Module 1

1.1 Introduction to Operations Management

Operations Management is a field of management science that

deals with the design and management of products, processes, services
and supply chains. It deals with acquisition, development, and utilization
of various resources that any firms need to deliver the goods and services
to their clients want.

The subject coverage in Operations Management ranges from

strategic to tactical and to operational levels. For example, it deals with
strategic issues such as determining the location for a manufacturing
company, type of manufacturing process and size for the factory,
expansion strategy for plant location, other manufacturing locations,
deciding the structure of service or telecommunications networks, and
designing technology supply chains etc.

Also, various tactical issues like, plant layout and structure,

project management methods, and equipment selection and replacement,
the application of Operations Management is evident. Operational issues
include production scheduling and control, inventory management,
quality control and inspection, traffic and materials handling, and
equipment maintenance policies.

Production and Operations Management (“POM”) is about the

transformation of production and operational inputs into “outputs” that,
when distributed, meet the needs of customers. The process is often
referred to as the “Conversion Process”.

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 There are several different methods of handling the conversion
or production process - Job, Batch, Flow and Group. POM incorporates
many tasks that are interdependent, but which can be grouped under five
main headings, which is briefly discussed in the following pages.

Product

Marketers in any business concerns about selling products that

meet customer needs and wants. In fulfilling this objective, the role of
Production and Operations play a major role; it has to ensure that the
business actually makes the required products in accordance with the
expectations of market and consumers and translated as a plan. The role
of PRODUCT in POM therefore concerns areas such as:

ӹ Performance
ӹ Aesthetics
ӹ Quality
ӹ Reliability
ӹ Quantity
ӹ Production costs
ӹ Delivery dates

Plant

To make the needed product, the ‘PLANT’ of some kind is needed

for any business house. This will comprise the bulk of the fixed assets
and many short term assets, set of creditors, who supply the requirement
materials and many others to the business. In determining which PLANT
to use, management must consider areas such as

ӹ Future demand (volume, timing)

ӹ Design and layout of factory, equipment, offices
ӹ Productivity and reliability of equipment
ӹ Need for (and costs of) maintenance
ӹ Health and safety (particularly the operation of equipment)
ӹ Environmental issues (e.g. creation of waste products)

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Processes

There are many different ways of producing a product.

Management must choose the best process, or series of processes. They
will consider

ӹ Available capacity
ӹ Available skills
ӹ Type of production
ӹ Layout of plant and equipment
ӹ Safety
ӹ Production costs
ӹ Maintenance requirements

Programmes

In the production management terminology, Programme concerns

the dates and times of the products that are to be produced and supplied
to customers. The decisions made about programme will be influenced
by factors such as

ӹ Purchasing patterns (e.g. lead time)

ӹ Cash flow
ӹ Need for / availability of storage
ӹ Transportation

People

Ֆ Production depends on PEOPLE, whose skills, experience and

motivation vary. Key people-related decisions will consider the
following areas
ӹ Wages and salaries
ӹ Safety and training
ӹ Work conditions
ӹ Leadership and motivation
ӹ Unionisation
ӹ Communication

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1.1.1 Historical Evolution of Operations Management

The subject Operations management has its own connection with

the age-old Industrial Revolution, which has started during the late 17th
century in England and later spread to the rest of Europe and to the
United States during the 19th century. Prior to that time, goods were
manufactured in small quantities in smaller shops / factories by the local
craftsmen and their apprentices, who were mostly their family members.
Under that system, it was common for one person to be responsible for
making a product, such as a horse-drawn wagon or a piece of furniture,
from start to finish. Only simple tools were available; the machines that
we use today had not been invented.

Later, in the 18th century, many scientific inventions came into

existence and changed the face of production / operations by substituting
huge machines, which are operated by steam power and electric power.
Perhaps the most significant of these inventions, was the steam engine;
it had the ability to provide power to operate huge machineries in
the factories. For example, the spinning jenny and the power looms
revolutionized the textile industry. Ample supplies of coal and iron ore
provided materials for generating power and making machinery. The
new machines, made of iron, were much stronger and more durable than
the simple wooden machines they replaced.

From the late 17th century (1770) to the early years of the 18th
century, series of events took place in England which together is called
the Industrial Revolution.

Industrial Revolution resulted in two major developments:

widespread substitution of machine power for human power and
establishment of the organized production system known as factory
system.

The events that took place from 1770 to the 1800s are characterized
by great inventions. The great inventions were eight in number ,with
six of them having been conceived in England, one in France and one
in the United States .The eight inventions are—Hargreaves Spinning
Jenny, Arkwright’s Water Frame, Crompton’s Mule, Cartwright’s Power
Loom, Watt’s steam engine, Berthollet’s Chlorine Bleaching Discovery,

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Mandslay’s Screw-Cutting Lathe and Eli Whitney’s Interchangeable
Manufacture.

As observed from eight inventions, most of them have to do with

the spinning of yarn and weaving of cloth. This is logical from the point
of view that cloth was the principal export commodity of England at that
time and was in short supply owing to the considerable expansion of
England’s colonial empire and its commercial trade.

The availability of machine power greatly facilitated the gathering

of workers in factories that housed the machines. The large number of
workers congregated in the factories, created the need for organizing
them in logical ways to produce goods.

The publication of Adam Smith’s The Wealth of Nations in 1776

advocated the benefits of the division of labor or specialization of labor,
which broke production of goods into small specialized tasks that were
assigned to workers on production lines. Thus, the factories of late 1700s
not only had developed production machinery, but also ways of planning
and controlling the output of workers.

The impact of the Industrial Revolution was first felt in England.

From here, it spread to other European countries and to the United States.
The Industrial Revolution advanced further with the development of the
gasoline engine and electricity in the 1800s. Other industries emerged
and along with them new factories came into being. By the middle of
18th century, the old cottage system of production had been replaced
by the large scale factory system. As days went by, production capacities
expanded, demand for capital grew and labor became highly dependent
on jobs and urbanized. At the commencement of the 20th century, the
one element that was missing was a management –the ability to develop
and use the existing facilities to produce on a large scale to meet massive
markets of today.

Later, the Scientific Management Era has brought widespread

changes to the practices and management of factories. The movement was
spearheaded by the efficiency engineer and inventor Frederick Winslow
Taylor, who is often referred to as the Father of Scientific Management.
Taylor believed in a “science of management” based on observation,

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measurement, analysis and improvement of work methods, and economic
incentives. He studied work methods in great detail to identify the best
method for doing each job. Taylor also believed that management should
be responsible for planning, carefully selecting and training workers,
finding the best way to perform each job, achieving cooperation between
management and workers, and separating management activities from
work activities.

1.1.2 Operations performance objectives

An important point to be noted at this section is that operations

management deals with set of objectives, which are very broad. In
general, we can classify operations management impact on the five broad
categories of stakeholders; customers, suppliers, shareholders, employees
and society.

Stakeholders is a broad term but is generally used to mean

anybody who could have an interest in, or is affected by, the operation.

ӹ Customers – These are the most obvious people who will be

affected by any business.

ӹ Suppliers – Operations can have a major impact on suppliers,

both on how they prosper themselves, and on how effective they
are at supplying the operation.

ӹ Shareholders – Clearly, the better operation is at producing goods

and services, the more likely the whole business is to prosper and
shareholders will be one of the major beneficiaries of this.

ӹ Employees – Similarly, employees will be generally better off if

the company is prosperous; if only because they are more likely
to be employed in the future. However operations responsibilities
to employees go far beyond this. It includes the general working
conditions which are determined by the way the operation has
been designed.

ӹ Society – Although often having no direct economic connection

with the company, individuals and groups in society at large can
be impacted by the way its operations managers behave. The most

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 obvious example is in the environmental responsibility exhibited
by operations managers.

We will discuss briefly the five performance objectives, namely, quality,

speed, dependability, flexibility, and cost in the following paragraph.

Quality

Quality is placed first in our list of performance objectives because

many authorities believe it to be the most important. Certainly more
has been written about it than almost any other operations performance
objective over the last twenty years. As far as this introduction to the
topic is concerned, quality is discussed largely in terms of it meaning
‘conformance’. That is, the most basic definition of quality is that a
product or service is as it is supposed to be. In other words, it conforms
to its specifications.

There are two important points to remember when reading the section
on quality as a performance objective.

ӹ The external affect of good quality within in operations is that the

customers who ‘consume’ the operations products and services
will have less (or nothing) to complain about. And if they have
nothing to complain about they will (presumably) be happy with
their products and services and are more likely to consume them
again. This brings in more revenue for the company (or clients
satisfaction in a not-for-profit organisation).

ӹ Inside the operation quality has a different affect. If conformance

quality is high in all the operations processes and activities very
few mistakes will be being made. This generally means that cost is
saved, dependability increases and (although it is not mentioned
explicitly in the chapter) speed of response increases. This is
because, if an operation is continually correcting mistakes, it
finds it difficult to respond quickly to customers requests. See
the figure below.

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Speed

Speed is a shorthand way of saying ‘Speed of response’. It means

the time between an external or internal customer requesting a product
or service, and them getting it. Again, there are internal and external
affects.

ӹ Externally speed is important because it helps to respond

quickly to customers. Again, this is usually viewed positively
by customers who will be more likely to return with more
business. Sometimes also it is possible to charge higher prices
when service is fast. The postal service in most countries and
most transportation and delivery services charge more for faster
delivery, for example.

ӹ The internal affects of speed have much to do with cost reduction.

Two areas where speed reduces cost is reducing inventories and
reducing risks. Usually, faster throughput of information (or
customers) will mean reduced costs. So, for example, processing
passengers quickly through the terminal gate at an airport can
reduce the turn round time of the aircraft, thereby increasing its
utilization. This is best thought of the other way round, ‘how is
it possible to be on time when the speed of internal throughput
within an operation is slow?’ When materials, or information,
or customers ‘hangs around’ in a system for long periods (slow
throughput speed) there is more chance of them getting lost or
damaged with a knock-on effect on dependability.

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Dependability

Dependability means ‘being on time’. In other words, customers

receive their products or services on time. In practice, although this
definition sounds simple, it can be difficult to measure. What exactly
is on time? Is it when the customer needed delivery of the product or
service? Is it when they expected delivery? Is it when they were promised
delivery? Is it when they were promised delivery the second time after it
failed to be delivered the first time? Again, it has external and internal
affects.

ӹ Externally (no matter how it is defined) dependability is generally

regarded by customers as a good thing. Certainly being late with
delivery of goods and services can be a considerable irritation
to customers. Especially with business customers, dependability
is a particularly important criterion used to determine whether
suppliers have their contracts renewed. So, again, the external
affects of this performance objective are to increase the chances
of customers returning with more business.

ӹ Internally dependability has an effect on cost. Three ways in

which costs are affected – by saving time (and therefore money),
by saving money directly, and by giving an organisation the
stability which allows it to improve its efficiencies.

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Flexibility

This is a more complex objective because we use the word

‘flexibility’ to mean so many different things. The important point to
remember is that flexibility always means ‘being able to change the
operation in some way’. Some of the different types of flexibility include
product/service flexibility, mix flexibility, volume flexibility, and delivery
flexibility. It is important to understand the difference between these
different types of flexibility, but it is more important to understand the
affect flexibility can have on the operation.

Externally the different types of flexibility allow an operation to

fit its products and services to its customers in some way. Mix flexibility
allows an operation to produce a wide variety of products and services
for its customers to choose from.

Product/service flexibility allows it develops new products and

services incorporating new ideas which customers may find attractive.

Volume and delivery flexibility allow the operation to adjust its

output levels and its delivery procedures in order to cope with unexpected
changes in how many products and services customers want, or when
they want them, or where they want them.

ӹ Once again, there are several internal affects associated with

this performance objective. Among them, three most important
factors are flexibility speeds up response, flexibility saves
time (and therefore money), and flexibility helps maintain
dependability.

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Cost

The first important point on cost is that the cost structure of

different organisations can vary greatly. Second, and most importantly,
the other four performance objectives all contribute, internally, to
reducing cost. This has been one of the major revelations within
operations management over the last twenty years.

“If managed properly, high quality, high speed, high dependability and high
flexibility can not only bring their own external rewards, they can also save
the operation cost.”

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1.1.3 Role of Operations Management

Even if you want to specialize in the domains like, finance or

marketing, still you have to study a course on Operations Management.
There are number of reasons to quote; but the most important among
them is that 50 percent or more of all jobs are in operations management
or related fields. Moreover, recall the image of a business organization
as a car, with operations as its engine, in order for that car to function
properly, all of the parts must work together. So, too, all of the parts of a
business organization must work together in order for the organization
to function successfully.

For the successful functioning of the organisation, members of

various functional domains shall work together; thus, it is very much
essential for all members of the organization to understand not only their
own role in their functional specialization, but, they also understand the
roles of others.

This is precisely why all business students, regardless of

their majors, are required to take a common core of courses that will
enable them to learn about all aspects of business. Because operations
management is central to the functioning of all business organizations, it
is included in the core of courses business students are required to take.

And even though individual courses have a narrow focus (e.g.,

accounting, marketing), in practice, there is significant interfacing and
collaboration among the various functional areas, involving exchange
of information and cooperative decision making. For example, although
the three primary functions in business organizations perform different
activities, many of their decisions impact the other areas of the
organization. Consequently, these functions have numerous interactions,
as depicted by the overlapping circles shown in diagram.
figure 1
The three major functions of business organizations overlap

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 Finance and operations management personnel cooperate by
exchanging information and expertise in various activities the following
are the illustrative but not an exhaustive list.

ӹ Budgeting: Budgets must be periodically prepared to plan

financial requirements. Budgets must sometimes be adjusted,
and performance relative to a budget must be evaluated.

ӹ Economic analysis of investment proposal: Evaluation of

alternative investments in plant and equipment requires inputs
from both operations and finance people.

ӹ Provision of funds: The necessary funding of operations and

the amount and timing of funding can be important and even
critical when funds are tight. Careful planning can help avoid
cash-flow problems.

Marketing’s focus is on selling and/or promoting the goods or

services of an organization. Often, the marketing department share
invaluable information to the operations managers and their team.

ӹ Demand Estimation: Marketing, which is also responsible for

assessing customer wants and needs, communicating those
to operations people (short term) and to design people (long
term); that is, operations needs information about demand over
the short to intermediate term so that it can plan accordingly
(e.g., purchase materials or schedule work), while design people
need information that relates to improving current products and
services and designing new ones.

ӹ Marketing, design, and production must work closely together

to successfully implement design changes and to develop and
produce new products. Marketing can provide valuable insight
on what competitors are doing. Marketing also can supply
information on consumer preferences so that design will know
the kinds of products and features needed; operations can supply
information about capacities and judge the manufacturability of
designs.

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 ӹ Operations will also have advance warning if new equipment
or skills will be needed for new products or services. Finance
people should be included in these exchanges in order to provide
information on what funds might be available (short term) and
to learn what funds might be needed for new products or services
(intermediate to long term). One important piece of information
marketing needs from operations is the manufacturing or service
lead time in order to give customers realistic estimates of how
long it will take to fill their orders.

Thus, marketing, operations, and finance must interface on

product and process design, forecasting, setting realistic schedules,
quality and quantity decisions, and keeping each other informed on the
other’s strengths and weaknesses.

People in every area of business need to appreciate the importance

of managing and coordinating operations decisions that affect the supply
chain and the matching of supply and demand, and how those decisions
impact other functions in an organization.

Operations also interacts with other functional areas of the

organization, including legal, management information systems (MIS),
accounting, personnel/human resources, and public relations, as depicted
in the following diagram.
Figure 2
Operations interfaces with a number of supporting functions

The legal department must be consulted on contracts with

employees, customers, suppliers, and transporters, as well as on
liability and environmental issues. Accounting supplies information to
management on costs of labor, materials, and overhead, and may provide
reports on items such as scrap, downtime, and inventories.

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 Management information systems (MIS) is concerned with
providing management with the information it needs to effectively
manage. This occurs mainly through designing systems to capture
relevant information and designing reports. MIS is also important for
managing the control and decision-making tools used in operations
management.

The personnel or human resources department is concerned

with recruitment and training of personnel, labor relations, contract
negotiations, wage and salary administration, assisting in manpower
projections, and ensuring the health and safety of employees.

Public relations department has responsibility for building

and maintaining a positive public image of the organization. Good
public relations provide many potential benefits to the organisation. An
obvious one is in the marketplace. Other potential benefits include public
awareness of the organization as a good place to work (labor supply),
improved chances of approval of zoning change requests, community
acceptance of expansion plans, and instilling a positive attitude among
employees.

1.1.4 Roles and Responsibility of an Operations Manager

Some people, particularly, those professionally involved in

operations management, argue that operations management involves
everything an organisation does. In this sense, every manager is an
operations manager, since all managers are responsible for contributing
to the activities required to create and deliver an organization’s goods or
services. However, others argue that this definition is too wide, and that
the operations function is about producing the right amount of a good
or service, at the right time, of the right quality and at the right cost to
meet customer requirements.

A stereotypical example of an operations manager would be a plant

manager in charge of a factory, such as an automobile assembly plant.
But other managers who work in the factory in departments like quality
assurance, production and inventory control and line supervisions can
also be considered to be working in operations management. In service
industries, managers in hotels, restaurants, banks, airline operations,

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hospital and stores are operations managers. In the not-for-profit sector,
the manager of a nursing home or day centre for older people is an
operations manager, as they are the managers of a local government tax-
collection office and the manager of a charity shop staffed entirely by
volunteers.

Operations managers are responsible for managing activities

that are part of the production of goods and services. Their direct
responsibilities include managing the operations process, embracing
design, planning, control, performance improvement, and operations
strategy. Their indirect responsibilities include interacting with those
managers in other functional areas within the organisation whose roles
have an impact on operations. Such areas include marketing, finance,
accounting, personnel and engineering.

Operations managers’ responsibilities include:

ӹ Human resource management – the people employed by an

organisation either work directly to create a good or service or
provide support to those who do. People and the way they are
managed are a key resource of all organisations.

ӹ Asset management – an organization’s buildings, facilities,

equipment and stock are directly involved in or support the
operations function.

ӹ Cost management – most of the costs of producing goods or

services are directly related to the costs of acquiring resources,
transforming them or delivering them to customers. For
many organisations in the private sector, driving down costs
through efficient operations management gives them a critical
competitive edge. For organisations in the not-for-profit sector,
the ability to manage costs is no less important.

The chief role of an operations manager is planning and decision making.

As an operations manager in an organisation, he exerts considerable
influence over the degree to which the goals and objectives of the
organization are realized.

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 Most decisions involve many possible alternatives that can have
quite different impacts on costs or profits. Consequently, it is important
to make informed decisions.

Decision making is a central role of all operations managers.

Decisions need to be made in:

ӹ Designing the operations system

ӹ Managing the operations system
ӹ Improving the operations system

Operations management professionals make a number of key

decisions that affect the entire organization. These include the following:

1. The processes by which goods and services are produced

2. The quality of goods or services
3. The quantity of goods or services (the capacity of operations)
4. The stock of materials (inventory) needed to produce goods or
services
5. The management of human resources

You can put them under the following questions

What: What resources will be needed, and in what amounts?

When: When will each resource be needed? When should the

work be scheduled? When should materials and other supplies
be ordered? When is corrective action needed?

Where: Where will the work be done?

How: How will the product or service be designed? How will the
work be done (organization, methods, equipment)?

How will resources be allocated?

Who: Who will do the work?

The operations function consists of all activities directly related

to producing goods or providing services. Hence, it exists both in
manufacturing and assembly operations, which are goods-oriented, and

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in areas such as health care, transportation, food handling, and retailing,
which are primarily service-oriented.

The following table provides examples of the diversity of operations

management settings.

Table 1 Examples of types of operations

A primary function of an operations manager is to guide the

system by decision making. Certain decisions affect the design of the
system, and others affect the operation of the system.

System design involves decisions that relate to system capacity,

the geographic location of facilities, arrangement of departments and
placement of equipment within physical structures, product and service
planning, and acquisition of equipment. These decisions usually, but not
always, require long-term commitments. Moreover, they are typically
strategic decisions.

System operation involves management of personnel, inventory

planning and control, scheduling, project management, and quality
assurance. These are generally tactical and operational decisions.

Feedback on these decisions involves measurement and control.

In many instances, the operations manager is more involved in day-to-
day operating decisions than with decisions relating to system design.
However, the operations manager has a vital stake in system design
because system design essentially determines many of the parameters of
system operation. For example, costs, space, capacities, and quality
are directly affected by design decisions. Even though the operations
manager is not responsible for making all design decisions, he or she can

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provide those decision makers with a wide range of information that will
have a bearing on their decisions.

Purchasing has responsibility for procurement of materials,

supplies, and equipment. Close contact with operations is necessary
to ensure correct quantities and timing of purchases. The purchasing
department is often called on to evaluate vendors for quality, reliability,
service, price, and ability to adjust to changing demand. Purchasing is
also involved in receiving and inspecting the purchased goods.

Industrial engineering is often concerned with scheduling,

performance standards, work methods, quality control, and material
handling.

Distribution involves the shipping of goods to warehouses, retail

outlets, or final customers.

Maintenance is responsible for general upkeep and repair of

equipment, buildings and grounds, heating and air-conditioning;
removing toxic wastes; parking; and perhaps security. The operations
manager is the key figure in the system: He or she has the ultimate
responsibility for the creation of goods or provision of services.

The kinds of jobs that operations managers oversee vary

tremendously from organization to organization largely because of
the different products or services involved. Thus, managing a banking
operation obviously requires a different kind of expertise than managing
a steelmaking operation. However, in a very important respect, the jobs
are the same: They are both essentially managerial. The same thing can
be said for the job of any operations manager regardless of the kinds of
goods or services being created.

The importance of operations management, both for organizations

and for society, should be fairly obvious: The consumption of goods
and services is an integral part of our society. Operations management
is responsible for creating those goods and services. Organizations
exist primarily to provide services or create goods. Hence, operations
management is the core function of an organization. Without this core,
there would be no need for any of the other functions—the organization

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would have no purpose. Given the central nature of its function, it is not
surprising that more than half of all employed people in this country have
jobs in operations. Furthermore, the operations function is responsible
for a major portion of the assets in most business organizations.

The service sector and the manufacturing sector are both

important to the economy. The service sector now accounts for more than
70 percent of jobs in the country, and it is growing in other countries as
well. Moreover, the number of people working in services is increasing,
while the number of people working in manufacturing is not. The reason
for the decline in manufacturing jobs is two fold:

ӹ As the operations function in manufacturing companies finds

more productive ways of producing goods, the companies are able
to maintain or even increase their output using fewer workers.

ӹ Furthermore, some manufacturing work has been outsourced to

more productive companies, many in other countries that are able
to produce goods at lower costs.

1.1.5 Productions/Operations Management Problems

POM is a functional field of business with clear line management

responsibilities. Problems of management in the production/operations
function basically concerns two types of decision:

Those relating to the design or establishment of the production/operations

system.

i. Those relating to the operation, performance and running of the

production/operations system.

Problems in the design of production/operations system are as follows:

i. Design/specification of goods/service,
ii. Location of facilities,
iii. Layout of facilities/resources and materials handling,
iv. Determination of capacity/capability,

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 v. Design of works or jobs,
vi. Involvement in determination of remuneration system and work
standards.

Problems in the operation of system are:

i. Planning and scheduling of activities,

ii. Inventory (Stock) control,
iii. Quality control,
iv. Maintenance and replacement,
v. Involvement in performance measurement.

Every business organization will embrace these problems areas

to a greater or lesser extent. The relative emphasis will differ between
companies and industries, and also over a period of time. Problems in
the first section are of long term nature and will assume considerable
importance at only infrequent intervals. Problems in the second section
will be of a resurring nature, i.e. they are of short term nature.

1.1.6 The boundary of the operations system

The simple transformation model given in the following diagram

provides significant understanding and powerful tool for looking at
operations in many different contexts.

It helps the decision maker to analyse and design operations in

many types of organisation at many levels.

This model can be developed by identifying the boundaries of the

operations system through which an organization’s goods or services are
provided to its customers or clients. The diagram shows this boundary
and added three components that are located outside it:

ӹ Suppliers
ӹ Customers
ӹ The environment

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 In any business, the set of suppliers provides inputs to the
operations system. They may supply raw materials (for example sugarcane
manufacturers provide sugarcane to Sugar Manufacturing units such
as EID Parry / Sakthi Sugar etc; TVS is providing various nuts and
bolts to automobile manufacturers / other equipment manufacturers),
components (Prical provides speed measuring device to two wheeler
manufacturers such as Hero Honda, Yamaha), finished products (for
example a pharmaceutical company providing drugs to a hospital, or an
office supplies company providing it with stationery) or services (as in
the case of a law firm providing legal advice).

The customers (or clients) are the users of the outputs of the
transformation process. The boundary drawn in the above diagram,
represents the transforming process can be thought of as the boundary of
the organisation, so that the whole organisation is viewed as an operations
system, with its customers external to it. This may be an appropriate way
of viewing a small organisation, whose outputs go directly to its external
customers.

However, many macro operations are made up of a number of

micro operations, or sub-systems. Only the outputs of the final micro
operation go directly to a customer or client who is not part of the
organisation that is carrying out the macro operation. The final user or
client of the good or service is the organisation’s external customer, and
the users or clients of the outputs of the other micro operations internal
customers. Most of the operations in a large organisation serve internal,
rather than external customers. For example, if you are the manager of a
human resources department, a printing unit or a building maintenance
section within a large organisation, your customers are internal: they
are other sub-systems within the larger organisation that are external to
your operations system but internal to the organisation as a whole.

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 All operating systems are influenced by the organization’s
environment. This environment includes both other functional areas
within the organisation, each with its own policies, resources, forecasts,
goals, assumptions and constraints, and the wider world outside the
organisation – the legal, political, social and economic conditions within
which it is operating.

Changes in either the internal or the external environment may

affect the operations function. Traditionally, organisations have kept the
operations function separate from both its customers and its suppliers, in
order to protect it from environmental disturbances (Thompson, 1967).
This can lead to a ‘closed system’ mentality, in which the operations
function loses contact with external customers and suppliers, and
focuses only on the transformation process that it controls. A closed
system tends to limit flexibility and result in a loss of competitiveness.
An ‘open system’ mentality, in which communication with customers
and suppliers is encouraged, seeks to reduce the barriers between
the operations function and its environment, in order to enhance the
organization’s competitiveness.

An added complication is that, as organisations become more

complex, it becomes increasingly difficult to draw neat boundaries
around the operations function. Operations management must therefore
focus its attention on key interfaces within the organisation, as well as
on interfaces between the organisation and its external customers and
suppliers. Most operations systems are part of a supply chain that involves
materials, information and customers, and the distribution of finished
goods or services to customers or clients. It is therefore the responsibility
of the operations function to co-ordinate the flow of information that links
these activities through the supply chain. Thus, while some operations
managers are concerned only with the transformation process within a
single organisational unit, such as a factory or service outlet, many are
involved in managing operations across several organisational units or
even across separate organisations.

23
1.2 Process Planning

Any business, the success predominantally depenps upon the

effective production/operations process. There are numerous types
of production processess and there are also many ways of classifying
or grouping them for descriptive purposes. Classifying production/
operations processes by their characteristics can provide valuable
insights into how they should be managed.

In general, the processes by which goods and services are produced can
be categorised in two traditional ways.

1. Firstly, we can identify continuous, repetitive, intermittent and

job shop production process.

2. Second and similar classification divides production processes

into Process production, Mass production, Batch production
and jobbing production.

We will breifly introduce these methods in the following paragraphs.t

Job shop

A wide variety of customized products are made by a highly

skilled workforce using general-purpose equipment. These processes are
referred to as jumbled-flow processes because there are many possible
routings through the process.

Examples: Home renovating firm, stereo repair shop, restaurants.

Intermittent (batch) flow

A mixture of general-purpose and special-purpose equipment is

used to produce small to large batches of products.

Examples: Clothing and book manufacturers, winery, caterer.

24
 Figure 3 Types Of Production Process

Repetitive flow (mass production)

The product or products are processed in lots, each item of

production passing through the same sequence of operations, i.e. several
standardized products follow a predetermined flow through sequentially
dependent work centers. Workers typically are assigned to a narrow
range of tasks and work with highly specialised equipment.

Examples: Automobile and computer assembly lines, insurance home

office.

Continuous flow (flow shop)

Commodity like products flow continuously through a linear

process. This type of process will theoretically run for 24 hrs/day, 7 days/
week and 52 weeks/year and, whilst this is often the objective, it is rarely
achieved.

Examples: chemical, oil, and sugar refineries, power and light utilities.

These four categories represent points on continuum of process

organisations. Processes that fall within a particular category share many

25
characteristics that fundamentally influence how a process should be
managed.

The second and similar classification divides production processes into:

Process Production

Processes that operate continually to produce a very high volume

of a standard product are termed “Processes”. This type of process
involves the continuous production of a commodity in bulk, often by
chemical rather than mechanical means, such as oil and gas. Extra
examples of a continuous processes oil refinery, electricity production
and steel making.

Mass Production

It is conceptually similar to process production, except that

discrete items such as motorcars and domestic appliances are usually
involved. A single or a very small range of similar items is produced in
very large numbers. In other words, processes that produce high-volume
and low-variety products are termed line or mass processes. Because of
the high volumes of product it is cost-effective to use specialised labour
and equipment.

Batch Production

Processes that produce products of medium variety and medium

volume are termed “batch processes”. It occurs where the number of
discrete items to be manufactured in a period is insufficient to enable mass
production to be used. Similar items are, where possible, manufactured
together in batches. In other words, batch processes cover a relatively
wide range of volume and variety combination. Products are grouped
into batches whose batch size can range from two to hundreds.

Jobbing Production (Project Type Production)

Processes that produce high-variety and low-volume products

are known as “jobbing”. Although strictly consisting of the manufacture
of different products in unit quantities (in practice corresponds to the

26
intermittent process mentioned above). This type of production assumes
a one-of-a-kind production output, such as a new building or developing
a new software application. The equipment is typically designed for
flexibility and often general purpose, meaning it can be used for many
different production requirements.

Often, it is a practice that a firm has more than one type of operating
process in its production system to manage the resources optimally.
Sometime, the labour may not be available; on other occasion, the raw
material may be short; market may slow down or go up exponentially.
For instance, a firm may use a repetitive-flow process to produce high-
volume parts but use an intermittent-flow process for lower-volume
parts.

A link often exists between a firm’s product line and its operating
processes. Job shop organisations are commonly utilised when a product
or family of products is first introduced. As sales volumes increase and
the product’s design stabilises, the process tends to move along the
continuum toward a continuous-flow shop. Thus, as products evolve, the
nature of the operating processes used to produce them evolves as well.

1.2.1 Efficiency of the production process

The creation of goods and services requires changing resources

into goods and services. Productivity is used to indicate how good
an operation is at converting inputs to outputs efficiently. The more
efficiently we make this change the more productive we are. The
production/operations manager’s job is to enhance (improve) this ratio
of outputs to inputs.

Productivity

It is the ratio of outputs (goods and service) divided by one or more

inputs (such as labour, capital or management)

Productivity is a measure of operational performance. Thus

improving productivity means improving efficiency. This improvement
can be achieved in two ways:

27
 1. Reduction in inputs while output remains constant, or
2. Increase in output while inputs remain constant.

Both represent an improvement in productivity. Production is

the total goods and services produced. High Production may imply only
that more people are working and that employment levels are high (low
unemployment), but it does not imply high productivity.

Productivity measures can be based on a single input (Single-

Factor Productivity or Partial Productivity) or on more than one input
(Multi-Factor Productivity) or on all inputs. The choice depends on the
purpose of the measurement.

Single-factor Productivity

It indicates the ratio of one resource (input) to the goods and

services produced (outputs).

For example, for labour productivity, the single input to the

operation would be employee hours.

Productivity = {Output of a specific Product}/ {Input of a specific

Resource}

Multi-factor Productivity

Indicates the ratio of many or all resources (inputs) to the

goods and services produced (outputs). When calculating multi-factor
productivity, all inputs must be converted into a common unit of measure,
typically cost.
Output
Productivity =
Labour + Material + Energy + Capital
+ Miscellaneaus

1.3 Plant Location

Every business is facing the issue of selecting the suitable location

for their factory plant. Units concerning both manufacturing as well

28
as the assembling of the products are on a very large scale affected by
the decisions involving the location of the plant. Location of the plant
itself becomes a very important factor concerning service facilities, as
the plant location decisions are strategic and long-term in nature. 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 on 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. For achieving this
objective, small-scale business can make use of location analysis for this
purpose.

1.3.1 Need for the plant location analysis

The strategic nature of the decision on Plant location, require very

detailed analysis due to several reasons. But the choice is made only
after considering various costs associated and comparing the benefits
of different alternative sites. It is a strategic decision that cannot be
changed once taken. If changed, it can happen at the cost of huge cash
outflow as well as considerable deployment of various firm’s resources.
Each individual plant is a case in itself. The major reasons are,

1. Wrong plant location generally affects cost parameters i.e. poor

location can act as a continuous stimulus of higher cost. Marketing,
transportation, quality, customer satisfaction are some of the
other factors which are greatly influenced by the plant location
decisions – hence these decisions require in-depth analysis.

2. Once a plant is set up at a location which is not much suitable, it is

a very disturbing as well as very expensive process to shift works
of a company to some other place, as it would largely affect the
cycle of production.

3. The investments involved in the in setting up of the plant premises

.buying of the land etc are very large and especially in the case of
big multinational companies, the investments can go into millions
of rupees, so economic factors of the location should be very
minutely and carefully checked and discussed in order to achieve
good returns on the money which has been invested.

29
1.3.2 Plant location analysis

Location analysis is a dynamic process where the business

analyses and compares the appropriateness or otherwise of
alternative sites with the aim of selecting the best site for
a given firm. It consists of the following:

Demographic Analysis

It involves study of population in the area in terms of total

population, age of the population group, per capita income of
the state, country and at times, the district, adjacent district
per capita incomes, educational level, occupational structure
etc. This will give an insight about the market, availability of
manpower and composition of trained manpower.

Trade Area Analysis

It is an analysis of the geographic area that provides

continued clientele to the firm. The business would also see
the feasibility of accessing the trade area from alternative sites.
It involves the transportation cost, mode of transportation,
availability of infrastructure such as road, railway lines and sea
and air ports and facilities such as storages, climate condition,
which may also influence the firm’s decision.

Competitive Analysis

It helps to judge the nature, location, size and

quality of competition in a given trade area.

30
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. This will give an idea about how other business
units evaluate the 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 call d as running costs.

1.3.3Factors influencing Manufacturing Plant

Location

Plant location decisions are needed when a new plant is

to be set up or when the operations involved in the company
at the present location need to be expanded but expansion
becomes difficult because of the poor selection of the site for
such operations. These decisions are sometimes taken because
of the social or the political conditions engulfing the working
of a company.

The way the works of a company have to be performed,

largely depends upon the industrial policies issued by the
government. Any change that creeps in the industrial policy
of the government which favors decentralization and hence
does not permit any change or any expansion of the existing
plant – requires strictly evaluated location decisions. We will

31
broadly put the factors into four heads;

Operational Factors

Operational factors that play a key role in factory location

or relocation are diverse, touching on everything from cost
consciousness and labor management to strategic direction
and regulatory compliance. Other elements in the plant-
opening equation include government stimulus programs --
such as fiscal incentives -- and geographical convenience—
availability of land / power and other related infrastructure.

A company’s top brass may take various steps to analyze

plant location issues and remedy problems with factory
site selection. Senior executives may develop an objective
understanding of the best locations to pick, why some sites
are inappropriate, how to avert logistical nightmares with
respect to worker commutes and how the site-search team
can collaborate effectively with corporate manufacturing
personnel to make the search a success.

1. Availability of qualified employees

2. Stable climate

3. Secure area due to good policing

4. Socially acceptable in the surrounding region

Materials Management

Materials management deals with the mixture of

processes and tools a company relies on to determine
how much merchandise it has at a given point, to instill in
warehouse personnel the need to prevent product decay, to
arrange for shipping companies to quickly access storage areas

32
and to expand factory capacity while heeding the importance
of profit management and sales growth. Simply put, materials
administration helps the business produce items it can sell,
minimize waste and make more money. Materials falling under
the items management function include finished goods, work- in-
process merchandise and raw materials.

1. Raw material availability and the transport of these

resources to the plant at minimal cost
2. Forecast of present and future demand and supply of the
product being produced.
3. Availability of waste disposal sites: the manufacturing
plant must be as environmentally as possible
4. Availability of governmental support, tax benefits, and
other incentives

Connection

Plant location considerations connect with the material

management work stream in corporate processes, especially
in businesses with a large manufacturing base or those relying
heavily on a continued stream of supplies to make money.
Examples include large grocery stores and multi-channel food
distribution centers.

The operational symbiosis between the two concepts

often helps corporate management do away with the primary
dilemma of modern business management: how to produce
goods quickly and not too far from distribution centers so
customers can have them when needed.

33
 1. Availability of the market and potential for future growth

2. The cost of transporting goods and services to people

must be minimal

3. Competition analysis in the region using relevant market

intelligence.

Deal Economics

Before locating -- or relocating -- a factory or production

process, company principals sit department heads and
business consultants at a table, asking them to ponder costs
associated with the move. Senior executives focus on clarity of
thought and idea generation and do not let the group trundle
off with a hazy idea of what relocation expenses will be. In
this context, deal economics includes things like land cost,
factory construction, labor expense, fiscal implications and
production capacity.

1. Land availability in terms of future expansion of the

plant and the ability of the soil to support a factory

2. Labor and raw material availability and the transport of

these resources to the plant at minimal cost

3. Availability of transportation and communication

facilities like airports, railway, telephone, etc

4. Availability of infrastructure: running water, electricity,

schools, hospitals, libraries, etc.

Furthermore, political, technical and economic

considerations must also be taken into account before setting
up a new manufacturing plant.

34
1.4 Plant Layout

The efficiency of any production system depends on well-

organized factors such as various machines, production facilities
and employee’s amenities located in a plant. Properly laid out
plant can ensure the smooth and rapid movement of material,
from the raw material stage to the end product stage. Plant layout
deals with new layout as well as improvement in the existing
layout.

Plant layout can be defined as the arrangement of

physical facilities such as machinery, equipment, furniture etc.
within the factory building in such a manner so as to have
quickest flow of material at the lowest cost and with the least
amount of handling in processing the product from the receipt
of material to the shipment of the finished product.

Overall objective of plant layout is to design a physical

arrangement that most economically meets the required output
– quantity and quality. Plant layout ideally involves allocation
of space and arrangement of equipment in such a manner that
overall operating costs are minimized.

The problems related to plant layout are generally

observed because of the various developments that occur.
These developments generally include adoption of the new
standards of safety, changes in the design of the product,
decision to set up a new plant, introducing a new product,
withdrawing the various obsolete facilities etc.

35
1.4.1 Objectives of a good plant layout

1. Proper and efficient utilization of available floor space

2. Giving good and improved working conditions
3. To ensure that work proceeds from one point to another
point without any delay
4. Provide enough production capacity
5. Minimizing delays in production
6. Reduce material handling costs
7. Reduce hazards to personnel
8. Utilize labour efficiently
9. Increase employee morale
10. Reduce accidents
11. Provide for volume and product flexibility
12. Provide ease of supervision and control
13. Provide for employee safety and health
14. Allow ease of maintenance
15. Allow high machine or equipment utilization
16. Improve productivity

Sometime, providing comfort to the workers and catering

to worker’s taste and liking, better control over the production
cycle by having greater flexibility for changes in the design of
the product may also be objective behind designing the layout.

1.4.2 Principles of a good plant layout

1. A good plant layout is the one which is able to integrate

its workmen, materials, machines in the best possible
way.

36
 2. A good plant layout is the one which sees very little or
minimum possible movement of the materials during
the operations.

3. A good layout is the one that is able to make effective

and proper use of the space that is available for use.

4. A good layout is the one which involves unidirectional

flow of the materials during operations without involving
any back tracking.

5. A good plant layout is the one which ensures proper

security with maximum flexibility.

6. Maximum visibility, minimum handling and maximum

accessibility, all form other important features of a good
plant layout.

1.4.3Types of layout

There are mainly four types of plant layout:

(a) Product or line layout
(b) Process or functional layout
(c) Fixed position or location layout
(d) Combined or group layout

(a) Product or Line layout

In an industrial set up, sometime, the machines

and equipments are arranged in one line depending upon
the sequence of operations required for the product. The
raw materials and semi-finished materials move from one
workstation to another sequentially without any backtracking
or deviation.

37
 Under this, machines are grouped in one sequence.
Therefore materials are fed into the first machine and finished
goods travel automatically from machine to machine, the
output of one machine becoming input of the next, e.g. in a
paper mill, bamboos are fed into the machine at one end and
paper comes out at the other end.

The raw material moves very fast from one workstation

to other stations with a minimum work in progress storage
and material handling. The grouping of machines is done on
following general principles.

ӹ All the machine tools or other items of equipments must

be placed at the point demanded by the sequence of
operations

ӹ There should no points where one line crossed another

line.

ӹ Materials may be fed where they are required for

assembly but not necessarily at one point.

ӹ All the operations including assembly, testing packing

must be included in the line

Advantages of Product layout

ӹ Low cost of material handling, due to straight and short

route and absence of backtracking
ӹ Smooth and continuous operations

ӹ Continuous flow of work

ӹ Lesser inventory and work in progress

ӹ Optimum use of floor space

ӹ Simple and effective inspection of work and simplified

38
 production control
ӹ Lower manufacturing cost per unit

Disadvantages of Product layout

ӹ Higher initial capital investment in special purpose

machine (SPM)
ӹ High overhead charges

ӹ Breakdown of one machine will disturb the production

process.
ӹ Lesser flexibility of physical resources

Thus, these types of layouts are able to make better

utilization of the equipment that is available, with greater
flexibility in allocation of work to the equipment and also to
the workers one should be very cautious about any imbalance
caused in one section is not allowed to affect the working of
the other sections.

(b) Process or functional layout

In this type of layout machines of a similar type are

arranged together at one place.

`For example, machines performing drilling operations

are arranged in the drilling department, machines performing
casting operations be grouped in the casting department.
Therefore the machines are installed in the plants, according
to various processes in the factory layout.

Hence, such layouts typically have drilling department,

milling department, welding department, heating department
and painting department etc. The process or functional layout is

39
followed from historical period. It evolved from the handicraft
method of production. The work has to be allocated to each
department in such a way that no machines are chosen to do
as many different job as possible i.e. the emphasis is on general
purpose machine.

The work, which has to be done, is allocated to the

machines according to loading schedules with the object of
ensuring that each machine is fully loaded.

Advantages of Process layout

ӹ Lower initial capital investment is required

ӹ There is high degree of machine utilization, as a machine

is not blocked for a single product
ӹ The overhead costs are relatively low

ӹ Breakdown of one machine does not disturb the

production process
ӹ Supervision can be more effective and specialized.

ӹ Greater flexibility of resources

Disadvantages of Process layout

ӹ Material handling costs are high due to backtracking

ӹ More skilled labour is required resulting in higher cost

ӹ Work in progress inventory is high needing greater

storage space
ӹ More frequent inspection is needed which results in
costly supervision

Thus, the process layout or functional layout is suitable

for factories / businesses which have job order production;

40
that is involving non-repetitive processes and customer
specifications and non-standardized products, e.g. tailoring,
light and heavy engineering products, made to order furniture
industries, jewelry etc.

(c)Fixed position or location layout

Fixed position layout involves the movement of manpower

and machines to the product which remains stationary. The
movement of men and machines is advisable as the cost of
moving them would be lesser. This type of layout is preferred
where the size of the job is bulky and heavy. Example of such
type of layout is locomotives, ships, boilers, generators, wagon
building, aircraft manufacturing, etc.

Advantages of Fixed position layout

ӹ The investment on layout is very small.

ӹ The layout is flexible as change in job design and

operation sequence can be easily incorporated.
ӹ Adjustments can be made to meet shortage of materials
or absence of workers by changing the sequence of
operations.

Disadvantages of Fixed position layout

ӹ As the production period being very long so the capital

investment is very high.
ӹ Very large space is required for storage of material and
equipment near the product.
ӹ As several operations are often carried out simultaneously
so there is possibility of confusion and conflicts among
different workgroups.

41
(d) Combined or group layout

Certain manufacturing units may require all three

processes namely intermittent process (job shops), the
continuous process (mass production shops) and the
representative process combined process [i.e. miscellaneous
shops]. In most of industries, only a product layout or a
process layout or a fixed location layout does not exist. Thus, in
manufacturing concerns where several products are produced
in repeated numbers with no likelihood of continuous
production, combined layout is followed.

Generally, a combination of the product and process

layout or other combination are found, in practice, e.g. for
industries involving the fabrication of parts and assembly,
fabrication tends to employ the process layout, while the
assembly areas often employ the product layout.

In soap, manufacturing plant, the machinery

manufacturing soap is arranged on the product line principle,
but ancillary services such as heating, the manufacturing of
glycerin, the power house, the water treatment plant etc. are
arranged on a functional basis.

1.5 Introduction to Production Planning

In any product manufacturing company, considerable

time is spent on planning the output to be produced.
Production planning means to fix the production goals and
to estimate the resources which are required to achieve these
goals. It prepares a detailed plan for achieving the production
goals economically, efficiently and in time.

42
 It forecasts each step in the production process. It
forecasts the problems, which may arise in the production
process. It tries to provide remedial measures to resolve these
issues. It also tries to remove the causes of wastage.

Thus, Production Planning may be defined as

“Production Planning is concerned with the determination,
acquisition and arrangement of all facilities necessary for
future operations.”

Production planning provides answers for two major

questions, viz.,

• What work should be done?

• How much time will be taken to perform the work?

So, production planning decides the ways and means

of production. It shows the direction. It is based on sales
forecasting. It is a pre-requisite of production control.

1.5.1Objectives of Production Planning

The need, main functions or objectives of production

planning in any organisation could be:

ӹ Effective utilization of all the resources in the organisation

ӹ Steady flow of production process without any hurdles /

bottlenecks
ӹ Estimate the resources – men, machinery and material
requirements for the future
ӹ Ensures optimum inventory level, without blocking the
organization’s resources

43
 ӹ Co-ordinates activities of various departments

ӹ Minimize wastage of raw materials

ӹ Improves the labour productivity

ӹ Helps to capture the market

ӹ Provides a better work environment

ӹ Facilitates quality improvement

ӹ Results in consumer satisfaction

ӹ Reduces the production costs

ӹ Now let’s discuss each objective of production planning

one by one
We will give a brief introduction about these points in the
following paragraphs.

1. Effective utilization of resources

Production planning results in effective utilization of

resources, plant capacity and equipments. This results in low-
cost and high returns for the organization. Thus, the operations
manager in charge, need to have discussion with various
departments – such as purchases, inventory, sales and human
resources to arrive better utilization of all the resources.

2. Steady flow of production

Production planning ensures a regular and steady flow

of production. Here, all the machines are put to maximum
use. This results in a regular production, which helps to give
a routine supply to customers. Moreover, to ensure the steady
flow, the plan should include an element of human resource
plan to maintenance of all the equipments.

44
3. Estimate the resources

Production planning helps to estimate the resources

like men, materials, etc. The estimate is made based on sales
forecast. So production is planned to meet sales requirements.

4. Ensures optimum inventory

Production planning ensures optimum inventory. It

prevents over-stocking and under-stocking. Necessary stocks
are maintained. Stock of raw material is maintained at a
proper level in order to meet the production demands. Stock
of finished goods is also maintained to meet regular demands
from customers.

5. Co-ordinates activities of departments

Production planning helps to co-ordinate the activities

of different departments. For instance, the department has
to coordinate with marketing department to set the targets /
goals for production department to sell the goods. This results
in profit to the organization.

6. Minimize wastage of raw materials

Production planning minimizes wastage of raw materials.

It ensures proper inventory of raw materials and materials
handling. This helps to minimize wastages of raw material
and ensures production of quality goods. This will result in
minimum rejections; thus, proper production planning and
control results in minimum wastage.

45
7. Improves the labour productivity

Production planning improves the labour productivity.

Here, there is maximum utilization of manpower. Training
is provided to the workers. The profits are shared with the
workers in form of increased wages and other incentives.
Workers are motivated to perform their best. This results in
improved labour efficiency.

8. Helps to capture the market

Production planning helps to give delivery of goods to

customers in time. This is because of regular flow of quality
production. So the company can face competition effectively,
and it can capture the market.

9. Provides a better work environment

Production planning provides a better work environment

to the workers. Workers get improved working conditions,
proper working hours, leave and holidays, increased wages
and other incentives. This is because the company is working
very efficiently.

10. Facilitates quality improvement

Production planning facilitates quality improvement

because the production is checked regularly. Quality
consciousness is developed among the employees through
training, suggestion schemes, quality circles, etc.

11. Results in consumer satisfaction

Production planning helps to give a regular supply of

goods and services to the consumers at far prices. It results in

46
consumer satisfaction. If the product / brand are not available
regularly in the market, it will create lot of chaos in the market
and in the consumer mind. Also, there is a scope for the firm
to lose the market share to the competitors.

12. Reduces the production costs

Production planning makes optimum utilization of

resources, and it minimizes wastage. It also maintains optimum
size of inventories. All this reduces the production costs. Thus,
in the planning, elements of financial implications are also
involved.

1.5.2Characteristics of a good production plan

Any manufacturing or service company success and

higher productivity highly depend upon an effective and
efficient production plan. Effective planning is fundamental in
any business; however, making a plan is not an easy task. It is a
complex process that covers a wide range of diverse activities,
which relate and link materials, equipment and human
resources available in the organisation and complete the work.
Production planning is like a roadmap to reach destination
set by the top management. It helps you know where you are
going and how long it will take you to get there.

Advantages of an effective production plan and scheduling:

1. Reduces labour by eliminating wasted time and

improving process flow
2. Reduces inventory costs by reducing the need for safety
stocks and excessive work-in-process inventories
3. Optimizes equipment usage and maximizes capacity

47
 4. Utilizes human resources to their full potential

5. Improves on-time deliveries of products and services

1.5.3 Key factors of a production plan

Effective planning hinges on a sound understanding of

key activities that entrepreneurs and business managers should
apply to the planning process. Here are some examples:

Forecast Market Expectations

To plan effectively you will need to estimate potential

sales with some reliability. Most businesses don’t have firm
sales or service figures. However, they can forecast sales based
on historical information, market trends and/or established
orders.

Inventory Control

Reliable inventory levels feeding the pipeline have to be

established and a sound inventory system should be in place.

Availability of Equipment and Human Resources

Also known as open time, this is the period of time

allowed between processes so that all orders flow within your
production line or service. Production planning helps you
manage open time, ensuring it is well-utilized, while being
careful not to create delays. Planning should maximize your
operational capacity but not exceed it. It’s also wise not to plan
for full capacity and leave room for the unexpected priorities
and changes that may arise.

48
Standardized Steps and Time

Typically, the most efficient means to determine your

production steps is to map processes in the order that they
happen and then incorporate the average time it took to
complete the work. Remember that all steps don’t happen in
sequence and that many may occur at the same time.

After completing a process map, you will understand

how long it will take to complete the entire process. Where
work is repeated or similar, it is best to standardize the work
and time involved. Document similar activities for future use
and use them as a base-line to establish future routings and
times. This will speed up your planning process significantly.

During the process map stage, you may identify waste. You
can use operational efficiency/lean manufacturing principles
to eliminate waste, shorten the process and improve deliveries
and costs. BDC Consulting can assist businesses in process
mapping and other operational efficiency principles and tools.

Risk Factors

Evaluate these by collecting historical information on

similar work experiences, detailing the actual time, materials
and failures encountered. Where risks are significant, you
should conduct a failure mode effect analysis method
(FMEA) and ensure that controls are put in place to eliminate
or minimize them. This method allows you to study and
determine ways to diminish potential problems within your
business operations. This type of analysis is more common in
manufacturing and assembly businesses.

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1.5.4 Planning activities

All other activities are initiated from the production plan

and each area is dependent on the interaction of the activities.
Typically, a plan addresses materials, equipment, human
resources, training, capacity and the routing or methods to
complete the work in a standard time. In order to do a good
sales forecast, you should base it on a history of firm orders.

The production plan initially needs to address specific

key elements well in advance of production in order to ensure
an uninterrupted flow of work as it unfolds.

Material Ordering

Materials and services that require a long lead time or are

at an extended shipping distance, also known as blanket orders,
should be ordered in advance of production requirements.
Suppliers should send you materials periodically to ensure an
uninterrupted pipeline

Equipment Procurement

Procuring specialized tools and equipment to initiate

the production process may require a longer lead time. Keep
in mind that the equipment may have to be custom made or
simply difficult to set up. This type of equipment may also
require special training

Bottlenecks

These are constraints or restrictions in the process flow

and should be assessed in advance so you can plan around
them or eliminate them before you begin production. When
you assess possible bottlenecks, be aware that they may shift

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to another area of the process. Dealing with bottlenecks is a
continual challenge for any business

Human Resources Acquisitions and Training

Key or specialized positions may demand extensive

training on specialized equipment, technical processes
or regulatory requirements. These employees should be
interviewed thoroughly about their skills. When hiring them,
allow sufficient time for training and be sure that they are
competent in their work before the job begins. This will ensure
that your process or service flows smoothly

The production plan provides a foundation to schedule

the actual work and plan the details of day-to-day activities.
As sales orders come in, you will need to address them
individually based on their priority. The importance of the
sales order will determine the work flow and when it should
be scheduled. After this, you should evaluate whether or not
you are ready for production or to offer the service. You will
need to determine:

1. If the inventory is available at the point where work is

to start? If not, then the work needs to be rescheduled
when supplies become available. There is no point in
scheduling work that you will not be able to complete

2. Are your resources available? Do you have the necessary

staff to complete the task? Are the machines being used?

3. Does the standard time fit within the open time allowed?
If not, then the work should be rescheduled

4. You should be careful to minimize risk factors; allowing

too many what-ifs can delay delivery and be counter
productive

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1.5.5 Communicate the plan

After you have determined that you have met the

criteria to start production, you will need to
communicate the plan to the employees who will
implement it. You can plan the production on
spreadsheets, databases or software which usually speeds
the process up. However, a visual representation is
preferred as a means to communicate operation schedules
to floor employees. Some businesses post work orders
on boards or use computer monitors to display the floor
schedule.

The schedule also needs to be available to

employees ahead of time and kept up to date.

Consider change

One of the many challenges of production planning

and scheduling is following up with changes to orders.
Changes happen every day; you may lack materials;
delivery time is moved up or work parameters have to be
adapted. You will need to adjust your plan in line with
these changes and advise the plant. Dealing with change
is not always easy and may take as much effort as
creating the original production plan. You will need to
follow up with the various departments involved in
order to rectify any problems. As well, computer
software can be helpful in tracking changes, inventory,
employees and equipment.
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