PRODUCTION/OPERATIONS

MANAGEMENT

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NATURE AND SCOPE

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 BUSINESS: if it has to exist, must have MARKET.

TO HAVE MARKET: business organisation must provide,

a)Product or b) Service , which meet a NEED.
NEED of the market is customer/user’s demand.
BUSINESS as defined by HARVARD SCHOOL of BUSINESS
MANAGEMENT,
“ Businesses exist to create Value Satisfaction at Profit”, where;
VALUE SATISFACTION of a product is explained as,
‘ It should be able to fulfill the need, for which it required, for a
period of time, at most competitive price, having ease of
operation and maintenance.’
PROFIT is in essential outcome of business as no business
would run without profit.
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OBJECTIVE OF BUSINESS is also defined as;
“ Creation and delivery of a product, a system or a service of
OPTIMUM QUALITY and RELIABILITY at COMPETITIVE PRICE”.

COST & QUALITY are characteristics that must be designed in a

product. However,
ACHIEVING these in final product is the result of carefully
managing production resources of the company – known as
OPERATIONS MANAGEMENT.

Operations Management, at the most fundamental level, is

about getting the day-to-day work done quickly, efficiently,
without errors and at lowest cost.

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 In addition to making the process work right, essential
feature of operations Management is also to create
improvement in customer service and cost which can be
achieved through INNOVATIVE THINKING.
An Organisation can be successful, if it crafts EFFICIENT
and EFFECTIVE operations
• Efficiency means doing something at lowest cost ; and
• Effectiveness means doing right things to create most value
for the company, where,
value can be metaphorically defined as Quality divided by
Price.

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 Types of activity being performed by any business
organisation are,
• Manufacturing, and
• Service.
In manufacturing organisations we generally deliver a
Product.
The essential difference between a product and service is that
Product is a tangible thing which we can carry with us, whereas
services are intangible and perishable and are consumed in the
process of their production.
In product system there is very little contact between
producer and the user of the product whereas in service system
there is great deal of contact with client or customer.
However, it is very difficult to identify any organisation as a
purely product system or service system as almost all the
organisations are engaged on both types of activities.
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PRODUCTIVE SYSTEM:
INPUT-CONVERSION-OUTPUT sequence is a useful way to conceptualize the
productive system, beginning with the smallest unit of the productive activity which is
commonly referred as ‘operation’.
An operation is some step in the overall process of producing a product or service.
Productive system as Transformation/Conversion process can be depicted as;

INPUTS TRANSFORMATION/CONVERSION OUTPUT

PROCESS
Material
Labour Operations Management Product
Machines Systems Design &
Facilities Operations Planning & Control Service
Energy
Informati
on
Information Feedback
concerning output of
process control

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 There are four dimensions of competitiveness that
measure the effectiveness of operations function.

• Cost;- to compete in price, organisation should be able to

produce at low cost.
• Quality;- customers and clients are willing to pay even more or
wait for superior product
• Dependability as a supplier ;- a reputation of dependability of
supply or even off-the- shelf availability, is often a strong
competitive weapon, and
• Flexibility/ service;- flexibility and service are important
elements in an enterprise strategy that is provided by production
function.

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STUDY OF OPERATIONS MANAGEMENT;
In order to improve organisation effectiveness as also to
achieve corporate competitiveness, study of Operations
Management provides us with;
-Understanding modern approaches to manage operations
e.g. Supply Chain Management, Total Quality Management,
Business Process Re-engineering, Just-In-Time Delivery
concepts.
- a systematic way of looking at organisational processes.
- presents interesting career opportunities,
- concepts and tools of OM are widely used in managing other
functions of a business such as planning of work, control
quality, ensure productivity of individuals working under
them.
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OPERATIONS MANAGEMENT ; can be defined as,
“ The design, operation and improvement of the systems that
create and deliver firm’s primary products and services”.

ORGANISATIONAL MODEL

Sales Finance HRM

Marketing OPERATIONS QA
MANAGEMENT

Engineering MIS Accounting

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ENTRY LEVEL JOBS IN OM;

• Purchasing Planner/ Buyer

• Production ( or operations) supervisor
• Production ( or operations) scheduler/ controller
• Production ( or operations ) analyst
• Inventory Analyst
• Quality Analyst

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HISTORICAL DEVELOPMENTS IN OPERATIONS MANAGEMENT

1910s : F.W.Taylor came out with principles of Scientific

Management formalising Time-study and Work-study concepts.
Frank Gilbreth and his wife Lilian Gilbreth stressed on motion
study. Henry Ford and Henry L. Gantt gave Moving assembly
line concept and activity scheduling charts.
1927-32: Researchers, Elton Mayo and his associates, as a
result of what is known as ‘Hawthorne Experiments’, realised
that human factors were affecting the production and that
psychological and sociological factors affect the production.
1940s: Operation Research groups developed Multi-disciplinary
team approaches to complex system problems using Linear
Programming technique.

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1970s: Widespread use of computers in operations activities
like shop scheduling, Inventory control, forecasting, project
management etc.
1980s: Concept of manufacturing as competitive weapon,
stressed on developing manufacturing strategies; Just-In-Time
(JIT), Total Quality Control (TQC), and Factory automation were
introduced.
1990s: saw the concepts of Total Quality Management (TQM)
advocating continuous improvement, Business Process Re-
engineering through radical changes in processes, Electronic
Enterprise using internet and world-wide web and Supply
Chain Management.
2000s: E-commerce through internet and world-wide-web.
Here use of internet is considered essential element of
business activity.
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CURRENT ISSUES IN OPERATIONS MANAGEMENT

Major challenges in the field are;

• Coordinating the relationships between mutually supportive
but separate organisations;- Outsourcing of major activities has
led to a breed of contract manufacturers/suppliers and
coordinating with them is a big challenge.
• Optimising global suppliers, production and distribution
networks;- requires careful understanding of where the controls
are required and where autonomy is important.
• Increased co-production of goods and services;- Internet has
opened new ways for the customers to directly interact with
firms.

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STUDY of OPERATIONS MANAGEMENT ;

involves study of,

• Operations as a system, and

• Decision Making in operations.

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OPERATIONS AS A SYSTEM

In manufacturing operations system is defined as one in which

several activities are performed to transform a set of inputs into
a useful output (product) using a transformation process.

In services, organisation uses service delivery system to

provide required service. A service organisation may not always
make use of material inputs and may not always produce
products that are used by customer.
Inputs/outputs may be informational /experiential in nature in
service organisations.

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TRANSFORMATION PROCESSES in a business
organisation could be;

• Physical ( as in manufacturing)
• Location (as in transportation)
• Exchange (as in retailing)
• Storage ( as in warehousing)
• Physiological ( as in healthcare)
• Informational ( as in telecommunication).

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DIFFERENT ASPECTS OF OPERATIONS MANAGEMENT

• Provides Systematic approach; with a focus on developing a

set of tools and techniques to analyse problems faced within an
operations system.
• To address the various issues which organisation faces,
providing alternative methodologies to address wide ranging
issues in an organisation.
• Transformation process addresses various issues in the design
of transformation process, as well as planning and controls.
• Develop systems for performance evaluation and methods by
which operating system could make improvements to meet
targeted performance measures.

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DECISION MAKING IN OPERATIONS MANAGEMENT

Management decisions in operations function can be

divided into three major areas.

• Strategic (long-term) decisions

• Tactical ( intermediate-term) decisions
• Operational Planning and control (short-term)
decisions.

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 STRATEGIC ( LONG-TERM) DECISIONS:

Strategic issues are usually broad, addressing such questions

as;
How will we make the product? Where do we locate the
facilities? How much capacity do we need? Etc.
The time frame for such decisions is long, usually several
years or more (depending upon the industry). These decisions
affect company’s long range effectiveness in terms of how it can
address customer’s needs. These decisions have to be in line
with corporate strategy and become fixed conditions or
operating constraints under which firm must operate in both
intermediate and short term.

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 TACTICAL (INTERMEDIATE-TERM) DECISIONS:

These decisions, tactical planning, addresses how to

effectively schedule material and labor within the constraints of
previously made strategic decisions. The issues on which these
decisions concentrate are,
How many workers we need? When do we need them?
Should we work overtime or put two shifts? When should we
have material? Should we have finished goods inventory? Etc.

These tactical decisions become constraint under which

operational planning and control decisions are made.

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OPERATIONAL PLANNING AND CONTROL (SHORT-TERM)
DECISIONS:

These are narrow and short term by comparison. These

include;
What jobs do we work on today or this week? Whom do
we assign what task? What jobs have priority? Etc.

These are day-to-day or week-to-week operating decisions

and should be in line with decisions already taken.

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NEW PRODUCT
DEVELOPMENT

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TRANSFORMATION PROCESS
INPUT – TRANSFORMATION – OUTPUT is a useful way to
conceptualise the productive system.

INPUTS TRANSFORMATION/CONVERSION OUTPUT

PROCESS
MATERIALS OPERATIONS MANAGEMENT PRODUCT
LABOR SYSTEM DESIGN AND
MACHINES OPERATIONS PLANNING SERVICES
FACILITIES &CONTROL SYSTEMS
ENERGY
INFORMATION

INFORMATION FEEDBACK
CONCERNING OUTPUT OF
PROCESS CONTROL

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 PRODUCT LIFE CYCLE:
Every product has a life cycle which can be divided into four
stages;
• INTRODUCTION;- initially product is manufactured in low
volume with custom design.
• GROWTH;- variety becomes more limited and volume
increases.
• MATURITY;- Variety becomes even more limited and the
product basically becomes a commodity.
• DECLINE;- by this time substitutions become available that
may be superior in terms of functions, quality, cost and
availability.
Thus a new product life cycle would begin.

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PRODUCT LIFE CYCLE GRAPH

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 Examples for various stages of product life cycle;

Introduction Stage; 3- D (Three Dimension) TVs.

Growth Stage; LCD TVs

Maturity; Large Screen Color TVs

Decline; Black & White TVs

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TYPES of PRODUCT SYSTEMS:
There are two types of product systems;
i)Process Focused /Discrete Systems, and
ii)Product Focused / Continuous Systems.

PROCESS FOCUSED/ DISCRETE SYSTEMS;

The facilities are organised around the nature of the process and
the personnel are specialised for the process.
The personnel in respective departments are trained in respective
processes.
The equipment and personnel are capable of meeting individual
component specifications and assemble to meet requirements of custom
product.
The flow of items is dictated by individual product requirement. The
routes through the system are variable.
Results in intermittent demand of system facilities so also called
discrete system.
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PRODUCT FOCUSED/CONTINUOUS SYSTEM:
Productive system which produces high volume, standardised
product results in continuous use of facilities.
High volume requirements justify special processing
equipment and rather dedicated production system as production
strategy. The facilities may be duplicated sometime.
Individual processes are arranged in a required sequence and
entire system is integrated for a single purpose.
Such continuous systems have product focus and make use of
mechanisation and automation to achieve standardisation and
low cost.

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 Between two extremes of Process focused and product
focused systems there are systems that deal with Low Volume
Multiple Product and Relatively High Volume Multiple
Product.
Low volume multiple product systems usually involve
process focused system but final assembly can be taken up in
batches which allows some economy of scale in comparison to
purely job-shop system.
High volume multiple product situation normally
employs mixed production strategy that combines both
process and product focus. In such systems part manufacture
is often organised in batches (intermittent) and final product
assembly is organised in line, on continuous basis.

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PRODUCTION TO-STOCK or TO-ORDER
An important decision for the manager is to decide whether
to produce to –order or to-stock.
To produce only to-order;
• Offers design flexibility to customer.
• Minimises risks associated with carrying inventories.
• May allow closer control on quality.
To produce to-stock , on the other hand:
• Could offer better service in terms of availability.
• Reduce variable cost.
• Increase market share by making item available when
customers have urge to buy.
The choice between to-stock or to-order does not depend on
whether the system is process focused or product focused.
These are two types of production systems with two possible
types of Inventory Options.
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NEW PRODUCT DESIGN and DEVELOPMENT

New product design process centers on two activities

that are repeated over and over.

• Brain storming, and

• Rapid Prototyping

Designing new product and getting it to the market

quickly to the market is the challenge facing the
manufacturers in industries as diverse computer chips
to potato chips

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THE PRODUCT DEVELOPMENT PROCESS
The six phases of generic development process are;-
• Planning;-It is often referred to as “zero phase” since it precedes
the project approval and launch of the actual product
development process. It begins with corporate strategy and
includes assessment of technology developments and market
objectives. The outcome is a project mission statement, which
specifies the target market for the product, business goals, key
assumptions and constraints.
• Concept Development;- in this phase needs of target market are
identified, alternative product concepts are generated and
evaluated and one or more concepts are selected for further
development. A concept is a description of the form, function and
features of a product and is usually accompanied by a set of
specifications, analysis of competitive products and economic
justification of the project.
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• Design Detail;- This phase includes complete specifications of
the geometry, materials and tolerances of all the unique parts
in the product and the specifications of all the standard parts
to be purchased from the suppliers. The outcome of this phase
are final drawings describing geometry of each part and its
production tooling, specifications of purchased parts and the
process plans for fabrication and assembly of the product.
• System Level Design;-In this stage product architecture is
defined and the product is decomposed into subsystems and
components. The final assembly scheme is also defined in this
phase. Outcome of this phase is a geometrical layout of the
product, functional specifications of each of the product sub-
systems, and preliminary process flow diagram of the final
assembly process.

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• Testing and Refinement;- involves the construction and
evaluation of multiple
preproduction versions of the product. Prototypes are built
with parts with same geometry and material properties as final
product but not necessarily fabricated with the actual
processes to be used in production. Prototypes are tested to
determine whether the product will work as designed and
whether the product satisfies customer needs.
• Production Ramp-up;- In this phase the product is made using
the intended production system. The purpose is to train the
workforce and to work out any remaining problems in the
production process. Products produced during ramp-up are
sometimes supplied to preferred customers and are carefully
evaluated to identify any remaining flaws. Transition from
production ramp-up to ongoing production is gradual. At
sometime in the transition the product is launched and it
becomes available for widespread distribution. 35
TYPES OF PROCESSES

The processes can be categorised in two broad categories;

• Single Stage Process;- Here all the activities involved in the

process are collapsed into one single activity and analysed as
one activity using a single cycle time.

• Multiple Stage Process;- A multiple activity process has

multiple activities that are linked through flow. Different
stages of the activities are inter connected and inter
dependent.

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 In services also , the processes can be characterised as to
whether the process;

• makes -to -stock , or

• makes – to- order.

Traditionally, in services items were made only to order, but

today, by developing a high- volume approach the process has
been shifted towards make-to-stock in some cases. Example is
Hamburger making process of Mc Donald.

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DESIGNING SERVICE ORGANISATION
In designing service organisations we must remember one
distinctive characteristic of service. We can not INVENTORY
the service. Services are consumed in the process of their
delivery. Designing a service organisation involves four major
elements;
• Identification of target market;- Who is our customer?
• Service concept; - How do we differentiate our service in the
market?
• service strategy;- What is our service package and operating
focus of our service?
• Service Delivery System;- What are the actual processes,
staff and facilities by which service is created?

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FACTORS DIFFERENTIATING SERVICE DESIGN AND
DEVELOPMENT from DESIGN AND
DEVELOPMENT OF MANUFACTURED PRODUCTS
• Product and process must be developed simultaneously;
indeed in service, the process is the product.
• The service package, rather than a definable good,
constitutes major output of the development process.
• Many parts of service package are often defined by the
training individuals receive before they become part of the
service organisation.
• Many service organisations can change their service
offerings virtually overnight.

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TYPES OF PROCESSES IN MANUFACTURING
Manufacturing Processes can be broadly divided in four
categories;
• JOB-SHOP:
Job-shop is a process focused production system that
employs general purpose equipments. The production is –to
order , and large variety of different products each in relatively
small volume (small numbers) are produced.
Examples of job-shop include machine shops, multi-specialty
clinics, computer centers and consulting firms etc.
In many situations in job-shops more than one equipment
or machine are used in sequence to perform certain
operations in a specific order. The operations may be required
to be done on more than one machine. Such cases are known
as flow-shop.
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• BATCH SHOP
It is an extremely common type of production system where
output is inventoriable and is produced in substantial and is
produced in substantial quantity.
The production time can be defined as time required to
manufacture a batch of several identical items, where the
entire batch of items is distinct from another batch of items
either because of different processing requirements or
because each batch is manufactured for a different customer
but are manufactured on the same facility.
In such cases it is necessary to determine the batch size
while planning the production of these batches.

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• HIGH VOLUME AND CONTINUOUS SYSTEM

These are continuous production systems because of high

volume of production.
Such systems are used in the manufacture of chemicals,
steel, wires and cables, liquids (beer, soda), canned goods etc.
Production lines can be fully automated and labor cost is
low in overall product cost. The manufacturing facility (the
line) is dedicated to the product.
Production schedules are made to match with the
aggregate plans which decide the production level work force
requirements and resulting inventory levels.

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•ASSEMBLY LINES
It is a system in between batch-shop and continuous system.
Such a system is foreseen for production of discrete parts
moving from one work station to other work station at a
controlled rate, following the sequence needed to build the
product.
Examples of such systems are in manufacture of
automobiles, telephones, fasteners, textiles, motors etc.
Automated Equipment and partially automated handling can
be adopted. Moving assembly lines for final assembly of
product. Most equipment is arranged in line.
----------------

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FACILITY LOCATION
AND
LAYOUT

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 The problem of location is faced by both new and existing
businesses, and its solution is critical to a company’s eventual
success.
The question of location is very much linked to two
competitive imperatives;

• The need to produce close to the customer due to time-

based competition, trade agreements, and shipping costs.
• The need to locate near the appropriate labor pool to take
advantage of low wage costs and/or high technical skills.

However there are many other issues that need to be

considered while deciding about the location of the
manufacturing/ service facility.
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ISSUES IN FACILITY LOCATION
• Proximity to customers;- It cuts upon the delivery time of
the product/service and also helps ensure that customer
needs are incorporated into products being developed and
made.
• Business Climate;- A favorable business climate can include
presence of similar sized businesses, presence of companies
in the same industry, and in case of international locations,
the presence of other foreign companies. Pro-business
government legislation and local government intervention to
facilitate businesses locating in an area via subsidies, tax
abatements, and other supports are also factors.

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• Total Costs;- The objective is to select a site with lowest total
cost. This includes regional costs, inbound distribution costs and
out bound distribution costs. Land, construction, labor, taxes
and energy costs make up the regional costs. In addition there
are hidden costs which involve , i) excessive movement of
preproduction material between locations before delivery to
customer, and ii) loss of customer responsiveness arising from
locating away from the main customer base.
• Infrastructure;- Adequate rail, road, air, and sea transport are
vital. Energy and telecommunication requirements also must be
met. Government’s willingness to invest in upgrading
infrastructure shall be an added incentive.
• Quality of Labor;- educational and skill levels of the available
labor pool must match the company’s requirements. Even more
important are willingness and ability to learn.

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•Suppliers;- A high quality and competitive supplier base makes
a given location suitable. The proximity of important supplier’s
plants supports lean production methods.
• Other Facilities;- The location of other plants or distribution
centers of the same company may influence a new facility’s
location in network. Issues of product mix and capacity are
strongly interconnected to the location decision in this context.
• Environmental Regulations;- The environmental regulations
that impact a certain industry in a given location should be
included in location decision.
• Host Community;- Host community’s interest in having the
plant in its midst is necessary part of evaluation process. Local
educational facilities and broader issues of quality of life are
also important.
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 For Global Businesses;
• Free Trade Zones;- A Free Trade Zone is typically a closed
facility( under the supervision of customs department) into
which foreign goods can be brought without being subject to
normal custom requirement. Manufacturers in free trade zones
can use imported components in the final product and delay
payment of customs until the product is shipped into the host
country.
• Government Barriers;- Barriers to enter and locate in many
countries are being removed today through legislation. Yet
many non-legislative and cultural barriers should be considered
in location planning.
• Political risks;- Political risks in both the country of location
and host country influence location decisions.

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 PLANT LOCATION METHODS

Evaluation of alternative regions, sub-regions, and

communities is commonly termed as macro-analysis.
Techniques used to support macro-analysis include;

• Factor Rating System

• Transportation Method of Linear Programming

• Centroid Method

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 Factor- Rating systems;- are the most widely used of the general
location techniques because they provide a mechanism to combine
diverse factors in an easy-to-understand format.
By way of example, a refinery assigned the following range of point
values to major factors affecting a set of possible sites:
Factors Range
Fuels in region 0 to 330
Power availability & Reliability 0 to 200
Labor Climate 0 to 100
Living conditions 0 to 100
Transportation 0 to 50
Water Supply 0 to 10
Climate 0 to 50
Supplies 0 to 60
Tax policies and Laws 0 to 20
Each site was then rated against each factor and a point value was
selected from its assigned range. The sums of assigned points was then
compared. The site with most points was selected.
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Generally used to decide Single Facility Location situations.
TRANSPORTATION METHOD OF LINEAR PROGRAMMING;
In case there are ‘m’ number of users or markets whose
locations and demands are known. These demands are to be
met from a set of facilities that can be located at any of the ‘n’
identified sites. The objective is to minimise the total cost of
production, distribution and the fixed costs to install the
facilities. Three questions are required to be answered in such
case;
• How many facilities are required/
• Where each facility should be located?
• What should be the allocation for the demand of a user to
various facilities?

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 There are two components of cost involved in deciding
the locations.
i) the fixed costs (cost of land, building, taxes, etc.) for
installing the facility.
ii) the total cost of production and distribution to meet the
demand.
The locations of the facilities can be decided by comparing
the sum of these two costs.
Assuming that the locations of facilities along with their
capacities are known the problem reduces to determine how
much of user’s demand should be met from each facility
which can be done using Transportation Method.

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 Problem;-
Assume the distribution situation of a Pet Food Company.
There are three factories located at locations A, B, and C that
produce some identical products. There are five major
distribution points, say, V, W, X, Y, and Z. The three factories
have the capacity to meet the market demand of five
distribution points. We have to allocate the product of three
factories to five distribution centers so that the demand is met
and distribution cost is minimum.
The figures of the units available at various factories and the
units required at distribution centers , usually known as ‘rim
conditions’ and distribution costs from for all combinations of
factories and distribution points are shown in Transportation
Table/ distribution table.

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55
56
CENTRIOD METHOD
Centroid Method is a technique for locating for locating single facility
that considers the existing facilities, the distance between them, and
the volumes of goods to be shipped. The technique is often used to
locate intermediate or distribution warehouses. It assumes that
inbound and outbound transportation costs are equal and does not
include any special shipping costs(partial loads).

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 Problem;- The High-Octane Refining company needs to locate
an intermediate holding facility between its refining plant in Long
Beach and its major distributors. The coordinates of the refinery
and distribution points are given in table;
LOCATION ( X,Y Coordinates) Gallons of Gasoline
per month
Long Beach (325,75) 1,500
Anahiem (400,150) 250
LaHabra (450,350) 450
Glendale (350,400) 350
Thousand Oaks (25,450) 450
We have to find coordinates of the location for intermediate
warehouse.

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Using the given information in the problem statement we can
calculate the coordinates of the centriod as;

59
 LOCATION OF SERVICE FACILITIES
For location analysis the services can be split in two
categories;
i) Fixed services, and
ii) Delivered services.

•Fixed Services;- are consumed at the facilities where they are

supplied. Examples are , those supplied by health services,
banks, theatres and food-outlets.
In operations research based approaches, total access
cost represents the objective function for the fixed services.

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• Delivered Services;- are consumed where they are
demanded.
Examples are, such as sanitation and emergency
service(police, fire, and ambulance) are consumed where they
are demanded. In delivered services both the location and the
response time for each facility needs to be determined.
Emergency services like ambulance, fire and police require
rapid response. Managers have to provide large and expensive
facilities in order to meet response standards.
Since queuing of calls to great extent is not acceptable
deployment strategies have been used to provide service at
reasonable cost. Thus locations become mobile through two
way communication system. Instead of returning to the home
base, ambulances and patrol cars may be redeployed in
transit.
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FACILITY LAYOUT:
Layout decisions entail determining the placement of
departments, work groups within the departments, work
stations, machines, and stock holding points within a
production/service facility.
Basic Layout formats are ;-
• A Process Layout (also called job-shop or functional layout)
Here similar equipments or functions are grouped together
like all lathes in one area and all milling machines in another.
Jobs move to different areas as per process requirements.
Layout is developed to optimise their relative placement.
Optimal placement often means placing departments with large
amount of inter department traffic adjacent to each other.
A number of computerised programs have been developed
to help devise good process layouts. Most widely applied out of
these is the Computerised Relative Allocation of Facilities
Technique (CRAFT)
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•A Product Layout (also called flow shop layout);
Here the equipment and the work processes are
arranged according to the progressive steps by which the
product is made. The path for each part is a straight line.
Batch shops, Assembly lines and Continuous Lines are
all product layouts. Manufacturing sequence forms a
major decision consideration in deciding this type of
layout.
• Group Technology Cell (GT-Cell):
It groups dissimilar machines to work on products that
have similar shapes and processing requirements. A
Group Technology layout is similar to a process layout in
that the cells are required to perform specific set of
processes, and is similar to product layout in that the cells
are dedicated to a limited range of products.
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• Fixed Position Layout:
In fixed position layout, the product (by virtue of its bulk
or weight) remains at one location manufacturing
equipment is moved to the product rather than vice
versa. The examples could be construction sites or
building a large ship.
In developing a fixed position layout visualise the product
as the hub of a wheel, with material and arranged
concentrically around the production point in their order
of use and movement difficulty.
Many production facilities present combination of two
or more layout types like, process layout used in
fabrication, group technology in sub assembly and
product type in final assembly.

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LAYOUT in SERVICE SYSTEMS:

The layout of service system can be important for

achieving client-customer goal of fast service. With
emphasis on direct contact with the customer, attention
should be focused on waiting line structure. Flow to the
service facility as well as exit flow should provide enough
space for the waiting lines in way that do not conflict.
Production line approach is common to fast food
service whereas functional layout is with many service
organisations such as general offices, banks and
hospitals etc.

65
PRODUCTION PLANNING
AND
CONTROL

66
OPERATIONS PLANNING;
While creating and delivering the product or services, the
organisations have to perform various operations to achieve the
objectives of business.
For deciding any operation to be carried out, a manager
must;
• know what he wants done,
• set short-term and long term objectives for organisation,
• forecast the economic, social and political environment in
which his organisation shall be working , and
• the resources he will have to arrange to make his operations
successful.
To perform this he must PLAN his operations.

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 A plan is essentially, today’s design for tomorrow’s
action, an outline of actions to be taken in some future
period. And since tomorrow’s conditions depend upon the
circumstances prevailing then, planning is inextricably linked
with forecast.

George R. Terry has defined Planning as;

“ Planning is selection and relating to the facts, and
making and using assumptions regarding the future in the
visualisation and formalisation of proposed activities
believed necessary to achieve desired results”.

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 Relationship between Planning and Control
New Plans
No undesirable
Plan- Controlling deviations
Implementation Comparing
ning Of Plans with Plans

Corrective Action Undesirable deviations

Controls are essential to determine success of the plan.

The controls guide the manager for any correction required
through undesired deviation traced during controling/comparing
with respect to plan.
Planning and Control are therefore known as “SIAMESE TWINS”
in Management.

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Nature of Planning;
The basic nature of planning is being,
• A rational approach; Planning is a rational approach of
defining where we are and where we want to go and
how to reach in a certain time frame. Rationality denoted
choice of appropriate means that are agrreable to
reason and are sane.
• An open system approach; Every organisation has to
deal with and interact with the environment, the changes
in the environment like, economic, technological, socio-
cultural, political-legal or competitive. Planning has to
take care of this open system by being dynamic, ie. be
able to change with time.
• Pervasive in nature; It is not limited to any one level. It
extends to all levels of management.
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Features of a good plan;

• Linkage with long term objectives,

• clear and specific directions for action,
• consistency with internal and external environment,
• feasible- based on reality and not highly ambitious,
• simple to understand as plans are generally made by
one group and implemented by others,
• flexible- in case of any deviations plans should be
redrawn to meet the objectives.
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FORECASTING

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FORECASTING:
Planning and Control of an operation requires an estimate
of DEMAND for the product or service that the organisation
proposes to provide in future. Forecasting, which constitutes
an assessment of demands for tuture, therefore becomes an
integral part of Planning.
Forecasts are vital for every significant decision and to
every business organisation. Since Planning is pervasive and
takes place at all levels in the organisation It is unlikely that
one kind of forecast can serve all needs. Therefore, forecasts
of different time spans to serve as basis for operating plans are
required to be developed for different planning horizons.

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IMPORTANT CONSIDERATIONS FOR FORECASTING;

• Correct forecasting horizon (a week, a month or a quarter).

• Forecasting method with desired accuracy.
• Unit of forecasting eg. Gross sales or individual unit
demand.

These should be based on clear understanding of how the

forecasting data is required to be used.
The forecast should provide data that is appropriate and
useful in making the decisions in different contexts, such as;
Finance and Accounts forecasts provide basis for budgetary
planning and controls. Marketing, relies on sales forecasting
to plan for new product etc.

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 All factors in the environment can not be predicted with
certainty, so it is impossible to get perfect forecast. Therefore
we must;

• Establish practice of continual review of forecast,

• Learn to live with inaccurate forecast. However, try to
improve over forecasting model, within reasonable cost,
• use two or three forecasting methods look at them with
commonsense view.

Continual review and updating in light of new data are basis

to successful forecasting.

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DEMAND
Before discussing types of forecasting we must understand
DEMAND.
There are two basic sources of demand.
• Dependent Demand;- is the demand for a product or
service caused by demand for other product or service.
These are internal demands and need no forecast. These can
just be tabulated. Eg. If a company sells 1000 tri-cycles, then
2000 rear wheels and 1000 front wheels are needed-which is
a dependent demand.
• Independent Demand;- but in above example how many
tri-cycles firm might sell is independent demand which can
not be directly derived from the demand of other product.
Such demands need a forecast to assess future
requirements.
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DEMAND MANAGEMENT
Firms can not do much about dependent demands but can
play an active role to influence the independent demand by,
• applying pressure on its sales force,
• offering incentives to customers and its own sales staff,
•Wage certain sales compaigns,
• cut upon the price which will increase demand.
Demand can also be reduced by increasing price or reducing
sales efforts.
The firm may also play a passive role and simply respond to
the demand.

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 Demand Management deals with customer needs and
suppliers coordination.
The purpose of Demand Management is to coordinate and
control all the sources of demand so that,

• production and operations systems can be utilised

efficiently,
• right quality and quantity of is delivered to the customer on
time, and
• warehouse requirements, interplant shipments and service
parts needs will be met.

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Demand can be broken into various components as;
• average demand for the period,
• a trend,
• seasonal element,
• cyclic element ,and
• random variations.
Trends and seasonal element are easy to understand but
cyclic elements are difficult to determine. This element may
come from occurrences such as elections, war, economic
conditions, sociological pressures.
Random variations can be caused by chance events.

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CLASSIFICATION OF FORECASTS:
Forecasts are often classified according to time-period
and use.
• Short-term forecasts;- (day-to-day and upto one year)
guide the current operations. For short term forecasts we
need methods which are in-expensive to install and
maintain and should be suitable for situations involving
large number of items.
• Medium-term;- (one to three years0 are useful for
plans for monthly production levels, work force levels for
various product types etc. Since the frequency of such
plans compared to short-term plans is lower and number
of different product types for which forecast is to be made
is smaller, forecasting methods which require modest
cost and efforts can be employed.
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 Long-Term ( for periods from one to ten years);- are
generally made to decide about the capacity, location
and new technologies for the plant for a long run.
Because of the longer time periods involved these
forecasts shall have greater uncertainty and lower
degree of accuracy. Often mechanical application of the
method is not sufficient to obtain the desired forecast,
and subjective inputs from managers and other
knowledgeable people are also required. The method of
forecast should therefore integrate objective data and
subjective inputs.

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CHARACTERISTICS OF GOOD FORECASTING
SYSTEM

• Accuracy
• Low computer time requirement
• Low computer storage requirement
• Low cost of software purchase or development
• On-line capabilities
• Ability to link into old data base management system

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FORECASTING TECHNIQUES:
Forecasting methods can be broadly classified into
three categories;-

• Extrapolative or Time Series Methods;- These

methods use past history of demand in making a
forecast for the future. The objective of these methods
is to identify a pattern in historic data and extrapolate
this pattern for future.
For short time horizon extrapolative methods perform
quite well.

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• Causal or Explanatory methods;-
These methods assume that demand for a
product item depends on one or more independent
factors. These methods seek to establish the
relationship between the variable to be forecasted and
the independent variables.
Once the relationship is established, the future
values can be forecasted by simply inserting the
appropriate values for the independent variables.

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• Qualitative or Judgmental Methods;-
These methods rely on the expert’s(manager’s)
opinion on making a prediction for the future. These
methods are useful when forecasts are required for
medium to long-range planning tasks.
When past data is unavailable or is not
representative of the future, there are few alternatives
other than using the informed opinion of knowledgeable
people.
Often in operations judgmental methods are
employed in conjunction with extrapolative or causal
methods.

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 TIME SERIES FORECASTING METHODS
• Simple Moving Average;- A moving average is obtained by
averaging the demand from several of the recent actual demands.
A simple ‘n’ period moving average is defined as;
Sum of actual demands for last ‘n’ periods
Moving average(MA)=
Number of periods used in the model ie n
Larger value of ‘n’ shall have greater smoothing effect on
random demand.
• Weighted Moving Average;- Whereas simple moving average gives
equal weight to demands for all the periods a weighted average allows
weight to be placed on each element providing of course, that sum of
all weights equals ‘1’. So, Forecast for 5th month shall be;
F5= 0.4 D4+ 0.3D3+0.2D2+0.1D1
where D4,D3,D2,D1 are actual demands for 4th, 3rd. 2nd and 1st
month and 0.4,0.3,0.2,0.1 are the weights for these demands
respectively. The most recent past is the most important indicator of
what to expect in future and should therefore get higher value.
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 Exponential Smoothing;- is most used of all the forecasting
techniques and is an integral part of all computerised forecasting
programs. Widely used in ordering inventories in retail firms,
wholesale companies and service agencies. It uses only two pieces
of information;
i) actual demand for most recent period, and
ii) most recent forecast,
at the end of each period a new forecast is made.

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CAUSAL or EXPLANATORY METHODS:
When we have enough historical data and experience, it
may be possible to relate forecasts to factors that cause
the trend, seasonal and fluctuations. Thus if we can
measure these causal factors we can determine their
relationship to the product or service of interest and
compute forecasts of sufficient accuracy.
Causal forecasting model expresses mathematical
relationship between the causal factors and demand for
the item being forecast.
There are two general types of causal models;
• Regression Analysis, and,
• Econometric Model

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Simple Regression Analysis;
Simple Regression analysis is used in case there is only one
independent variable to determine the forecast of the
product. Here , if ‘Y’ is the value of dependent variable
computed with regression equation, then
Y = a + bX
Where, equations for ‘a’ and ‘b’ are,

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Reliability of forecast:
As seen in the graph the values of dependent variable are
scattered around the regression line. Since the regression line
is being used for forecast it is quite possible that actual values
of dependent variable when it becomes known is different from
what is obtained by regression line. A measure of extent to
which data points are scattered around the regression line can
be obtained by using Standard Error Estimate

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Coefficient of Determination:
In chosing the variable X to forecast the variable of
interest Y , it is useful to find to what extent X accounts
for variation of Y. ‘r2’ measures the strength of the linear
relationship between the two and is calculated as;

If the value of ‘r2’ is low we should look for some other

variable or include some other variable in analysis.

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Multiple Regression Analysis:
The general concept of Simple Regression Analysis
can be extended to include the effect of several causal
(independent) factors through multiple regression
analysis. Inclusion of multiple variables might improve the
prediction of dependent variable.
Standard computer programs are available for Simple
as well Multiple Regression Analysis.
A number of Statistical tests to determine the
appropriateness and accuracy of the analysis are
available and can be built up in the computer programs
for carrying out the analysis

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QUALITATIVE or JUDGMENTAL METHODS

• Suitable for situations where historical records or past

data is not available, or if available not representative of
future. We can not create the data which is not existing.
• Estimates of what people think, sampling of how they
react to market tests, knowledge of consumer behavior,
and analogies to similar situations in the past are the
best guide in such situations.
Qualitative methods , in such cases provide a basis
for important decisions.

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Various methods generally used are;
• Market Research;-
When we are looking for the new product ideas, want to
sense the likes and dislikes about the existing product, or
which competitive product in a particular class is
preferred, market research is resorted to. Data collection
is primarily based on surveys, It is quite time consuming.
• Historical Analogy;-
In this method, to forecast the demand of a new product
an existing product of similar nature or a generic product
is taken as a model. The data available for such product
can be used to forecast the demand for new product.
An analogy would be forecasting the demand for DVD-
Players by analysing the demand for VCRs.
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• Panel Consensus:
In panel consensus the idea is that a panel of people
from a variety of positions can develop a more reliable
forecast than a narrower group. The panel forecasts are
developed through open meetings with free exchange of
ideas from all levels of management and individuals.
The difficulty with this open type is that lower
employee levels are intimidated by higher levels of
management.
When decisions to be taken are a broader level eg.
introducing a new product line, the term ‘Executive
Judgment’ is used where only higher level of management
is involved.

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Delphi Method:
In panel consensus , lower level people sometime feel threatened
and so,do not participate. To prevent this Delphi method
conceals the identity of individuals participating in the study.
Procedure followed is;
• Choose the experts to participate, from variety of knowledgeable
people in different areas,
• Through a questionnaire obtain a forecast from the participants
(with any premises or qualifications for the forecast),
• Summarise the results and redistribute the results to all
participants along with new set of questions.
• Summarise again, refining forecast and conditions and again
new set of questions to obtain views/forecast.
• Repeat previous step till a consensus view is obtained and
distribute final results to all participants.
Delphi techniques usually achieves results in three rounds. It
was developed by Rand Corp, in 1950s.
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