plant location

Plant locationPlant location

Meaning-the establishment of an Meaning-the establishment of an industry at a particular place.industry at a particular place.

It is of 2 types-It is of 2 types-1.1. Localization /centralization-means Localization /centralization-means

concentration of similar type of concentration of similar type of industries at some particular place. industries at some particular place. E.g. textile in Mumbai.E.g. textile in Mumbai.

2.2. Delocalization /Decentralization-Delocalization /Decentralization-means spreading of similar type of means spreading of similar type of industries at different places. E.g. industries at different places. E.g. banking industries.banking industries.

Factors affecting location & site decisionsFactors affecting location & site decisions

1.1. Availability of raw materialAvailability of raw material2.2. Nearness to the potential marketNearness to the potential market3.3. Near to the source of operating requirements Near to the source of operating requirements

like electricity, disposal of waste, drainage like electricity, disposal of waste, drainage facilities.facilities.

4.4. Supply of laborSupply of labor5.5. Transport & communication facilitiesTransport & communication facilities6.6. Integration with other group of companiesIntegration with other group of companies7.7. Suitability of land & climateSuitability of land & climate8.8. Availability of housing, other amenities & Availability of housing, other amenities &

servicesservices9.9. Local building & planning regulationsLocal building & planning regulations10.10. Safety requirementsSafety requirements11.11. Others like low interest on loans, special grants, Others like low interest on loans, special grants,

living standardsliving standards

selection of the site for the factory selection of the site for the factory

Known as location analysis where firstly Known as location analysis where firstly some geographical area is selected & some geographical area is selected & from that area a particular site is from that area a particular site is selected for the establishment of the selected for the establishment of the plant.plant.

Methods for the evaluation of plant location-Methods for the evaluation of plant location-

1.1. Involving quantitative factors- Involving quantitative factors-

a.a. Comparative cost chart, b. dimensional Comparative cost chart, b. dimensional analysis.analysis.

2. Comparison of qualitative factors.2. Comparison of qualitative factors.

Comparative cost chartComparative cost chart

Is appropriate where the location problem Is appropriate where the location problem concerns the placement of a single plant. concerns the placement of a single plant. This is based on location cost summary This is based on location cost summary chart. A comparative chart of total costs chart. A comparative chart of total costs involved in setting up a plant of desired size involved in setting up a plant of desired size is prepared.is prepared.

0

10

20

30

40

locations

A

B

C

D

The total cost is represented by the height of The total cost is represented by the height of column for each location. we select a location column for each location. we select a location for which total cost is minimum.for which total cost is minimum.

The cost summary chart has advantage of clarity The cost summary chart has advantage of clarity in presentation. but analysis is restricted to in presentation. but analysis is restricted to certain specified factors only.certain specified factors only.

Least cost centre analysis-Least cost centre analysis-

Here transportation cost associated with various Here transportation cost associated with various location alternatives is considered.location alternatives is considered.

Limitation of these techniques-Limitation of these techniques-

1.Choice of plant location assumed to be entirely 1.Choice of plant location assumed to be entirely dependent upon minimization of operational dependent upon minimization of operational costs.costs.

2.Operational costs are assumed to be linearly 2.Operational costs are assumed to be linearly related to distance involved.related to distance involved.

Dimensional analysisDimensional analysis

It involves It involves

1.1. calculation of the relative merits or calculation of the relative merits or cost ratios for each of the factors, cost ratios for each of the factors,

2.2. giving each of the cost factor an giving each of the cost factor an appropriate weightage by means of appropriate weightage by means of an index to which the cost ratio is an index to which the cost ratio is raised raised

3.3. & multiplying these weighted ratios & multiplying these weighted ratios in order to arrive at a figure on the in order to arrive at a figure on the relative merits of alternative sites.relative merits of alternative sites.

Let Cm1,Cm2,Cm3,…..Cmz are the costs Let Cm1,Cm2,Cm3,…..Cmz are the costs associated with site M for various cost factors. associated with site M for various cost factors. Cn1,Cn2,Cn3,…….Cnz are of site N.W1,W2,W3,Cn1,Cn2,Cn3,…….Cnz are of site N.W1,W2,W3,…….Wz are weightage for various factors.…….Wz are weightage for various factors.

Merit of location M=(Cm1)W1*(Cm2)W2*…Merit of location M=(Cm1)W1*(Cm2)W2*…(Cmz)Wz(Cmz)Wz

Merit of location N=(Cn1)W1*(Cn2)W2*…(Cnz)WzMerit of location N=(Cn1)W1*(Cn2)W2*…(Cnz)Wz

Relative merits of sites M & N are-Relative merits of sites M & N are-

merit of Mmerit of M

merit of Nmerit of N

If this value is > 1, then select site M & vice-If this value is > 1, then select site M & vice-versa.versa.

Advantages- it compares both subjective & Advantages- it compares both subjective & objective factors & gives a quantitative figure.objective factors & gives a quantitative figure.

Comparison of qualitative factors.Comparison of qualitative factors.

These are the factors to which cost values These are the factors to which cost values can’t be assigned. Like lack of good schools, can’t be assigned. Like lack of good schools, community attitude. These can be termed community attitude. These can be termed as good or excellent.as good or excellent.

Clearly location B appears to be better one.Clearly location B appears to be better one.

factorsfactors Location ALocation A Location BLocation B

laborlabor adequateadequate excellentexcellent

relationrelation goodgood Very goodVery good

educationeducation Good Good Very goodVery good

Ranking & weight methodRanking & weight method

1.1. Various locations are ranked acc. To Various locations are ranked acc. To their contributiontheir contribution

2.2. Various factors are assigned Various factors are assigned weights acc. To their importanceweights acc. To their importance

3.3. Weights are then multiplied with Weights are then multiplied with rank assignedrank assigned

4.4. Total of these products for each Total of these products for each location is calculatedlocation is calculated

5.5. Location having max. total is then Location having max. total is then selected.selected.

Advantages &disadvantages of urban, rural & sub-Advantages &disadvantages of urban, rural & sub-urban sites for a plant-urban sites for a plant-

urbanurban ruralrural Sub-urbanSub-urban

Better Better transportationtransportation

More waterMore water Planned Planned industrialindustrial

Large labor Large labor supplysupply

Cheaper landCheaper land Larger areaLarger area

Big local Big local marketmarket

Lower taxesLower taxes

Easy financeEasy finance Few ordinancesFew ordinances

Municipal Municipal servicesservices

Better civil Better civil attitudeattitude

Labor stabilityLabor stability

Backward area & industrial policyBackward area & industrial policy In the facilities location problems, the industrial In the facilities location problems, the industrial

policies of the governments are very important policies of the governments are very important inputs in the overall consideration. In India, the inputs in the overall consideration. In India, the industrial development of backward areas for industrial development of backward areas for balanced regional development of the country has balanced regional development of the country has always been emphasized. This has been attempted always been emphasized. This has been attempted mainly through: mainly through:

1. 1. Licensing policy (Licensing policy (practice of leasing a legally protected property to another practice of leasing a legally protected property to another

partyparty ) )

2. Location of public sector projects2. Location of public sector projects 3. Investment subsidy (3. Investment subsidy (money granted by the State to keep down the price of commoditiesmoney granted by the State to keep down the price of commodities))

4. Concessional finance (by IDBI, IFCI , ICICI)4. Concessional finance (by IDBI, IFCI , ICICI) 5. Concession on income tax import duty etc and5. Concession on income tax import duty etc and 6. Setting up of industrial estates (6. Setting up of industrial estates (property property

consisting of much land ) consisting of much land )

Backward area & industrial policy Backward area & industrial policy contd.contd.

All the districts in the country have been classified All the districts in the country have been classified into four categories: into four categories:

A. No industry districts,A. No industry districts,B. Moderately backward districtsB. Moderately backward districtsC. Least backward districts, andC. Least backward districts, andD. Non-backward districts D. Non-backward districts

The A, B, and C categories are eligible for subsidy The A, B, and C categories are eligible for subsidy on investment in fixed assets in an industrial unit, on investment in fixed assets in an industrial unit, as given below: as given below:

CategoryCategory Percent SubsidyPercent Subsidy Maximum Limit Per unitMaximum Limit Per unit A 25 Rs 25 lakhA 25 Rs 25 lakh

B 15 Rs15 lakhB 15 Rs15 lakhC 10 Rs 10 lakhC 10 Rs 10 lakhD not eligible for subsidy D not eligible for subsidy

Global locationsGlobal locations

World-wide locations are called global World-wide locations are called global locations. locations.

E.g. MNC’s are setting up their branches in E.g. MNC’s are setting up their branches in India & Indian companies are extending India & Indian companies are extending their operations in other countries like -their operations in other countries like -

USA, EUROPE , CHINA.USA, EUROPE , CHINA.

virtual proximityvirtual proximity – Social networking at – Social networking at a distance .with the advances in a distance .with the advances in telecommunications technology , a firm telecommunications technology , a firm can be in virtual proximity to its can be in virtual proximity to its customers.customers.

Virtual FactoryVirtual Factory

Many firms based in USA and UK—in the Many firms based in USA and UK—in the service sector and in the service sector and in the manufacturing sector—often outsource manufacturing sector—often outsource part of their business processes to part of their business processes to foreign locations such as India. Thus, foreign locations such as India. Thus, instead of one's own operations, a firm instead of one's own operations, a firm could use its business associates' could use its business associates' operations facilities. In a way, the operations facilities. In a way, the Indian BPO firm is that foreign-based Indian BPO firm is that foreign-based company's 'virtual service factory'. So, company's 'virtual service factory'. So, one's business associate's operations one's business associate's operations facilities is called virtual factory.facilities is called virtual factory.

REASONS FOR A FOREIGN LOCATIONREASONS FOR A FOREIGN LOCATION 1.1. Reaching the Customer -Reaching the Customer -One obvious reason for One obvious reason for

locating a facility abroad is that of capturing a share of the locating a facility abroad is that of capturing a share of the market expanding worldwide.market expanding worldwide.

2.2. Other Tangible Reasons-Other Tangible Reasons- The host country may have/offer substantial tax advantages The host country may have/offer substantial tax advantages

compared to the home country.compared to the home country. The costs of manufacturing and/or running operations may be The costs of manufacturing and/or running operations may be

substantially less in that foreign country. This may be due tosubstantially less in that foreign country. This may be due to Low labor costLow labor cost Low raw material costLow raw material cost Better availability of inputsBetter availability of inputs

The co. may overcome the tariff (table of fixed charges) barriers The co. may overcome the tariff (table of fixed charges) barriers by setting up a manufacturing plant in foreign country rather by setting up a manufacturing plant in foreign country rather

than exporting the items to that countrythan exporting the items to that country..

3. 3. Intangible reasons-Intangible reasons-

Customer-related reasons-Customer-related reasons- firm’s customer may feel secure that firm is more firm’s customer may feel secure that firm is more

accessible.accessible. Firm may be able to give a personal touch.Firm may be able to give a personal touch. Firm may understand customer’s requirements Firm may understand customer’s requirements

better.better. It may discover other potential customers in abroad.It may discover other potential customers in abroad.

Organizational learning related reasonsOrganizational learning related reasons Firm can learn advanced technologyFirm can learn advanced technology Firm can learn from its customers abroadFirm can learn from its customers abroad It can also learn from its competitors It can also learn from its competitors

operating in abroad.operating in abroad. It may also learn from its suppliers abroadIt may also learn from its suppliers abroad..

Plant layoutPlant layoutMeaning-Meaning-

Plant layout is the physical Plant layout is the physical arrangement of industrial facilities. It arrangement of industrial facilities. It involves the allocation of space & the involves the allocation of space & the arrangement of equipment in such a arrangement of equipment in such a manner that overall operating costs manner that overall operating costs are minimized.are minimized.

D D

D D

G G

G G

G G

M M

M M

M M

A A

A A

L

L L

L L

L L

L

Objectives of plant layoutObjectives of plant layout An efficient layout can be An efficient layout can be

instrumental in the accomplishment instrumental in the accomplishment of the following objectives-of the following objectives-

1.1. Economies in materials, facilitate Economies in materials, facilitate manufacturing process & handling manufacturing process & handling of semi-finished & finished goods.of semi-finished & finished goods.

2.2. Proper & efficient utilization of Proper & efficient utilization of available floor space.available floor space.

3.3. To avoid congestion & bottlenecks.To avoid congestion & bottlenecks.4.4. Provision of better supervision & Provision of better supervision &

control of operations.control of operations.

Objectives of plant layout cont.Objectives of plant layout cont.5. Careful planning to avoid frequent changes in 5. Careful planning to avoid frequent changes in

layout which may result in undue increase in layout which may result in undue increase in cost of production.cost of production.

6. To provide adequate safety to the workers 6. To provide adequate safety to the workers from accidents.from accidents.

7. To meet the quality & capacity requirements in 7. To meet the quality & capacity requirements in the most economical manner.the most economical manner.

8. Provision of medical facilities & cafeteria at 8. Provision of medical facilities & cafeteria at suitable & convenient places.suitable & convenient places.

9. To provide efficient material handling system.9. To provide efficient material handling system.10. To suggest the improvements in production 10. To suggest the improvements in production

process & work methods.process & work methods.

Principles of plant layoutPrinciples of plant layout

1.1. Principle of integration (of 5M’s)Principle of integration (of 5M’s)2.2. Principle of minimum distancePrinciple of minimum distance3.3. Principle of cubic space Principle of cubic space

utilization( both horizontal & utilization( both horizontal & vertical space).vertical space).

4.4. Principle of flow( must be forward Principle of flow( must be forward no backtracking)no backtracking)

5.5. Principle of maximum flexibilityPrinciple of maximum flexibility6.6. Principle of safety, security & Principle of safety, security &

satisfactionsatisfaction7.7. Principle of minimum handling.Principle of minimum handling.

Types of plant layoutTypes of plant layout1.1. Product layout Product layout

2.2. Process layoutProcess layout

3.3. Fixed Position/ Stationary layoutFixed Position/ Stationary layout

Product layoutProduct layout-- Layout that uses standardized processing Layout that uses standardized processing

operations to achieve smooth, rapid, high-operations to achieve smooth, rapid, high-volume flowvolume flow

Here machines are arranged acc. To the Here machines are arranged acc. To the needs of product & in the same sequence as needs of product & in the same sequence as the operations are necessary for the operations are necessary for manufacture. E.g. ‘back office’ of services manufacture. E.g. ‘back office’ of services such as such as banks and insurance companies. banks and insurance companies.

Raw materialsor customer

Finished item

Station 2

Station 2

Station 3

Station 3

Station 4

Station 4

Material and/or labor

Station 1

Material and/or labor

Material and/or labor

Material and/or labor

Used for Repetitive or Continuous Processing

Product LayoutProduct Layout

1.1. High rate of outputHigh rate of output

2.2. Low unit costLow unit cost

3.3. Labor specializationLabor specialization

4.4. Low material handling costLow material handling cost

5.5. High utilization of labor and High utilization of labor and equipmentequipment

6.6. Established routing and Established routing and schedulingscheduling

7.7. Short processing timeShort processing time

Advantages of Product LayoutAdvantages of Product Layout

1.1. Creates dull, repetitive jobsCreates dull, repetitive jobs

2.2. Poorly skilled workers may not maintain Poorly skilled workers may not maintain equipment or quality of outputequipment or quality of output

3.3. Fairly inflexible to changes in volumeFairly inflexible to changes in volume

4.4. Highly susceptible to shutdownsHighly susceptible to shutdowns

5.5. Needs preventive maintenanceNeeds preventive maintenance

6.6. Require large capital investmentRequire large capital investment

Disadvantages of Product Disadvantages of Product LayoutLayout

1 2 3 4

5

6

78910

In

Out

Workers

A U-Shaped Production LineA U-Shaped Production Line

Process layoutProcess layout--

Layout that can handle varied processing Layout that can handle varied processing requirementsrequirements

Here all machines performing similar type of Here all machines performing similar type of operations are grouped together at one operations are grouped together at one location in the process layout. Thus here location in the process layout. Thus here facilities are grouped together acc. To their facilities are grouped together acc. To their functions. E.g. all drilling machines are functions. E.g. all drilling machines are located at one place known as drilling located at one place known as drilling section.section.

Dept. A

Dept. B Dept. D

Dept. C

Dept. F

Dept. E

Used for Intermittent processingJob Shop or Batch

Process Layout(functional)

Process LayoutProcess Layout

Work Station 1

Work Station 2

Work Station 3

Product Layout(sequential)

Used for Repetitive ProcessingRepetitive or Continuous

Product LayoutProduct Layout

1.1. Can handle a variety of processing Can handle a variety of processing requirementsrequirements

2.2. Machines breakdown doesn’t result in Machines breakdown doesn’t result in shutdown.shutdown.

3.3. Equipment used is less costlyEquipment used is less costly

4.4. Wide flexibility in production facilities.Wide flexibility in production facilities.

5.5. Each production unit of system works Each production unit of system works independently.independently.

6.6. High utilization of facilitiesHigh utilization of facilities

7.7. Variety makes the job interesting.Variety makes the job interesting.

Advantages of Process LayoutsAdvantages of Process Layouts

1.1. In-process inventory costs can be In-process inventory costs can be highhigh

2.2. Challenging routing and schedulingChallenging routing and scheduling

3.3. Equipment utilization rates are lowEquipment utilization rates are low

4.4. Material handling is slow and Material handling is slow and inefficient & is more.inefficient & is more.

5.5. More space is requiredMore space is required

6.6. Longer processing timeLonger processing time

7.7. Back tracking may occur.Back tracking may occur.

Disadvantages of Process Disadvantages of Process LayoutsLayouts

Comparison of product & process Comparison of product & process layoutlayout

factorsfactors Product Product layoutlayout

Process Process layoutlayout

1. nature1. nature Sequence of Sequence of facilities facilities

Similar Similar aregp2getheraregp2gether

2. 2. Machines Machines utilizationutilization

Not to full capacityNot to full capacity Better utilizationBetter utilization

3. product3. product standardizedstandardized diversifieddiversified4. Processing 4. Processing timetime

lessless moremore

5. Material 5. Material handlinghandling

lessless moremore

6. inventory6. inventory High WIPHigh WIP Low WIPLow WIP7. breakdown7. breakdown Can’t tolerateCan’t tolerate Can tolerateCan tolerate8. Production 8. Production centrecentre

simplesimple complexcomplex

9.flexibilty9.flexibilty lowlow highhigh10. floor space10. floor space Requires lessRequires less moremore11. investment11. investment highhigh lowlow

Stationary layout- Stationary layout- Layout in which the Layout in which the product or project remains stationary, product or project remains stationary, and workers, materials, and equipment and workers, materials, and equipment are moved as needed. E.g. construction are moved as needed. E.g. construction of DAMS.of DAMS.

The product, because of its size and/or The product, because of its size and/or weight, remains in one location and weight, remains in one location and processes are brought to it.processes are brought to it.

Factors affecting plant layoutFactors affecting plant layout1.1. Nature of product-Nature of product- e.g. some products need e.g. some products need

air-conditioned plants.air-conditioned plants.2.2. Size of output-Size of output- For bulk-product/line layout For bulk-product/line layout For small-functional layout For small-functional layout 3.3. Nature of manufacturing system-Nature of manufacturing system- For intermittent-functional layout For intermittent-functional layout For continuous-product/line layout For continuous-product/line layout 4.4. Localization of plant-Localization of plant- e.g. there will be e.g. there will be

different transportation arrangement if site is different transportation arrangement if site is located near railway line.located near railway line.

5.5. Machines or equipment-Machines or equipment- e.g. heavy e.g. heavy machines need stationary layoutmachines need stationary layout

6.6. Climatic conditions, need of light, temperature Climatic conditions, need of light, temperature also affect design of layout.also affect design of layout.

CRAFT: COMPUTER PROGRAM TO SOLVE PROCESS CRAFT: COMPUTER PROGRAM TO SOLVE PROCESS LAYOUT PROBLEMSLAYOUT PROBLEMS

CRAFT- CRAFT- Computerized Relative Allocation of Facilities TechniqueComputerized Relative Allocation of Facilities Technique

A CRAFT program basically has the following A CRAFT program basically has the following elements:elements:

1.1. It reads the load summary (the number of loads It reads the load summary (the number of loads carried between pairs of departments), the carried between pairs of departments), the costs per unit load per unit distance for the costs per unit load per unit distance for the handling of materials between various pairs of handling of materials between various pairs of departments.departments.

2.2. It computes the centres of the departments and It computes the centres of the departments and computes the various inter-departmental computes the various inter-departmental distances.distances.

3.3. On the basis of the above it computes the total On the basis of the above it computes the total material handling costs per unit period for the material handling costs per unit period for the layout.layout.

4. 4. It makes paired and/or three-way exchanges It makes paired and/or three-way exchanges between the different departmental locations between the different departmental locations so as to produce a valid and improved layout so as to produce a valid and improved layout pattern. The improvement is in terms of pattern. The improvement is in terms of reducing the total material handling costs. reducing the total material handling costs.

5. 5. The computer prints out the scaled layout The computer prints out the scaled layout pattern and the corresponding cost.pattern and the corresponding cost.

The ultimate aim of the CRAFT program is to The ultimate aim of the CRAFT program is to minimize the material handling costs for the minimize the material handling costs for the entire plant.entire plant.

Capacity PlanningCapacity Planning

Capacity is the upper limit or ceiling on Capacity is the upper limit or ceiling on the load that an operating unit can the load that an operating unit can handle.handle.

The basic questions in capacity The basic questions in capacity handling are:handling are:What kind of capacity is needed?What kind of capacity is needed?How much is needed?How much is needed?When is it needed?When is it needed?

Types of CapacityTypes of CapacityDesign capacityDesign capacity

maximum output rate or service capacity an maximum output rate or service capacity an operation, process, or facility is designed foroperation, process, or facility is designed for

Effective capacityEffective capacityDesign capacity minus allowances such as Design capacity minus allowances such as

personal time, maintenance, and scrappersonal time, maintenance, and scrapActual outputActual output

rate of output actually achieved--cannot rate of output actually achieved--cannot exceed effective capacity.exceed effective capacity.

Efficiency and UtilizationEfficiency and Utilization

Actual outputEfficiency =

Effective capacity

Actual outputUtilization =

Design capacity

Both measures expressed as percentages

Actual output = 36 units/day Actual output = 36 units/day EfficiencyEfficiency = = = 90% = 90%

Effective capacity 40 units/ dayEffective capacity 40 units/ day

UtilizationUtilization = = Actual output Actual output = 36 units/day = 36 units/day = 72%= 72%

Design capacity Design capacity 50 units/day 50 units/day

Efficiency/Utilization ExampleEfficiency/Utilization Example

Design capacity = 50 trucks/day

Effective capacity = 40 trucks/day

Actual output = 36 units/day

Objectives of capacity planningObjectives of capacity planning

1.1. To satisfy the future demand of To satisfy the future demand of products without any shortageproducts without any shortage

2.2. To find the optimal capacity of the To find the optimal capacity of the facility so that the sum of costs of facility so that the sum of costs of under-capacity & over- capacity is under-capacity & over- capacity is the minimum.the minimum.

3.3. To keep the initial investment in the To keep the initial investment in the facility as low as possible to achieve facility as low as possible to achieve lower break-even volumelower break-even volume

4.4. Investment in facility capacity are Investment in facility capacity are long-term & can’t be reversed easily.long-term & can’t be reversed easily.

Variations in Demand Relative to Variations in Demand Relative to CapacityCapacity

Determinants of Effective Determinants of Effective CapacityCapacity

FacilitiesFacilitiesProduct and service factorsProduct and service factorsProcess factorsProcess factorsHuman factorsHuman factorsOperational factorsOperational factorsSupply chain factorsSupply chain factorsExternal factorsExternal factors

Steps for Capacity PlanningSteps for Capacity Planning

1.1. Estimate future capacity requirementsEstimate future capacity requirements

2.2. Evaluate existing capacityEvaluate existing capacity

3.3. Identify alternativesIdentify alternatives

4.4. Conduct financial analysisConduct financial analysis

5.5. Assess key qualitative issuesAssess key qualitative issues

6.6. Select one alternativeSelect one alternative

7.7. Implement alternative chosenImplement alternative chosen

8.8. Monitor resultsMonitor results

Strategies for Shifting Demand Strategies for Shifting Demand

to Match Capacityto Match Capacity

• Use signage to Use signage to communicate busy days communicate busy days and timesand times

• Offer incentives to Offer incentives to customers for usage customers for usage during non-peak timesduring non-peak times

• Take care of loyal or Take care of loyal or regular customers firstregular customers first

• Advertise peak usage Advertise peak usage times and benefits of times and benefits of non-peak usenon-peak use

• Charge full price for the Charge full price for the service--no discountsservice--no discounts

• Use sales and advertising to increase business from current market segments

• Modify the service offering to appeal to new market segments

• Offer discounts or price reductions

• Modify hours of operation

• Bring the service to the customer

Demand Too High Demand Too LowShift Demand

Strategies for Flexing Capacity Strategies for Flexing Capacity

to Match Demandto Match Demand

• Stretch time, labor, Stretch time, labor, facilities and facilities and equipmentequipment

• Cross-train employeesCross-train employees• Hire part-time Hire part-time

employeesemployees• Request overtime Request overtime

work from employeeswork from employees• Rent or share facilitiesRent or share facilities• Rent or share Rent or share

equipmentequipment• Subcontract or Subcontract or

outsource activitiesoutsource activities

• Perform maintenance renovations

• Schedule vacations

• Schedule employee training

• Lay off employees

Demand Too High Demand Too LowFlex Capacity

Production planning & controlProduction planning & control Production planning implies Production planning implies

formulation, co-ordination & formulation, co-ordination & determination of activities in a determination of activities in a manufacturing system necessary for manufacturing system necessary for the accomplishment of desired the accomplishment of desired objectivesobjectives

Production control is the process of Production control is the process of maintaining a balance between various maintaining a balance between various activities evolves during production activities evolves during production planning providing most effective & planning providing most effective & efficient utilization of resources.efficient utilization of resources.

Objectives of PPCObjectives of PPC1.1. Determining the nature & magnitude of Determining the nature & magnitude of

various input factors to manufacture various input factors to manufacture desired output.desired output.

2.2. To co-ordinate labor, machines in the To co-ordinate labor, machines in the most economic mannermost economic manner

3.3. Setting targets & checking these against Setting targets & checking these against performance.performance.

4.4. Ensuring smooth flow of material by Ensuring smooth flow of material by eliminating bottlenecks if anyeliminating bottlenecks if any

5.5. Utilization of under employed resourcesUtilization of under employed resources6.6. To produce desired output of right To produce desired output of right

quality & quantity at right time.quality & quantity at right time.

Importance of time horizonImportance of time horizonDepending on the time horizon, the plan is of 3 Depending on the time horizon, the plan is of 3

types-types- Long-term Planning: Strategic Planning – normally more Long-term Planning: Strategic Planning – normally more

than an year’s time.than an year’s time. Medium-term Planning: Aggregate Planning – up to an Medium-term Planning: Aggregate Planning – up to an

year’s time.year’s time. Short-term Planning: Routine Planning – monthly/weekly.Short-term Planning: Routine Planning – monthly/weekly.

Dovetailing (fit together) of Plans-Dovetailing (fit together) of Plans-Shorter-range plans are always made within the framework Shorter-range plans are always made within the framework

of the longer-range plansof the longer-range plans.. Production planning as it is Production planning as it is generally understood, is really the intermediate-range generally understood, is really the intermediate-range and short-range plan. That is why. production planning is and short-range plan. That is why. production planning is said to follow from the marketing plan. The production said to follow from the marketing plan. The production plan is the translation of the market demands into plan is the translation of the market demands into production orders. The market demands have to be production orders. The market demands have to be matched with the production capacitiesmatched with the production capacities

Need for Detailed Plans-Need for Detailed Plans-

At a gross level, one must balance the gross At a gross level, one must balance the gross demand into gross level availability of resources demand into gross level availability of resources in machine-hours or man-hours, etc. in machine-hours or man-hours, etc. At the At the detailed leveldetailed level one needs to balance the one needs to balance the requirements of indi vidual products with the requirements of indi vidual products with the availability of individual machines/equipments availability of individual machines/equipments and labor of different skill categories.and labor of different skill categories.

Centralization & decentralization-Centralization & decentralization-

concentrate of authority (esp. administration) at a concentrate of authority (esp. administration) at a single centre & transfer (power etc.) from single centre & transfer (power etc.) from central to local authority.central to local authority.

AGGREGATE PLANNING DEFINEDAGGREGATE PLANNING DEFINED Aggregate Planning may be defined as Aggregate Planning may be defined as

‘Intermediate Planning’ which is normally ‘Intermediate Planning’ which is normally done for a period of up to one year’s time. done for a period of up to one year’s time. The word ‘Aggregate’ symbolizes that the The word ‘Aggregate’ symbolizes that the planning is done at the broadest level.planning is done at the broadest level.

AGGREGATE PLANNING PROCESSAGGREGATE PLANNING PROCESS – –

1.1. Sales forecast for each product: the Sales forecast for each product: the quantities to be sold in each time period quantities to be sold in each time period (weeks, months, or quarters) over the (weeks, months, or quarters) over the planning horizon (6 -18 months)planning horizon (6 -18 months)

2.2. Total all the individual product or service Total all the individual product or service forecasts into one aggregate demandforecasts into one aggregate demand

3.3. Transform the aggregate demand for each time Transform the aggregate demand for each time period into production resource requirements period into production resource requirements (workers, materials, machines, etc.)(workers, materials, machines, etc.)

4.4. Develop alternative resource plans to support the Develop alternative resource plans to support the cumulative aggregate demand and compute the cost cumulative aggregate demand and compute the cost for each.for each.

5.5. Select the best alternative which satisfies aggregate Select the best alternative which satisfies aggregate demand and best meets the organization’s objectivesdemand and best meets the organization’s objectives

Goals for aggregate planning-Goals for aggregate planning- there are number of goals to be satisfied –there are number of goals to be satisfied – It has to provide the overall levels of output, inventory and It has to provide the overall levels of output, inventory and

backlogsbacklogs Proper utilization of the plant capacity.Proper utilization of the plant capacity. The aggregate plan should be consistent with the The aggregate plan should be consistent with the

company’s goals and policies regarding its employeecompany’s goals and policies regarding its employee Make sure enough capacity available to satisfy expected Make sure enough capacity available to satisfy expected

demanddemand

Assembly line balancingAssembly line balancing

The sequence of machines & equipments The sequence of machines & equipments arranged to produce the desired product arranged to produce the desired product is called assembly lines.is called assembly lines.

The amount produced by machine depends The amount produced by machine depends onon

1.1. No. of operations performed on machineNo. of operations performed on machine

2.2. Time required for each operationTime required for each operation

There can be a situation that different There can be a situation that different machines may produce varying amount machines may produce varying amount of product during same period. This of product during same period. This property is known as unbalanced property is known as unbalanced assembly lineassembly line

Example of ALBExample of ALB

Clearly, assembly line is unbalanced.Clearly, assembly line is unbalanced.

Alternatively if in system we arrange 3 machines of type A, Alternatively if in system we arrange 3 machines of type A, 4 of B & 6 of C, then output/hr. will4 of B & 6 of C, then output/hr. will

machimachinene

Operation Operation no.no.

Time required to Time required to perform operation/unitperform operation/unit

Units processed by machine Units processed by machine in 1 hr.in 1 hr.

AA 11 15 min.15 min. 60/15=4 units60/15=4 units

BB 22 20 min.20 min. 60/20=3 units60/20=3 units

CC 33 30 min.30 min. 60/30=2 units60/30=2 units

machinmachinee

No. of No. of machinesmachines

Operation Operation no.no.

Time required Time required to perform to perform operation/unitoperation/unit

Units processed by Units processed by machine in 1 hr.machine in 1 hr.

AA 33 11 15 min.15 min. 3*60/15=12 units3*60/15=12 units

BB 44 22 20 min.20 min. 4*60/20=12 units4*60/20=12 units

CC 66 33 30 min.30 min. 6*60/30=12 units6*60/30=12 units

Such type of arrangement is called balanced Such type of arrangement is called balanced assembly/production line.assembly/production line.

To balance the production line by increasing the To balance the production line by increasing the machines may not be in the interest of organization due machines may not be in the interest of organization due to increased capital investment.to increased capital investment.

So another method is to increase the working hours for So another method is to increase the working hours for machines. E.g. machines. E.g.

machinmachinee

Operation Operation no.no.

Time Time required required to to perform perform operation/operation/unitunit

Time Time required for required for each each machine machine shiftshift

Units processed by machine Units processed by machine in 1 hr.in 1 hr.

AA 11 15 min.15 min. 1 hr.1 hr. 60/15=4 units60/15=4 units

BB 22 20 min.20 min. 1hr. 20 1hr. 20 min.min.

80/20=4 units80/20=4 units

CC 33 30 min.30 min. 2 hrs2 hrs 120/30=4 units120/30=4 units

Production planning Production planning proceduresprocedures

It can be divided in 3 parts-It can be divided in 3 parts-

1.1. Routing Routing

2.2. SchedulingScheduling

3.3. LoadingLoading

RoutingRouting--

It means determination of path or It means determination of path or route over which each piece is to route over which each piece is to travel in being transformed from travel in being transformed from raw-material into finished product.raw-material into finished product.

In general routing consists of seven In general routing consists of seven decisions, namelydecisions, namely

1.1. Whether to make/buyWhether to make/buy

2.2. The form & shape of materialThe form & shape of material

3.3. Division of work to be done into Division of work to be done into operationsoperations

4.4. The choice of machines on which each The choice of machines on which each operation should be done.operation should be done.

5.5. The sequence in which operations are to The sequence in which operations are to be performedbe performed

6.6. The division of operations into work The division of operations into work elementselements

7.7. The choice of special tooling.The choice of special tooling.

Advantages of routingAdvantages of routing

1.1. Efficient use of resourcesEfficient use of resources

2.2. Reduction in manufacturing costsReduction in manufacturing costs

3.3. Improvement in quantity & quality of Improvement in quantity & quality of outputoutput

4.4. Provides a basis for scheduling & Provides a basis for scheduling & loading.loading.

Scheduling- Scheduling- it meansit means

1.1. A description of when & where each A description of when & where each operation is to be executed.operation is to be executed.

2.2. Establishment of timetable at which to Establishment of timetable at which to begin/ complete each operation.begin/ complete each operation.

Objectives of scheduling-Objectives of scheduling-1.1. Items are delivered on due dateItems are delivered on due date2.2. Production cost is minimumProduction cost is minimum3.3. To minimize idle time of machinesTo minimize idle time of machines4.4. To prevent unbalanced allocation of To prevent unbalanced allocation of

time among various departmentstime among various departmentsTypes of schedules-Types of schedules-1.1. Operations schedule-Operations schedule- determine total determine total

time required to do a piece of work with time required to do a piece of work with given machinegiven machine

2.2. Master schedule-Master schedule- is a list showing how is a list showing how many of each item to make in each many of each item to make in each period of time in future.period of time in future.

Scheduling devicesScheduling devices

1.1. Gantt charts- portrays planned Gantt charts- portrays planned production & actual performance production & actual performance over a period of time. It is a over a period of time. It is a rectangular chart divided by rectangular chart divided by horizontal & vertical lines.horizontal & vertical lines.

2.2. PERT & CPM method- job is first PERT & CPM method- job is first broken in basic elements & network broken in basic elements & network is constructed which is then is constructed which is then analyzed to prepare schedule.analyzed to prepare schedule.

3.3. The Run Out approachThe Run Out approach

ProductivityProductivityProductivityProductivity

A measure of the effective use of A measure of the effective use of resources, usually expressed as the ratio resources, usually expressed as the ratio of output to inputof output to input

Productivity = Outputs

Inputs

All Productivity measuresAll Productivity measures Productivity = Productivity = Number of units of outputNumber of units of output

Number of persons employed to produce that outputNumber of persons employed to produce that output

Productivity= Productivity= no. of units producedno. of units produced

no. of man-hours workedno. of man-hours worked

Productivity= Productivity= output at standard priceoutput at standard price

Amount of wages paid in order to produce that outputAmount of wages paid in order to produce that output

Capital productivity = Capital productivity = Value AddedValue Added

Capital employedCapital employed

Capital Productivity= Capital Productivity= Total sales in RupeesTotal sales in Rupees

Depreciation of capital assetsDepreciation of capital assets

MULTI FACTOR PRODUCTIVITY = MULTI FACTOR PRODUCTIVITY = Production at standard price Production at standard price

Labor + materials + overhead + k (capital Labor + materials + overhead + k (capital invested)invested)

where, labor, materials overhead and capital constitute all the input factors where, labor, materials overhead and capital constitute all the input factors

Methods to increase productivityMethods to increase productivity1.1. By increasing output, keeping input constantBy increasing output, keeping input constant2.2. By decreasing inputs for same outputBy decreasing inputs for same output3.3. By Better utilization of resourcesBy Better utilization of resources4.4. By using efficient & effective methods of workingBy using efficient & effective methods of working5.5. By using good layoutsBy using good layouts6.6. By reducing material handlingBy reducing material handling7.7. By selecting new technologyBy selecting new technology8.8. By proper maintenanceBy proper maintenance9.9. By good working conditions to workersBy good working conditions to workers10.10. By good incentive schemesBy good incentive schemes11.11. By better quality of purchaseBy better quality of purchase12.12. By Training to employeesBy Training to employees13.13. Be customer oriented.Be customer oriented.14.14. Assign right people for right jobs.Assign right people for right jobs.15.15. Keep things simple Keep things simple

Difference between efficiency & Difference between efficiency & effectiveness-effectiveness-

factorsfactors efficiencyefficiency effectivenesseffectivenessObjective: Objective: To produce quantity To produce quantity

and quality and quality To enhance the value To enhance the value to the customer and, to the customer and, therefore, to the therefore, to the society. society.

Goal: Goal: To improve the To improve the process and/or the process and/or the product product

To determine the To determine the right direction for the right direction for the organization and the organization and the value that needs lo be value that needs lo be generated. generated.

Questions:Questions: How How to perform a task to perform a task (whether in (whether in production, marketing production, marketing or any other area)or any other area)

Why Why to perform to perform something and, so. something and, so. what what to perform. to perform.

Satisfaction Satisfaction Measure: Measure:

Is everything running Is everything running well?" well?"

--Are we aiming Are we aiming right?" right?"

BUSINESS PROCESS REENGINEERING-BUSINESS PROCESS REENGINEERING-

Business Process Reengineering is about revamping or Business Process Reengineering is about revamping or overhauling the existing processes and redesigning overhauling the existing processes and redesigning them from a clean slate, in order to achieve them from a clean slate, in order to achieve significant improvements in critical measures of significant improvements in critical measures of

performanceperformance..

Benchmarking-Benchmarking-

1.1. InternalInternal

2.2. CompetitiveCompetitive

3.3. FunctionalFunctional

4.4. genericgeneric

TATA BUSINESS EXCELLENCE MODELTATA BUSINESS EXCELLENCE MODEL

The TBEM criteria for performance excellence are built The TBEM criteria for performance excellence are built upon a set of core values and concepts that are upon a set of core values and concepts that are embodied in seven categories:embodied in seven categories:

1.1. LeadershipLeadership

2.2. Strategic PlanningStrategic Planning

3. 3. Customer and Market FocusCustomer and Market Focus

4. 4. Measurement Analysis and Knowledge ManagementMeasurement Analysis and Knowledge Management

5. 5. Human Resource FocusHuman Resource Focus

6. 6. Process ManagementProcess Management

7. 7. Business Results Business Results