier / outsourcing).
• Managers must compare the costs and benefits associated with producing a
necessary good or service internally to the costs and benefits involved in hiring an
outside supplier for the resources in question.
• Core competencies should also be considered (eg.:advertising by a manufacturing
unit) - firms should make items that reinforce or are in-line with their core
competencies – firm is strong in those areas and have competitive advantage.

• Cost considerations (less expensive to make the part)

MAKE OR BUY

CONSIDERATION IN FAVOR OF MAKE

• Desire to integrate plant operations

• Productive use of excess plant capacity to help absorb fixed overhead (using
existing idle capacity)
• Need to exert direct control over production and/or quality
• Better quality control
• Design secrecy is required to protect proprietary technology
• Unreliable suppliers
• No competent suppliers
• Desire to maintain a stable workforce (in periods of declining sales)
• Quantity too small to interest a supplier
• Control of lead time, transportation, and warehousing costs
• Greater assurance of continual supply
• Provision of a second source
• Political, social or environmental reasons (union pressure)
• Emotion (e.g., pride)

CONSIDERATION IN FAVOR OF BUY

 • Lack of expertise
• Suppliers' research and specialized know-how exceeds that of the buyer
• cost considerations (less expensive to buy the item)
• Small-volume requirements
• Limited production facilities or insufficient capacity
• Desire to maintain a multiple-source policy
• Indirect managerial control considerations
• Procurement and inventory considerations
• Brand preference
• Item not essential to the firm's strategy

What Is Total Quality Management (TQM)?

Total quality management (TQM) is the continual process of detecting and reducing or
eliminating errors in manufacturing, streamlining supply chain management, improving the
customer experience, and ensuring that employees are up to speed with training. Total quality
management aims to hold all parties involved in the production process accountable for the
overall quality of the final product or service.

KEY TAKEAWAYS

 Total quality management (TQM) is an ongoing process of detecting and reducing or

eliminating errors.
 It is used to streamline supply chain management, improve customer service, and
ensure that employees are trained.
 The focus is to improve the quality of an organization's outputs, including goods and
services, through the continual improvement of internal practices.
 Total quality management aims to hold all parties involved in the production process
accountable for the overall quality of the final product or service.

Quality Specifications
Quality specifications are detailed requirements that define the quality of a product, service or
process. Quality includes tangible elements such as measurements and intangible elements
such as smell and taste. The following are illustrative examples of quality specifications.

Food

Precise definitions that are used to sort food into quality grades. For example, apples might
be sorted according to size, ripeness, color, symmetry and condition to offer a premium and
non-premium grade.

Manufacturing

A bicycle manufacturer performs automated quality control testing on all units before
shipping based on specifications such as detailed measurements designed to ensure that a
bicycle's tire is properly aligned to its assembly.

Infrastructure

A solar panel manufacturer guarantees the conversion efficiency of its modules over time.
This is based on a specification of rated power output and percentage of that output that can
be expected as the panels approach end-of-life, often 25 years.

Formulations

The amount of a high quality ingredient in a product. For example, a beverage that is 30%
organic pineapple juice.

Materials

Material quality such as the thread count of a fabric.

Software

Specifications for the performance of a software service such as a 99.99% availability rate.

Services

A hotel chain defines detailed specifications of what it means for a room to be clean. This is
used to define processes for cleaning services and quality control checks.

Cost of Quality, Defined

 Cost of quality is a method for calculating the costs companies incur ensuring that
products meet quality standards, as well as the costs of producing goods that fail to
meet quality standards.

The goal of calculating cost of quality is to create an understanding of how quality impacts
the bottom line. Whether it’s the cost of scrap and rework associated with poor quality, or the
expense of audits and maintenance associated with good quality, both count. Cost of quality
gives manufacturers an opportunity to analyze, and thus improve their quality operations.

This two-pronged approach to quality can be categorized as “control” (good quality) vs.
“failure of control” (bad quality).

Cost of Good Quality vs. Poor Quality

Cost of quality has four main components between the two buckets of “good” and “bad”
quality.

Taken together, the four main costs of quality add up to make up the total cost of quality.

CoQ = Appraisal + Prevention + Internal Failure + External Failure

CONTINUOUS IMPROVEMENT

Continuous improvement, sometimes called continual improvement, is the ongoing

improvement of products, services or processes through incremental and breakthrough
improvements. These efforts can seek "incremental" improvement over time or
"breakthrough" improvement all at once.

THE CONTINUOUS PROCESS IMPROVEMENT MODEL

Among the most widely used tools for the continuous improvement model is a four-step
quality assurance method—the plan-do-check-act (PDCA) cycle:

 Plan: Identify an opportunity and plan for change.

 Do: Implement the change on a small scale.

 Check: Use data to analyze the results of the change and determine whether it made a

difference.
 Act: If the change was successful, implement it on a wider scale and continuously assess

your results. If the change did not work, begin the cycle again.
 Other widely used methods of continuous improvement, such as Six Sigma, lean, and total
quality management, emphasize employee involvement and teamwork, work to measure and
systematize processes, and reduce variation, defects, and cycle times.

WHAT IS STATISTICAL PROCESS CONTROL?

Statistical process control (SPC) is defined as the use of statistical techniques to control a
process or production method. SPC tools and procedures can help you monitor process
behavior, discover issues in internal systems, and find solutions for production issues.
Statistical process control is often used interchangeably with statistical quality control (SQC).

SPC TOOLS

A popular SPC tool is the control chart, originally developed by Walter Shewhart in the early
1920s. A control chart helps one record data and lets you see when an unusual event, such as
a very high or low observation compared with "typical" process performance, occurs.

Control charts attempt to distinguish between two types of process variation:

1. Common cause variation, which is intrinsic to the process and will always be present
2. Special cause variation, which stems from external sources and indicates that the process is
out of statistical control

Various tests can help determine when an out-of-control event has occurred. However, as
more tests are employed, the probability of a false alarm also increases

BENCHMARKING

Benchmarking is the competitive edge that allows organizations to adapt, grow, and thrive
through change. Benchmarking is the process of measuring key business metrics and
practices and comparing them—within business areas or against a competitor, industry peers,
or other companies around the world—to understand how and where the organization needs
to change in order to improve performance. There are four main types of benchmarking:
internal, external, performance, and practice.
1. Performance benchmarking involves gathering and comparing quantitative data (i.e.,
measures or key performance indicators). Performance benchmarking is usually the first step
organizations take to identify performance gaps.

What you need: Standard measures and/or KPIs and a means of extracting, collecting, and
analyzing that data.

What you get: Data that informs decision making. This form of benchmarking is usually the
first step organizations take to identify performance gaps.

2. Practice benchmarking involves gathering and comparing qualitative information about

how an activity is conducted through people, processes, and technology.

What you need: A standard approach to gather and compare qualitative information such as
process mapping.

What you get: Insight into where and how performance gaps occur and best practices that the
organization can apply to other areas.

3. Internal benchmarking compares metrics (performance benchmarking) and/or practices

(practice benchmarking) from different units, product lines, departments, programs,
geographies, etc., within the organization.

What you need: At least two areas within the organization that have shared metrics and/or
practices.

What you get: Internal benchmarking is a good starting point to understand the current
standard of business performance. Sustained internal benchmarking applies mainly to large
organizations where certain areas of the business are more efficient than others do.

4. External benchmarking compares metrics and/or practices of one organization to one or

many others.

What you need: For custom benchmarking, you need one or more organizations to agree to
participate. You may also need a third party to facilitate data collection. This approach can be
highly valuable but often requires significant time and effort. That’s why organizations
engage with groups like APQC, which offers more than 3,300 measures you can use to
compare performance to organizations worldwide and in nearly every industry.

ISO 9000

The ISO 9000 family of quality management systems (QMS) is a set of standards that
helps organizations ensure they meet customer and other stakeholder needs within statutory
and regulatory requirements related to a product or service. ISO 9000 deals with the
fundamentals of QMS including the seven quality management principles that underlie the
family of standards ISO 9001 deals with the requirements that organizations wishing to meet
the standard must fulfill

Third-party certification bodies provide independent confirmation that organizations meet the
requirements of ISO 9001. Over one million organizations worldwide are independently
certified, making ISO 9001 one of the most widely used management tools in the world
today. However, the ISO certification process has been criticizedas being wasteful and not
being useful for all organizations.

SIX SIGMA

Six Sigma is a set of techniques and tools for process improvement. It was introduced by
American engineer Bill Smith while working at Motorola in 1986. A six sigma process is one
in which 99.99966% of all opportunities to produce some feature of a part are statistically
expected to be free of defects.

Six Sigma strategies seek to improve manufacturing quality by identifying and removing the
causes of defects and minimizing variability in manufacturing and business processes. It does
this by using empirical and statistical quality management methods and by hiring people who
serve as Six Sigma experts. Each Six Sigma project follows a defined methodology and has
specific value targets, such as reducing pollution or increasing customer satisfaction.

The term Six Sigma originates from statistical modeling of manufacturing processes. The
maturity of a manufacturing process can be described by a sigma rating indicating its yield or
the percentage of defect-free products it creates—specifically, to within how many standard
deviations of a normal distribution the fraction of defect-free outcomes corresponds.
 MODULE- 3- OM
Introduction to Supply Chain Techniques of
Inventory Control-
1. ABC analysis
ABC analysis is an inventory categorization technique. ABC analysis
divides an inventory into three categories—"A items" with very tight
control and accurate records, "B items" with less tightly controlled and
good records, and "C items" with the simplest controls possible and
minimal records.
The ABC analysis provides a mechanism for identifying items that will
have a significant impact on overall inventory cost, while also providing a
mechanism for identifying different categories of stock that will require
different management and controls.
The ABC analysis suggests that inventories of an organization are not of
equal value. Thus, the inventory is grouped into three categories (A, B,
and C) in order of their estimated importance.
'A' items are very important for an organization. Because of the high
value of these 'A' items, frequent value analysis is required. In addition to
that, an organization needs to choose an appropriate order pattern (e.g.
'just-in-time') to avoid excess capacity. 'B' items are important, but of
course less important than 'A' items and more important than 'C' items.
Therefore, 'B' items are intergroup items. 'C' items are marginally
important.
2. VED analysis

VED stands for vital, essential and desirable. This analysis relates to
the classification of maintenance spare parts and denotes the
essentiality of stocking spares.

The spares are split into three categories in order of importance. From
the view-points of functional utility, the effects of non-availability at the
time of requirement or the operation, process, production, plant or
equipment and the urgency of replacement in case of breakdown. it is
necessary to classify the spares in the following categories:
V:
Vital items which render the equipment or the whole line operation in a
process totally and immediately inoperative or unsafe; and if these items
go out of stock or are not readily available, there is loss of production for
the whole period.
E:
Essential items which reduce the equipment’s performance but do not
render it inoperative or unsafe; non-availability of these items may result
in temporary loss of production or dislocation of production work;
replacement can be delayed without affecting the equipment’s
performance seriously; temporary repairs are sometimes possible.

D:
Desirable items which are mostly non-functional and do not affect the
performance of the equipment.

3. FSN analysis

FSN analysis is an inventory management technique. It is an

important aspect in logistics. The items are classified according to their
rate of consumption. The items are classified broadly into three groups:
F – means Fast moving, S – means Slow moving, N – means Non-
moving. The FSN analysis is conducted generally on the following basis:

• The last date of receipt of the items or the last date of the issue of
items, whichever is later, is taken into account.
• The time period is usually calculated in terms of months or number of
days and it pertains to the time elapsed since the last movement was
recorded.
FSN analysis helps a company in identification of the following

• The items considered to be “active” may be reviewed regularly on

more frequent basis.
• Items whose stocks at hand are higher as compared to their rates of
consumption.
• Non-moving item have zero consumption are generally absolutely.

4. Music- 3D analysis

Multi- Unit Selective Inventory Control 3D (MUSIC 3D) MUSIC 3D is a

three dimensional approach, the three functions being finance,
operations and materials. Based on ABC analysis, items are classified
as high consumption value (HCV-80/20 Rule) and low consumption
value (LCV-20/80 Rule).
Supply chain strategy
Supply chain management (SCM) involves the movement of products
and services from suppliers to distributors. SCM involves the flow of
information and products between and among supply chain stages to
maximize profitability.
The major functions involved in SCM are the procurement of raw
materials, product development, marketing, operations, distribution,
finance, and customer services. Customers are an integral part of SCM.
Strategies and designing of the supply chain include:

• Deciding on the supply chain structure and the activities each

stage of the supply chain will perform
• Selecting a location and capacities of facility
• Deciding on the products that are to be made and the location
where they need to be stored
• Choosing the modes of transportation and the source from where
the information is to be collected

Supply chain design decisions are long term projects and are expensive
to reverse; so the manager must take into account the market
uncertainty.
Role of Information Technology in SCM
A new generation of shopping options through E-Commerce and M-
Commerce has made supply chain management a vital area of concern
for many businesses. It is particularly critical for manufacturing
companies, which are heavily dependent on the supply chain partners to
deliver their products. Manufacturers, suppliers, retailers, shippers and
distributors are the major stakeholders in the supply chain of
manufacturing companies, which ends with product delivery to the
customer. With an increasing emphasis on technological advancements,
as well as the changes in customer expectations, the need for an
integrated supply management has become increasingly important. For
manufacturing companies to build substantial customer bases,
digitization of business processes has become more of a necessity than
a value-add proposition. This has increased the requirement for creating
a digital environment that seamlessly integrates the operations carried
out by various entities in the supply chain. Technological advancements
now enable businesses to build end-to-end supply chain solutions that
speed up processes and avoid bottlenecks in the supply chain.
Interestingly enough, real time or near real time information is the key
factor in supply chain management. Supply chain management software
is designed to manage and enhance the exchange of information of
across various key supply chain partners to attain such outcomes as
just-in-time procurement, reduction of inventory, increase of
manufacturing efficiency and to meet customer needs in a timely
fashion. Oftentimes, these technology solutions enable companies to
attain some level of on-demand or mass customization in the production
cycle.
Supply Chain Disruptions
In the dictionary, disruption is defined as “disturbance or problems
that interrupt an event, activity, or process.” So, a supply chain
disruption definition is a breakdown in the manufacture flow of goods
and their delivery to customers. While the “broken link in a chain”
analogy worked in the past, today’s complex supply networks are rarely
so straightforward. You might think of supply chain coordination as more
like cogs in a machine that need mesh simultaneously. So, disruption
makes everything stop at once – the proverbial wrench in the works. a
threat is an event that could harm your supply network. A risk is the
potential for loss or damage resulting from the threat. Using our idiom,
the wrench is the threat. The risk is that someone could drop the wrench
into the machine. Then the cogs of the machine will stop, and the
machine will break down. This causes all kinds of costs, including
repairing the machine, lost production time, and so on. Identifying supply
chain disruption risk is therefore identifying what could go wrong in your
 supply network, and the extent of damage when it happens. Supply
chains are commonly vulnerable to these six risk categories:
1. Cyber and security (such as ransomware, data theft)
2. Financial and company viability (for example, force majeure, revenue
outlook)
3. Geopolitical (such as civil unrest, tariff hikes)
4. Man-made (including fires, explosions)
5. Natural disaster (extreme weather, earthquakes, etc.)
6. Reputational and compliance and (such as conflict of interest,
sustainable procurement).

For a supply chain disruption case study, think of toilet paper early in
the COVID-19 crisis. Panic buying and hoarding clearly disrupted supply
chains, as paper producers, product makers and retailers scrambled to
produce and deliver enough toilet paper to meet unusually high demand.
Yet the overall impact of supply chain disruption remained low, despite
the public perception. At times, the sight of empty shelves caused
skirmishes between shoppers, but the industry could respond quickly,
and most shortages were temporary.
Bullwhip Effect
The bullwhip effect is a distribution channel phenomenon in
which demand forecasts yield supply chain inefficiencies. It refers to
increasing swings in inventory in response to shifts in consumer demand
as one moves further up the supply chain. The concept first appeared
in Jay Forrester's Industrial Dynamics (1961) and thus it is also known
as the Forrester effect. It has been described as “the observed
propensity for material orders to be more variable than demand signals
and for this variability to increase the further upstream a company is in a
supply chain”.
The bullwhip effect was named by analogy with the way in which the
amplitude of a whip increases down its length; the further from the
originating signal, the greater the distortion of the wave pattern. In a
similar manner, forecast accuracy decreases as one moves upstream
along the supply chain. For example, many consumer goods have fairly
consistent consumption at retail, but this signal becomes more chaotic
and unpredictable as the focus moves away from consumer purchasing
behaviour.
 SCOR metrics
The supply chain operations reference (SCOR) model is designed to
evaluate your supply chain for effectiveness and efficiency of sales and
operational planning (S&OP). SCM is complex, and S&OP
implementation can be difficult, but the SCOR model is intended to help
standardize the process and create a measurable way to track results. It
works across industries using common definitions that apply to any
supply chain process. Using the SCOR model, businesses can judge
how advanced or mature a supply chain process is and how well it aligns
with business goals.

SCOR model metrics and performance measurements:

There are three levels used to measure supply chain performance.

These levels help standardize supply chain performance metrics so that
companies can be evaluated against other businesses, even if they’re
operating differently. A smaller organization can be compared to a
bigger organization, or businesses can judge supply chain performance
against companies in other industries.
The three levels include:

• Level 1: Defining scope, including geographies, segments, and context.

At this level, the focus is on the six main process configurations: plan,
source, make, deliver, return, and enable.
• Level 2: Configuration of the supply chain, including geographies,
segments, and products. At Level 2, metrics are high level and
evaluated across multiple SCOR processes. This level includes subtype
categories that fall under the “parent” categories found in Level 1.
• Level 3: Process element details, identifying key business activities
within the chain. At this level, you can associate any Level 2 process or
subcategory with a Level 3 process.

Extended Supply Chains

The word “extended,” by most definitions, means to broaden further
in meaning, scope, or influence, or to go beyond. The term “supply
chain” is defined by business processes characterized by the creation
and sale of a product, starting from the delivery of source materials from
the supplier to the manufacturer, and extending up through its eventual
delivery to the end user. Let’s start with why is it so important to manage
an extended supply chain. To put it simply, you have no choice. The
world today is so much more connected and companies must think,
operate, and execute as part of a greater business ecosystem.

You can’t develop products today without understanding customer

sentiment and usage patterns. Product development teams must
collaborate with a multitude of stakeholders inside and outside the
company while sharing information, designs, and formulations in real
time. Companies must innovate responsibly at speed. They must ensure
the global compliance of their products, based on the raw materials they
use in their bills of materials (BOMs) and recipes and where they plan on
doing business. This material transparency must extend to their
suppliers’ raw materials.

Customers expect personal products, and manufacturers must produce

and deliver these individual products while operating at mass production
cost efficiency. Asset Performance Management programs must extend
the optimization and safety of company operations, beyond a company’s
machines, and focus on managing performance and risk dependencies
between management of its assets, workers, processes, and equipment
suppliers. Organizations must plan and respond to shifting customer
demand, requiring that businesses execute real-time material
requirements planning (MRP) processes and demand and response
planning.

Reverse Logistics
Reverse logistics is for all operations related to the reuse of products
and materials. It is "the process of moving goods from their typical final
destination for the purpose of capturing value, or proper
disposal. Remanufacturing and refurbishing activities also may be
included in the definition of reverse logistics”. Growing green concerns
and advancement of green supply chain management concepts and
practices make it all the more relevant. The first use of the term "reverse
logistics" in a publication was by James R. Stock in a White Paper titled
"Reverse Logistics," published by the Council of Logistics Management
in 1992. The concept was further refined in subsequent publications by
Stock (1998) in another Council of Logistics Management book, titled
Development and Implementation of Reverse Logistics Programs and by
Rogers and Tibben- Lembke (1999) in a book published by the Reverse
Logistics Association titled Going Backwards: Reverse Logistics Trends
and Practices. The reverse logistics process includes the management
and the sale of surplus as well as returned equipment and machines
from the hardware leasing business. Normally, logistics deal with events
that bring the product towards the customer. In the case of reverse
logistics, the resource goes at least one step back in the supply chain.
For instance, goods move from the customer to the distributor or to the
manufacturer. When a manufacturer's product normally moves through
the supply chain network, it is to reach the distributor or customer. Any
process or management after the delivery of the product involves
reverse logistics. If the product is defective, the customer would return
the product. The manufacturing firm would then have to organise
shipping of the defective product, testing the product, dismantling,
repairing, recycling or disposing the product. The product would travel in
reverse through the supply chain network in order to retain any use from
the defective product. The logistics for such matters is reverse logistics.

Production Planning and Control

Introduction

For efficient, effective and economical operation in a manufacturing unit

of an organization, it is essential to integrate the production planning and
control system. Production planning and subsequent production control
follow adaption of product design and finalization of a production
process.
Production planning and control address a fundamental problem of low
productivity, inventory management and resource utilization.
Production planning is required for scheduling, dispatch, inspection,
quality management, inventory management, supply management and
equipment management. Production control ensures that production
team can achieve required production target, optimum utilization of
resources, quality management and cost savings.
Planning and control are an essential ingredient for success of an
operation unit. The benefits of production planning and control are as
follows:

 It ensures that optimum utilization of production capacity is

achieved, by proper scheduling of the machine items which
reduces the idle time as well as over use.
 It ensures that inventory level is maintained at optimum levels at all
time, i.e. there is no over-stocking or under-stocking.
 It also ensures that production time is kept at optimum level and
thereby increasing the turnover time.
  Since it overlooks all aspects of production, quality of final product
is always maintained.

Production Planning

Production planning is one part of production planning and control

dealing with basic concepts of what to produce, when to produce, how
much to produce, etc. It involves taking a long-term view at overall
production planning. Therefore, objectives of production planning are as
follows:

 To ensure right quantity and quality of raw material, equipment,

etc. are available during times of production.
 To ensure capacity utilization is in tune with forecast demand at all
the time.

A well thought production planning ensures that overall production

process is streamlined providing following benefits:

 Organization can deliver a product in a timely and regular manner.

 Supplier are informed will in advance for the requirement of raw
materials.
 It reduces investment in inventory.
 It reduces overall production cost by driving in efficiency.

Production planning takes care of two basic strategies’ product planning

and process planning. Production planning is done at three different time
dependent levels i.e. long-range planning dealing with facility planning,
capital investment, location planning, etc.; medium-range planning deals
with demand forecast and capacity planning and lastly short term
planning dealing with day to day operations.
Production Control

Production control looks to utilize different type of control techniques to

achieve optimum performance out of the production system as to
achieve overall production planning targets. Therefore, objectives of
production control are as follows:

 Regulate inventory management

 Organize the production schedules
 Optimum utilization of resources and production process

The advantages of robust production control are as follows:

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

Production control cannot be same across all the organization.

Production control is dependent upon the following factors:

 Nature of production (job oriented, service oriented, etc.)

 Nature of operation
 Size of operation

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

Aggregate Planning
Aggregate planning is a marketing activity that does an aggregate plan
for the production process, in advance of 6 to 18 months, to give an idea
to management as to what quantity of materials and other resources are
to be procured and when, so that the total cost of operations of the
organization is kept to the minimum over that period.
The quantity of outsourcing, subcontracting of items, overtime of labour,
numbers to be hired and fired in each period and the amount
of inventory to be held in stock and to be backlogged for each period are
decided. All of these activities are done within the framework of the
company ethics, policies, and long term commitment to the society,
community and the country of operation.
Aggregate planning has certain pre-required inputs which are inevitable.
They include:

• Information about the resources and the facilities available.

• Demand forecast for the period for which the planning has to be
done.
• Cost of various alternatives and resources. This includes cost of
holding inventory, ordering cost, cost of production through various
production alternatives like subcontracting, backordering and
overtime.
• Organizational policies regarding the usage of above alternatives.
"Aggregate Planning is concerned with matching supply and demand of
output over the medium time range, up to approximately 12 months into
the future. The term aggregate implies that the planning is done for a
single overall measure of output or, at the most, a few aggregated
product categories. The aim of aggregate planning is to set overall
output levels in the near to medium future in the face of fluctuating or
uncertain demands. Aggregate planning might seek to influence demand
as well as supply.
Aggregate Planning Strategies:
Level plans

• Use a constant work force & produce similar quantities each time
period
• Use inventories and back-orders to absorb demand peaks & valleys
• Use inventories in better way to absorb the peak of demand and
valleys
Chase plans

• Minimize finished good inventories by trying to keep pace with

demand fluctuations
• Matches demand varying either work force level or output rate
Hybrid Strategies

• Build-up inventory ahead of rising demand and use back-orders to

level extreme peaks
• Layoff or furlough workers during lulls
• Subcontract production or hire temporary workers to cover short-term
peaks
• Reassign workers to preventive maintenance during lulls.

Problems related to Aggregate Planning

Smoothing

• Smoothing refers to costs that result from changing production and

workforce levels from one period to the next.
Bottleneck Problems

• It is the inability of the system to respond to sudden changes in

demand as a result of capacity restrictions.
Planning Horizon

• The number of periods for which the demand is to be forecasted, and

hence the number of periods for which workforce and inventory levels
are to be determined, must be specified in advance.
Treatment of Demand Aggregate planning methodology requires the
assumption that demand is known with certainty. This is simultaneously
a weakness and a strength of the approach.
Master Production Scheduling (MPS)
A master production schedule (MPS) is a plan for individual
commodities to be produced in each time period such as production,
staffing, inventory, etc. It is usually linked to manufacturing where the
plan indicates when and how much of each product will be
demanded. This plan quantifies significant processes, parts, and other
resources in order to optimize production, to identify bottlenecks, and to
anticipate needs and completed goods. Since a MPS drives much
factory activity, its accuracy and viability dramatically affect profitability.
Typical MPSs are created by software with user tweaking.
Due to software limitations, but especially the intense work required by
the "master production schedulers", schedules do not include every
aspect of production, but only key elements that have proven their
control effectivity, such as forecast demand, production costs, inventory
costs, lead time, working hours, capacity, inventory levels, available
storage, and parts supply. The choice of what to model varies among
companies and factories. The MPS is a statement of what the company
expects to produce and purchase (i.e. quantity to be produced, staffing
levels, dates, available to promise, projected balance).
The MPS translates the customer demand (sales orders, PIR’s), into a
build plan using planned orders in a true component scheduling
environment. Using MPS helps avoid shortages, costly expediting, last
minute scheduling, and inefficient allocation of resources. Working with
MPS allows businesses to consolidate planned parts, produce master
schedules and forecasts for any level of the Bill of Material (BOM) for
any type of part.
A master production schedule may be necessary for organizations to
synchronize their operations and become more efficient. An effective
MPS ultimately will:

• Give production, planning, purchasing, and management the

information to plan and control manufacturing
• Tie overall business planning and forecasting to detail operations
• Enable marketing to make legitimate delivery commitments to
warehouses and customers
• Increase the efficiency and accuracy of a company's manufacturing
• Rough cut capacity planning.
Material Requirement Planning
Material requirements planning (MRP) is a production
planning, scheduling, and inventory control system used
to manage manufacturing processes. Most MRP systems are software-
based, but it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three objectives:

• Ensure raw materials are available for production and products are
available for delivery to customers.
• Maintain the lowest possible material and product levels in store
• Plan manufacturing activities, delivery schedules
and purchasing activities.

Advantages and Disadvantages of MRP

When considering using an MRP inventory system within an organization,
it is crucial to know the advantages and disadvantages associated with
implementation. The advantages include:
• Maintains low inventory level.
• Reduction of associated costs through material planning.
• Ensure capacity utilization.
• Extensively tracks every piece of inventory that comes in and goes
out.
• Reduces cost of warehousing product.
• Increased organization throughout the business.
• Scheduled shipment and delivery of the product.
The disadvantages when using a material requirement planning
inventory system include:
• Reliance on the precise input information.
• There are scheduling delays, wrong order quantities, and inefficient
tracking if the information is inputted inaccurately within the system.
• Requires extensive maintenance of robust databases.
• In order to use the system, proper training is required.
• The system is not cheap and requires a substantial capital
investment.
 Manufacturing Resource Planning
Manufacturing resource planning (MRP II) is defined as a method for
the effective planning of all resources of a manufacturing company.
Ideally, it addresses operational planning in units, financial planning, and
has a simulation capability to answer "what-if" questions and is an
extension of closed-loop MRP (Material Requirements Planning).
This is not exclusively a software function, but the management of
people skills, requiring a dedication to database accuracy, and sufficient
computer resources. It is a total company management concept for
using human and company resources more productively.
Both MRP and MRP II are seen as predecessors to Enterprise resource
planning (ERP), which is a process whereby a company, often a
manufacturer, manages and integrates the important parts of its
business.

An ERP management information system integrates areas such as

planning, purchasing, inventory, sales, marketing, finance, and human
resources. ERP is most frequently used in the context of software, with
many large applications having been developed to help companies
implement ERP. MRP II is a computer-based system that can create
detailed production schedules using real-time data to coordinate the
arrival of component materials with machine and labour availability. MRP
II is used widely by itself, but it's also used as a module of more
extensive enterprise resource planning (ERP) systems. MRP II is an
extension of the original materials requirements planning (MRP I)
system. Materials requirements planning (MRP) is one of the first
software-based integrated information systems designed to
improve productivity for businesses.

A materials requirements planning information system is a sales

forecast-based system used to schedule raw material deliveries and
quantities, given assumptions of machine and labour units required to
fulfill a sales forecast. By the 1980s, manufacturers realized they needed
software that could also tie into their accounting systems and forecast
inventory requirements. MRP II was provided as a solution, which
included this functionality in addition to all the capabilities offered by
MRP I.

Enterprise Resource Planning

Enterprise resource planning (ERP) is a process used by companies to
manage and integrate the important parts of their businesses. Many
ERP software applications are important to companies because they
help them implement resource planning by integrating all of the
processes needed to run their companies with a single system. An ERP
software system can also integrate planning, purchasing inventory, you
can think of an enterprise resource planning system as the glue that
binds together the different computer systems for a large organization.
Without an ERP application, each department would have its system
optimized for its specific tasks. With ERP software, each department still
has its system, but all of the systems can be accessed through one
application with one interface.
ERP applications also allow the different departments to communicate
and share information more easily with the rest of the company. It
collects information about the activity and state of different divisions,
making this information available to other parts, where it can be used
productively. ERP applications can help a corporation become more
self-aware by linking information about the production, finance,
distribution, and human resources together. Because it connects
different technologies used by each part of a business, an ERP
application can eliminate costly duplicate and incompatible technology.
The process often integrates accounts payable, stock control systems,
order-monitoring systems, and customer databases into one system.
ERP offerings have evolved over the years from traditional software
models that make use of physical client servers to cloud-based software
that offers remote, web-based access.

--------------------------------------------------------------------------