Product Operation Management Ppt (Unit 1&2)

Production and Operation Management

Unit –I (6 sessions)Managing Operations

Operations Management – Function, Evolution, Definition, Systems view of P&OM; Operations

Strategies for Competitive Advantage;

POM DefinitionProduction/operations management is the process, which combines and transforms various resources used in the production/operations subsystem of the organization into value added product/services in a controlled manner as per the policies of the organization.

Production and operation management is concerned with the conversion of inputs into outputs, using physical resources, to provide the desired utilities – of form, place, possession, state or a combination thereof – to the customer while meeting the other organizational objectives of effectiveness, efficiency and adaptability.

Production management becomes the acceptable term from 1930s to 1950s. As F.W. Taylor’s works become more widely known, managers developed techniques that focused on economic efficiency in manufacturing. With the 1970s emerges two distinct changes in our views. The most obvious of these, operations management was a shift in the service and manufacturing sectors of the economy. As service sector became more prominent, the change from ‘production’ to ‘operations’ emphasized the broadening of our field to service organizations. The second, more suitable change was the beginning of an emphasis on synthesis, rather than just analysis, in management practices.

HISTORICAL EVOLUTION OF PRODUCTION AND OPERATIONS MANAGEMENT

• For over two centuries operations and production management has been recognized as an important factor in a country’s economic growth.

• The traditional view of manufacturing management began in eighteenth century when Adam Smith recognized the economic benefits of specialization of labor. He recommended breaking of jobs down into subtasks and recognized workers to specialized tasks in which they would become highly skilled and efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories and developed scientific management. From then till 1930, many techniques were developed prevailing the traditional view.

HISTORICAL EVOLUTION

Scope and functions of POMPrinciples of POM can be applied to any organization, be it a manufacturing or service organization.

• Planning –product design, production process selection, location layout, plant & machinery layout, capacity planning

• Organizing –time & motion study, scheduling, material management, purchasing management

• Controlling- stores management, quality control, inventory management, maintenance mgt,

Following are the activities which are listed under production and operations management functions:• 1. Location of facilities• 2. Plant layouts and material handling• 3. Product design• 4. Process design• 5. Production and planning control• 6. Quality control• 7. Materials management• 8. Maintenance management.

LOCATION OF FACILITIES• Location of facilities for operations is a long-term capacity decision which involves a long

term commitment about the geographically static factors that affect a business organization. It is an important strategic level decision-making for an organization. It deals with the questions such as ‘where our main operations should be based?’ The selection of location is a key-decision as large investment is made in building plant and machinery. An improper location of plant may lead to waste of all the investments made in plant and machinery equipments. Hence, location of plant should be based on the company’s expansion plan and policy, diversification plan for the products, changing sources of raw materials and many other factors. The purpose of the location study is to find the optimal location that will results in the greatest advantage to the organization.

PLANT LAYOUT AND MATERIAL HANDLING:- Plant layout is a plan of an optimum arrangement of facilities including personnel, operating equipment, storage space, material handling equipments and all other supporting services along with the design of best structure to contain all these facilities”.‘Material Handling’ refers to the ‘moving of materials from the store room to the machine and from one machine to the next during the process of manufacture’. It is also defined as the ‘art and science of moving, packing and storing of products in any form’. It is a specialized activity for a modern manufacturing concern, with 50 to 75% of the cost of production.

PRODUCT DESIGN• Product design deals with conversion of ideas into reality. Every business

organizations have to design, develop and introduce new products as a survival and growth strategy. Developing the new products and launching them in the market is the biggest challenge faced by the organizations. The entire process of need identification to physical manufactures of product involves three functions: marketing, product development, and manufacturing. Product development translates the needs of customers given by marketing into technical specifications and designing the various features into the product to these specifications. Manufacturing has the responsibility of selecting the processes by which the product can be manufactured. Product design and development provides link between marketing, customer needs and expectations and the activities required to manufacture the product.

PROCESS DESIGN• Process design is a macroscopic decision-making of an overall process route for

converting the raw material into finished goods. These decisions encompass the selection of a process, choice of technology, process flow analysis and layout of the facilities. Hence, the important decisions in process design are to analyze the workflow for converting raw material into finished product and to select the workstation for each included in the workflow.

PRODUCTION PLANNING AND CONTROL• Production planning and control can be defined as the process of planning the production

in advance, setting the exact route of each item, fixing the starting and finishing dates for each item, to give production orders to shops and to follow up the progress of products according to orders. The principle of production planning and control lies in the statement ‘First Plan Your Work and then Work on Your Plan’. Main functions of production planning and control includes planning, routing, scheduling, dispatching and follow-up.

• Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from where we are, to where we want to go. It makes it possible for things to occur which would not otherwise happen.

• Routing may be defined as the selection of path which each part of the product will follow, which being transformed from raw material to finished products. Routing determines the most advantageous path to be followed from department to department and machine to machine till raw material gets its final shape.

• Scheduling determines the program for the operations. Scheduling may be defined as ‘the fixation of time and date for each operation’ as well as it determines the sequence of operations to be followed.

• Dispatching is concerned with the starting the processes. It gives necessary authority so as to start a particular work, which has already been planned under ‘Routing’ and ‘Scheduling’. Therefore, dispatching is ‘release of orders and instruction for the starting of production for any item in acceptance with the route sheet and schedule charts’. The function of follow-up is to report daily the progress of work in each shop in a prescribed proforma and to investigate the causes of deviations from the planned performance.

• QUALITY CONTROL• Quality Control (QC) may be defined as ‘a system that is used to maintain a desired

level of quality in a product or service’. It is a systematic control of various factors that affect the quality of the product. Quality control aims at prevention of defects at the source, relies on effective feed back system and corrective action procedure. Quality control can also be defined as ‘that industrial management technique by means of which

• product of uniform acceptable quality is manufactured’. It is the entire collection of activities which ensures that the operation will produce the optimum quality products at minimum cost.

The main objectives of quality control are:• To improve the companies income by making the production more acceptable to

the customers i.e., by providing long life, greater usefulness, maintainability, etc.• To reduce companies cost through reduction of losses due to defects.• To achieve interchangeability of manufacture in large scale production.• To produce optimal quality at reduced price.• To ensure satisfaction of customers with productions or services or high quality

level, to build customer goodwill, confidence and reputation of manufacturer.• To make inspection prompt to ensure quality control.• To check the variation during manufacturing.

MATERIALS MANAGEMENT• Materials management is that aspect of management function which

is primarily concerned with the acquisition, control and use of materials needed and flow of goods and services connected with the production process having some predetermined objectives in view.

The main objectives of materials management are:• To minimize material cost.• To purchase, receive, transport and store materials efficiently and to

reduce the related cost.• To cut down costs through simplification, standardization, value

analysis, import substitution, etc.• To trace new sources of supply and to develop cordial relations with

them in order to ensure continuous supply at reasonable rates.• To reduce investment tied in the inventories for use in other

productive purposes and to develop high inventory turnover ratios.

MAINTENANCE MANAGEMENT• In modern industry, equipment and machinery are a very important

part of the total productive effort. Therefore, their idleness or downtime becomes are very expensive. Hence, it is very important that the plant machinery should be properly maintained. The main objectives of maintenance management are:

• To achieve minimum breakdown and to keep the plant in good working condition at the lowest possible cost

• To keep the machines and other facilities in such a condition that permits them to be used at their optimal capacity without interruption.

• To ensure the availability of the machines, buildings and services required by other sections of the factory for the performance of their functions at optimal return on investment.

System view of Production & Operation ManagementA system is a group of interrelated items in which no item (studied in isolation) willact in the same way as it would in the system. A system is divided into a series of parts or sub systems, and any sub system is an integral part of a larger system. The system’s boundary defines what is inside the system and what is outside. A system’s environment is everything outside the system boundary that may have an impact on the behavior of the system. A system’s inputs are the physical objects of information that enter into it from the environment and it’s outputs are the same which leave it for the environment. Before understanding production system let’s talk about the concept of production

CONCEPT OF PRODUCTION:- Production function is that part of an organization, which is concerned with the transformation of a range of inputs into the required outputs (products) having the requisite quality level. Production is defined as “the step-by-step conversion of one form of material into another form through chemical or mechanical process to create or enhance the utility of the product to the user.” Thus production is a value addition process. At each stage of processing, there will be value addition.

PRODUCTION SYSTEM• The production system of an organization is that part, which produces

products of an organization. It is that activity whereby resources, flowing within a defined system, are combined and transformed in a controlled manner to add value in accordance with the policies communicated by management.

The production system has the following characteristics:• Production is an organized activity, so every production system has an

objective.• The system transforms the various inputs to useful outputs.• It does not operate in isolation from the other organization system.• There exists a feedback about the activities, which is essential to control

and improve system performance.

Objectives of Production Management• The objective of the production management is ‘to produce goods /

services of right quality and quantity at the right time and right manufacturing cost’.

Classification of Production SystemProduction systems can be classified as Job Shop, Batch, Mass and Continuous Production systems. JOB SHOP PRODUCTION• Job shop production are characterized by manufacturing of one or few quantity of

products designed and produced as per the specification of customers within prefixed time and cost. The distinguishing feature of this is low volume and high variety of products. A job shop comprises of general purpose machines arranged into different departments. Each job demands unique technological requirements, demands processing on machines in a certain sequence.

Characteristics:- The Job-shop production system is followed when there is:• High variety of products and low volume.• Use of general purpose machines and facilities.• Highly skilled operators who can take up each job as a challenge because of

uniqueness.• Large inventory of materials, tools, parts.• Detailed planning is essential for sequencing the requirements of each product,

capacities for each work centre and order priorities.

Advantages:- Following are the advantages of job shop production:• Because of general purpose machines and facilities variety of

products can be produced.• Operators will become more skilled and competent, as each job gives

them learning opportunities.• Full potential of operators can be utilized.• Opportunity exists for creative methods and innovative ideas. Limitations:- Following are the limitations of job shop production:• Higher cost due to frequent set up changes.• Higher level of inventory at all levels and hence higher inventory cost.• Production planning is complicated.• Larger space requirements.

Classification of Production System

BATCH PRODUCTION• Batch production is defined by American Production and Inventory

Control Society (APICS) “as a form of manufacturing in which the job passes through the functional departments in lots or batches and each lot may have a different routing.” It is characterized by the manufacture of limited number of products produced at regular intervals and stocked awaiting sales.

Characteristics:- Batch production system is used under the following circumstances:• When there is shorter production runs.• When plant and machinery are flexible.• When plant and machinery set up is used for the production of item in a

batch and change of set up is required for processing the next batch.• When manufacturing lead time and cost are lower as compared to job

order production.


Advantages:- Following are the advantages of batch production:• Better utilization of plant and machinery.• Promotes functional specialization.• Cost per unit is lower as compared to job order production.• Lower investment in plant and machinery.• Flexibility to accommodate and process number of products.• Job satisfaction exists for operators. Limitations:- Following are the limitations of batch production:• Material handling is complex because of irregular and longer flows.• Production planning and control is complex.• Work in process inventory is higher compared to continuous

production.• Higher set up costs due to frequent changes in set up.


MASS PRODUCTION• Manufacture of discrete (separate) parts or assemblies using a continuous process

are called mass production. This production system is justified by very large volume of production. The machines are arranged in a line or product layout. Product and process standardization exists and all outputs follow the same path.

Characteristics:- Mass production is used under the following circumstances:• Standardization of product and process sequence.• Dedicated special purpose machines having higher production capacities and output

rates.• Large volume of products.• Shorter cycle time of production.• Lower in process inventory.• Perfectly balanced production lines.• Flow of materials, components and parts is continuous and without any back

tracking.• Production planning and control is easy.• Material handling can be completely automatic.


Advantages:- Following are the advantages of mass production:• Higher rate of production with reduced cycle time.• Higher capacity utilization due to line balancing.• Less skilled operators are required.• Low process inventory.• Manufacturing cost per unit is low. Limitations:- Following are the limitations of mass production:• Breakdown of one machine will stop an entire production line.• Line layout needs major change with the changes in the product

design.• High investment in production facilities.• The cycle time is determined by the slowest operation.


CONTINUOUS PRODUCTION• Production facilities are arranged as per the sequence of production

operations from the first operations to the finished product. The items are made to flow through the sequence of operations through material handling devices such as conveyors, transfer devices, etc.

Characteristics:- Continuous production is used under the following circumstances:• Dedicated plant and equipment with zero flexibility.• Material handling is fully automated.• Process follows a predetermined sequence of operations.• Component materials cannot be readily identified with final product.• Planning and scheduling is a routine action.


Advantages:- Following are the advantages of continuous production:• Standardization of product and process sequence.• Higher rate of production with reduced cycle time.• Higher capacity utilization due to line balancing.• Manpower is not required for material handling as it is completely

automatic.• Person with limited skills can be used on the production line.• Unit cost is lower due to high volume of production. Limitations:- Following are the limitations of continuous production:• Flexibility to accommodate and process number of products does not

exist.• Very high investment for setting flow lines.• Product differentiation is limited.


Concept of Operations• An operation is defined in terms of the mission it serves for the

organization, technology it employs and the human and managerial processes it involves. Operations in an organization can be categorized into manufacturing operations and service operations. Manufacturing operations is a process that includes manufacturing yields a tangible output: a product, whereas, a conversion process that includes service yields an intangible output: a deed, a performance, an effort.

Distinction between Manufacturing Operations and Service OperationsFollowing characteristics can be considered for distinguishing manufacturing operations with service operations:• Tangible/Intangible nature of output• Consumption of output• Nature of work (job)• Degree of customer contact• Customer participation in conversion• Measurement of performance.

OPERATING SYSTEM

• Operating system converts inputs in order to provide outputs which are required by a customer. It converts physical resources into outputs, the function of which is to satisfy customer wants i.e., to provide some utility for the customer. In some of the organization the product is a physical good (cars) while in others it is a service (hospitality). Bus and taxi services, tailors, hospitals and builders are the examples of an operating system.

• Everett E. Adam & Ronald J. Ebert defined operating system as, “An

operating system (function) of an organization is the part of an organization that produces the organization’s physical goods and services.”

• Ray Wild defines operating system as, “An operating system is a configuration of resources combined for the provision of goods or services.”

A system’s model of the organization identifies the subsystems, or subcomponents, that make up the organization. A business firm might well have finance, marketing, accounting, personnel, engineering, purchasing, and physical distribution systems in addition co the operations system. These systems aren’t independent but are interrelated to one another in many vital ways. We have chosen to show production/operations with major interactions between finance and marketing and lesser interactions with other functions. Decisions made in the production/ operations subsystem often affect the behavior and performance of other subsystems. Finally, we should understand That the boundaries separating the various subsystems are not clear and distinct.

Operations strategies for competitive advantage

What Is Operations Strategy?Operations strategy is the development of a long-term plan for using the major resources of the firm for a high degree of compatibility between these resources and the firm’s long term corporate strategy. Operations strategy addresses very broad questions about how these major resources should be configured to achieve the desired corporate objectives.Some of the major long-term issues addressed in operations strategy include• How large do we make our facilities?• What type of process(es) do we install to make the products or provide

services?• What will our supply chain look like?• What will be the nature of our workforce?• How do we ensure quality?

Strategy – Operations StrategyAlfred Chandler defined strategy as, “the determination of the basic long term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals”. Above mentioned definition view strategy as a rational planning process, however Henery Mintzberg and many others believe that strategies can emerge from within an organization without any formal plan. According to him, it is more than what a company plans to do.. It is actually what it does. He defines strategy as a pattern in a stream of decisions or actions. So, there are deliberate (planned) and emergent (unplanned) strategies.

All strategies originate from the need to satisfy the customers. Strategic planning is not static and compartmentalized process, but it is an ongoing and integrated exercise.

Operation/manufacturing strategy has to be an integral part of the overall organizational strategy. Without defining the mission and objectives of the organization, checking up on the external and internal environment, performing the SWOT analysis of the organization & then deciding on the basis for competing /or key factors for success, no operations/manufacturing strategy can be formulated.

Operations Strategy at Wal-Mart

Operations Strategy

Market

Environment

Organization competenciesBusiness Strategy

Mission

Operations Strategy decisions

Strategies of other functions

Competitive prioritiesOrder qualifiersOrder winners

linked

Operations strategy

Operations strategy decisions can be divided into two major categories: structural elements consisting of facility location, capacity, vertical integration, and choice of process (all are considered to be long term or “strategic” in nature) and infrastructural elements consisting of the workforce (in terms of size and skills), quality issues, procurement, the New product development process, planning and control, and organizational structure (all of which are often viewed as “tactical” because they can be changed in a relatively short time).

After deciding the mission, objectives and the targeted market segment in which the company will compete, the company has to choose between theFundamental strategic competitive options of (a) Meaningful differentiationAnd (b) Cost leadership.

Meaningful DifferentiationIt means being different and superior in some aspect of the business that has Value to the customer. A wider product range, a functionally superior product or after sales service, are all examples of meaningful differentiation. Differentiation is a strategy to win customers and to retain them for a long time.Flexibility:- In fact today’s market requires that while differentiating on one aspect one need to be equally good at other aspects. A company can’t afford to concentrate at One aspect at the expense of other aspects. So the company has to be flexible in terms of:1. Product design2. Product range or product mix3. Volumes4. Quick delivery/ delivery time5. Quick introduction of new products/designs6. Responding quickly to the changed need of the customers or quickly attending

to the customers problems.Flexibility is a part of being responsive, responsible, reliable, accessible, communicative and empathetic to the customer. These are all service quality characteristics

Cost leadershipThe other fundamental strategic competitive option that a company can choose isCost Leadership i.e. offering the product / service at the lowest price in the industry. This has to be achieved by cost reduction. Big difference between modern and traditional approach to cost reduction is in understanding the Customers. The traditional approach advocated the reduction of various costs, Investments, budgetary allocations (to hr development, training, vendor development e.t.c) and reducing inventories, but modern approach talks about elimination of the non value added steps/processes, reducing the set up time, reducing the need of inventories, improving the quality, optimal utilization of Technology, understanding customer’s need and satisfying it and so forth.

Thus manufacturing/operations strategies, that one should complement with the fundamental strategies, comprises of the customer oriented strategies of:-Improved responsiveness, reduced price and improved quality

Cost LeadershipImproved responsiveness in terms of:-1. Minimizing time to respond2. Timely response3. Accessibility through better locations, better geographical proximity, improved

logistics and better systems of communications4. Wider product/services option through flexible operations/ manufacturing

systems, reduced throughput time/cycle time/set-up time, flexible manpower/machines, improved product design and process capabilities

5. Increased pro-activity

Reduced price through:-6. Overall improvements in the production-delivery value chain7. Better designs of product/services

Improved quality through:-8. Better skills/knowledge and better attitudinal orientation of all production and

service providers

2. Improved technology3. Reduced complexity and confusion4. Reduced problem generators

KEY SUCCESS FACTORSKenichi ohmae mentioned following as the key success factors for any business:-1. Product performance2. Technology leadership3. New product introduction4. Access to key decision makers or key influencers5. Delivery service

For a given industry one or more of these factors will be crucial. Operational Strategies are formulated, keeping one or more of these key success factors, in Mind.

Cost Leadership

Formulation of operations strategyThere are two most commonly used analyses, considered before formulating operations strategy / any strategy. 1. SWOT Analysis:- The relevant strategic plans can’t be formulated or

implemented without analyzing company’s strengths, weaknesses, opportunities and threats.

2. Porter’s five forces model:- Another analysis that could be useful in devising an appropriate operational strategy is that of Michael Porter’s five forces model. It is one of the structured ways in which the industry environment is analyzed. He says that the stronger each of these five forces is, the more difficult it will be for the company to raise prices and make more profits. A strong force is equivalent to a threat and a weak force is equivalent to an opportunity.

Strategy

Analysis

SWOT Analysis

Internal Strengths

Internal Weaknesses

External Opportunities

External Threats

Mission

Strategy Development Process

Determine Corporate MissionState the reason for the firm’s existence and identify the value it

wishes to create.

Form a StrategyBuild a competitive advantage, such as low price, design, or volume flexibility, quality, quick delivery, dependability, after-sale service, broad

product lines.

Environmental AnalysisIdentify the strengths, weaknesses, opportunities, and threats. Understand the

environment, customers, industry, and competitors.

Porter’s five forces model

Five forces model for telecom industry

BENEFITS DERIVED FROM EFFICIENT PRODUCTION & OPERATIONS MANAGEMENT

• The efficient Production Management will give benefits to the various sections of the society. They are:

• Consumer benefits from improved industrial Productivity, increased value in the product. Products are available to him at right place, at right price, at right time, in desired quantity

• and of desired quality.• Investors: They get increased security for their investments, adequate

market returns, and creditability and good image in the society.• Employee gets adequate Wages, Job security, improved working conditions

and increased Personal and Job satisfaction.• Suppliers: Will get confidence in management and their bills can be

realized with out any delay.• (v) Community: community enjoys Benefits from economic and social

stability.• (vi) The Nation will achieve prospects and security because of increased

Productivity and healthy industrial atmosphere.


Unit –II (9 sessions)Planning (Designing) the conversion SystemDesigning Products, Services and Processes;

Operations Capacity; Locating Production and Service facilities; Layout Planning

Product Life Cycle

Best period to increase market share

R&D engineering is critical

Practical to change price or quality image

Strengthen niche

Poor time to change image, price, or quality

Competitive costs become criticalDefend market position

Cost control critical

Introduction Growth Maturity Decline

Com

pany

Str

ateg

y/Is

sues

Figure 2.5

Internet search engines

Sales

Xbox 360

Drive-through restaurants

CD-ROMs

3 1/2” Floppy disks

LCD & plasma TVsAnalog TVs

iPods

Product Life Cycle

Product design and development criticalFrequent product and process design changesShort production runsHigh production costsLimited modelsAttention to quality

Introduction Growth Maturity Decline

OM

Str

ateg

y/Is

sues

Forecasting criticalProduct and process reliabilityCompetitive product improvements and optionsIncrease capacityShift toward product focusEnhance distribution

StandardizationLess rapid product changes – more minor changesOptimum capacityIncreasing stability of processLong production runsProduct improvement and cost cutting

Little product differentiationCost minimizationOvercapacity in the industryPrune line to eliminate items not returning good marginReduce capacity

Figure 2.5

Product Design• Product design is a term that refers to transforming an idea of how a

product should be and the specifications of that product.• Product development refers to the process of creating new products or

modifying the existing ones. As the needs & requirement of customers keeps on changing new products needs to be introduced

Design starts with conceptualization which has to have a basis. Providing valueTo customers, the ROI to the company and the competitiveness of the Company should form the basis of the product design effort. Take an example of a simple product, toothpaste which is also designed to act as a mouth freshener. This newly designed simple product needs to be placed, advertized, promoted, and priced Differently. So a product design has impact on organization’s overall strategy.

Profit is the overall measure of design effectiveness.

What Does Product and Service Design Do?

Translate customer wants and needs into product and service requirements. (marketing, operations)

Refine existing products and services. (marketing) Develop new products and/or services. (marketing, operations) Formulate quality goals. (marketing, operations) Formulate cost targets. (accounting, finance, operations) Construct and test prototypes. (operations, marketing, engineering) Document specifications.

Reasons for Product and Service Design or Redesign

Economic (e.g., low demand, excessive warranty claims, the need to reduce costs).Social and demographic (e.g., aging baby boomers, population shifts).Political, liability, or legal (e.g., government changes, safety issues, new regulations).Competitive (e.g., new or changed products or services, new dvertising/promotions).Cost or availability (e.g., of raw materials, components, labor).Technological (e.g., in product components, processes).

Phases in Product Design and DevelopmentIdea generation. Product development begins with idea generation. Ideas can come from a variety of sources.Feasibility analysis. Feasibility analysis entails market analysis (demand), economic analysis (development cost and production cost, profit potential), and technical analysis (capacity requirements and availability, and the skills needed). Also, it is necessary to answer the question, Does it fit with the mission? It requires collaboration among marketing, finance, accounting, engineering, and operations.Product specifications. This involves detailed descriptions of what is needed to meet (or exceed) customer wants, and requires collaboration between legal, marketing, and operations.Process specifications. Once product specifications have been set, attention turns to specifications for the process that will be needed to produce the product. Alternatives must be weighed in terms of cost, availability of resources, profit potential, and quality. This involves collaboration between accounting and operations.

Phases in Product Design and DevelopmentPrototype development. With product and process specifications complete, one (or a few) units are made to see if there are any problems with the product or process specifications.Design review. Make any necessary changes, or abandon. Involves collaboration among marketing, finance, engineering, design, and operations.Market test. A market test is used to determine the extent of consumer acceptance. If unsuccessful, return to the design review phase. This phase is handled by marketing.Product introduction. Promote the product. This phase is handled by marketing.Follow-up evaluation. Determine if changes are needed, and refine forecasts. This phase is handled by marketing.

DFMA good product design would be such that it makes many or all the manufacturing related functions to be done in less time.The idea behind DFM effort is to modify the existing product’s(and it’s component’s) design or have a new product designed in such a way that the process of manufacturing becomes easier, quicker and less expensive, without compromising the quality and other deliverables.DFM principals for assemblies:- Standardize wherever possible1. Minimize the number of parts:-(a) Reduce the absolute requirement of the variety of parts(b) Combine parts where ever possible2. Standardize designs(a) Parts, modules, sub assemblies, manufacturing processes and systems may be

standardized(b) Where the parts are not the same, see if they can be similar(c) Apply ‘group technology’, concept of ‘families of parts’(d) Wherever possible use standard catalog components

3. Minimize number of operations in the assembly

4. Modify the parts with simplification of assembling in mind

5. Use modules

6. Minimize newness i.e., minimize:-(a) New parts(b) New processes(c) New suppliers(d) New machines

7. Use POKA YOKE or fool proofing:- Design in such a way that the parts can’t be assembled incorrectly.The DFM concept emphasizes simplicity and standardization everywhere. It attempts to strike an optimal balance between change and standardization.

DFM

Service design Service (System) design involves development or refinement of the overall service

package: The physical resources needed. The accompanying goods that are purchased or consumed by the customer, or provided

with the service. Explicit services (the essential/core features of a service, such as tax preparation). Implicit services (ancillary/extra features, such as friendliness, courtesy).Differences between Service Design and Product Design1. Products are generally tangible; services are generally intangible. Consequently, service

design often focuses more on intangible factors (e.g., peace of mind, ambiance) than does product design.

2. In many instances services are created and delivered at the same time (e.g., a haircut, a car wash). In such instances there is less latitude in finding and correcting errors before the customer has a chance to discover them. Consequently, training, process design, and customer relations are particularly important.

3. Services cannot be inventoried. This poses restrictions on flexibility and makes capacity issues very important.

4. Services are highly visible to consumers and must be designed with that in mind; this adds an extra dimension to process design, one that usually is not present in product design.

5. Some services have low barriers to entry and exit. This places additional pressures on service design to be innovative and cost-effective.

6. Location is often important to service design, with convenience as a major factor. Hence, design of services and choice of location are often closely linked.

7. Service systems range from those with little or no customer contact to those that have a very high degree of customer contact. Here are some examples of those different types:Insulated technical core; little or no customer contact (e.g., software development).Production line; little or no customer contact (e.g., automatic car wash).Personalized service (e.g., haircut, medical service).Consumer participation (e.g., diet program, dance lessons).Self-service (e.g., supermarket).If there is little or no customer contact, service system design is like product system design.

8. Demand variability creates waiting lines or idle service resources.

Service design

Demand variabilityReducing consumer choices makes service more efficient, but it can be both frustrating and irritating for the customer. An example would be a cable company that bundles channels, rather than allowing customers to pick only the channels they want.

Standardizing or simplifying certain elements of service can reduce the cost of providing a service, but it risks eliminating features that some customers value, such as personal attention.

Incorporating flexibility in capacity management by employing part-time or temporary staff may involve the use of less-skilled or less-interested people, and service quality may suffer.

Service design

Phases in the Service Design Process• Conceptualize Idea generation(a) Assessment of customer wants/needs (marketing)(b) Assessment of demand potential (marketing)

• Identify service package components needed (operations and marketing)

• Determine performance specifications (operations and marketing)

• Translate performance specifications into design specifications

• Translate design specifications into delivery specifications

http://www.baskent.edu.tr/~kilter 55

Service BlueprintingEstablish boundaries for the service and decide on the level of detail needed.Identify and determine the sequence of customer and service actions and interactions. A flowchart can be a useful tool for this.Develop time estimates for each phase of the process, as well as time variability.Identify potential failure points and develop a plan to prevent or minimize them, as well as a plan to respond to service errors.

Characteristics of Well-Designed Service Systems

Being consistent with the organization mission.Being user friendly.Being robust if variability is a factor.Being easy to sustain.Being cost-effective.Having value that is obvious to customers.Having effective linkages between back-of-the-house operations (i.e., no contact with the customer) and front-of-the-house operations (i.e., direct contact with customers). Front operations should focus on customer service, while back operations should focus on speed and efficiency.Having a single, unifying theme, such as convenience or speed.Having design features and checks that will ensure service that is reliable and of high quality.

Challenges of Service Design

There are variable requirements. This creates a need for a robust design thatwill accommodate a range of inputs and perhaps a range of outputs.

Services can be difficult to describe. By their very nature, verbal descriptions can be somewhat imprecise.

Customer contact is usually much higher in services.

Service design must take into account the service-customer encounter. There can be a relatively large number of variables to deal with in the service-customer encounter.

Guidelines for Successful Service DesignDefine the service package in detail. A service blueprint may be helpful for this.Focus on the operation from the customer perspective. Consider how customerexpectations and perceptions are managed during and after the service.Consider the image that the service package will present both to customers and prospective customers.Recognize that designer familiarity with the system may give them a quite different perspective than that of the customer, and take steps to overcome this.Make sure that managers are involved and will support the design once it is implemented.Define quality for both tangibles and intangibles. Intangible standards are more difficult to define, but they must be addressed.Make sure that recruitment, training, and reward policies are consistent with service expectations.Establish procedures to handle both predictable and unpredictable events.Establish systems to monitor, maintain, and improve service.

Process DesignProcess design is the design of processes for desired physical and/or chemical transformation of materials. Process design is central to chemical engineering and it can be considered to be the summit of chemical engineering, bringing together all of the components of that field. Process design can be the design of new facilities or it can be the modification or expansion of existing facilities. The design starts at a conceptual level and ultimately ends in the form of fabrication and construction plans. Process design is distinct from equipment design, which is closer in spirit to the design of unit operations. Processes often include many unit operations.

The activity of determining the workflow, equipment needs, and Implementation Requirements for a particular process. Process design typically uses a number of Tools including flowcharting, process simulation software, and scale models.

Process DesignThe chapter/topic starts off by distinguishing between product or service designon one hand, and process design on the other. It then goes on to make some general points about design, whether it be of products, services or processes. Finally, it looks at how product/service design and process design are related by using the ‘product-process’ matrix.What is design? • In the introduction to this chapter the point is made that our general image of a

designer is closer to a fashion designer or a motor car designer than an operations manager. The chapter generally then goes on to explain how the word ‘design’, in its broadest sense, is right at the heart of operations management. However, many of the qualities we associate with fashion and motor car designers are also necessary for operations management ‘designers’. We expect fashion designers to show flair and creativity but we also expect them to be able to understand the way fashion trends are moving. If we substitute ‘the way the market is moving’ for ‘the way fashion trends are moving’ then we can see similarities between the two types of designer. Both have to reconcile their own creative ideas (what they would like to do) with what is commercially viable (what the market/customers wants them to do).

Process designThere is no simple definition of design. But design,

must reflect the needs of customers; applies to products, services and processes; can be managed as an operations transformation process in is own right; & starts with something very abstract (a concept) and ends with something very

specific (the final design).Product/service design and process design are interrelated • The relationship between designing products and services and designing the

processes that make them is an important point to consider. The chapter makes the general point that while it is possible to separate product design and process design in manufacturing, it is impossible in practice to separate service design and process design. This is because many services (especially high visibility services) are such that the service and the process are the same thing. Even in manufacturing industries, there has recently been considerable effort put into examining the overlap between product and process design. There is a growing recognition that the design of products has a major effect on the cost of making them. Many of the decisions taken during the design of products (for example, choosing the material from which the product is going to be made, or the way in which the various components are fastened together) will all define much of the cost of making it.

Process Design• Simulation in design • Simulation can be used to help the design process. This is becoming

increasingly important and widespread as computing power increases. Simulation can give an insight into how a potential process or product might work in practice which cannot be gained in any other way. A famous example of how simulation aids design was the victory of Team New Zealand in the America’s Cup in 1995. The America’s Cup is the most famous sailing race in the world and takes place between a yacht representing America and one representing the rest of the world. In 1995 the New Zealand boat was challenging the American team. It made extensive use of thousands of simulations to perfect the design of its hull and keels (both vital to the performance of the yacht). This enabled them to explore alternative designs before they built the yacht itself. This process was so successful that they eventually beat the American boat 5-0. However, when discussing their success, the design team were the first to point out that simulation can only make a good design better. It cannot create a good design in the first place. The input into the simulation exercise is the design experience from a ‘human’ designer. The better the input from the designer, the better the eventual design will be.

Process DesignEnvironmentally sensitive design

Volume-variety and designThere are 4 V’s of design, volume, variety, variation and visibility. • The first two of these – volume and variety – are particularly important

when considering design issues in operations management. Not only do they usually go together (high variety usually means low volume, high volume normally means low variety) but together they also impact on the nature of products and services and processes which produce them.

• The volume and variety of an operation’s activities are particularly influential in determining the way it thinks about its performance objectives. The definitions of quality, speed, dependability, flexibility and cost, all are influenced by the volume-variety position of the operation.

• Quality• Quality in a low volume-high variety process such as an architects’ practice, for

example, is largely concerned with the final aesthetic appearance of the building and the appropriateness of its detailed design. In an exceptionally high volume-low variety process, such as an electricity supply company, quality is exclusively concerned with error-free service – electricity must be constantly available in the correct form (in terms of voltage, frequency, etc.). The meaning of quality has shifted from being concerned primarily with the performance and specification of the product or service towards conformity to a predefined standard, as we move from low volume-high variety operations through to high volume-low variety operations.

• Speed• Speed for the architects’ practice means negotiating a completion date

with each client, based on the client’s needs and the architects’ estimates of how much work is involved in each project. Speed is taken to its extreme in the electricity utility where speed means literally instant delivery. No electricity company could ask its customers to wait for their ‘delivery’ of electricity. Speed therefore means an individually negotiated delivery time in low volume-high variety operations, but moves towards meaning ‘instant’ delivery in some high volume-low variety operations.

• Dependability• Dependability in processes such as the architects’ practice means

keeping to each individually negotiated delivery date. In continuous operations, dependability often means the availability of the service itself. A dependable electricity supply is one which is always there. So dependability has moved from meaning ‘on-time delivery’ in low volume-high variety operations to ‘availability’ in high volume-low variety operations.

• Flexibility • Flexibility in low volume-high variety processes such as the architects’

practice means the ability to design many different kinds of buildings according to its clients’ various requirements. With the electricity company’s process, the need for product flexibility has disappeared entirely (electricity is electricity, more or less) but the ability to meet almost instantaneous demand changes through volume flexibility is vital if the company is to maintain supply. Flexibility has moved from meaning product flexibility in low volume-high variety operations to volume flexibility in high volume-low variety operations.

• Cost• Cost, in terms of the unit cost per product or service, varies with both

the volume of output of the operation and the variety of products or services it produces. The variety of products or services in low-volume operations is relatively high, which means that running the operation will be expensive because of the flexible and high skill levels employed. Further, because the volume of output is relatively low, a few products or services are bearing the operation’s high cost base. Also, and more significantly for the operation, the cost of each product or service is different. At the other end of the scale, high-volume operations usually produce similar products or services, output is high, so that whatever the base cost of the operation, it is shared among a high number of products or services. Cost per unit of output is therefore usually low for operations such as the electricity utility but, more significantly, the cost of producing one second of electricity is the same as the next second. Cost is relatively constant.

Documentation in process design• Process design documents serve to define the design and they ensure that

the design components fit together. They are useful in communicating ideas and plans to other engineers involved with the design, to external regulatory agencies, to equipment vendors and to construction contractors.

• In order of increasing detail, process design documents include:• Block Flow Diagrams (BFD): Very simple diagrams composed of rectangles

and lines indicating major material or energy flows.• Process Flow Diagrams (PFD's): Typically more complex diagrams of major

unit operations as well as flow lines. They usually include a material balance, and sometimes an energy balance, showing typical or design flow rates, stream compositions, and stream and equipment pressures and temperatures.

• Piping and Instrumentation Diagrams (P&ID's): Diagrams showing each and every pipeline with piping class (carbon steel or stainless steel) and pipe size (diameter). They also show valving along with instrument locations and process control schemes.

• Specifications: Written design requirements of all major equipment items.

http://en.wikipedia.org/wiki/Process_flow_diagram

http://en.wikipedia.org/wiki/Piping_and_instrumentation_diagram

http://en.wikipedia.org/wiki/Specification

Process Design• Process designers also typically write operating manuals on how to start-up,

operate and shut-down the process.• Documents are maintained after construction of the process facility for the

operating personnel to refer to. The documents also are useful when modifications to the facility are planned.

• A primary method of developing the process documents is process flow sheeting.

Design Considerations• Designs have objectives and constraints, and even a simple process

requires a trade-off among such factors.• Objectives that a design may strive to include:• Throughput rate• Process yield• Product purity

Process Design• Constraints include:• Capital cost• Available space• Safety concerns• Environmental impact and projected effluents and emissions• Waste production• Operating and maintenance costs• Other factors that designers may include are:• Reliability• Redundancy• Flexibility• Anticipated variability in feedstock and allowable variability in product.

Process DesignSources of Design Information• Designers usually do not start from scratch, especially for complex

projects. Often the engineers have pilot plant data available or data from full-scale operating facilities. Other sources of information include proprietary design criteria provided by process licensors, published scientific data, laboratory experiments, and input.

Computer Help• The advent of low cost powerful computers has aided complex

mathematical simulation of processes, and simulation software is often used by design engineers. Simulations can identify weaknesses in designs and allow engineers to choose better alternatives.

• However, engineers still rely on heuristics, intuition, and experience when designing a process. Human creativity is an element in complex designs.

Operations Capacity• Capacity can be defined as a measure of an organization’s ability to provide customers with services or goods in the amount requested at the time

requested.• Capacity can be defined as the max capability of a production unit to

produce in a specific period. this is expressed in terms of output per unit of time.

• Need: it is the first step when an organization decides to produce more or a new product. Once the capacity is evaluated then the need for new facilities are determined

• Capacity planning is deciding on the maximum output rate of a facility• Location analysis is deciding on the best location for a facility• Capacity planning and location analysis decision are often made

simultaneously because the location of the facility is usually related to its capacity. When a business decides to expand, it usually also addresses the issue of where to locate. These decisions are very important because they require long-term investments in buildings and facilities, as well as a sizable financial outlay.

Forms of capacity• Utilization:- capacity utilization is a measure that should indicate to what

degree the potential capacity is being used. Only productive hours are of interest for capacity planning purposes. This means that the hours available in a day must 1st of all be adjusted for the machine break downs, absenteeism and other losses of time. This is generally known as utilization.

Utilization = Number of direct productive hours/day Total number of scheduled hours/dayDue to normal variation and skills and speed, different operators can produce a

different number of units of the same item per hour. Also, different items require varying amount of work per piece. Since it is of interest to know the quantity that can be produced per hour, given a certain level of capacity that is needed to ensure a certain output rate, the way in which capacity and resources usages are measured must be standardized. For this the company must find out what amount of standard hours of machine and labor are required through work study. The use of standard hours has 2 effects. 1st it provides a way of measuring output in hours instead of units. These hours represent the normal hour needed for manufacturing. 2ndly based on observations of past events, an efficiency factor that relates the actual number of direct hours used to standard hour work content of the output can be derived as:-

Efficiency = Standard hours processed /day Actually used direct hours/dayThe efficiency factor can be recorded for an individual operator, a work center, a

work center, a department or the plant as a whole. It’s significance is of 2 fold. 1st it indicates, if observed over time, changes in productivity. That is, an increased efficiency indicates that the same out put has been achieved with a lower input. 2ndly, it helps to estimate future available capacity, measured in standard hours.

Tot no of std hours/day = tot no. of hrs / day X Utilization factor X Efficiency factorLet’s consider an example of a work station with 2 employees/shift. In an 8 hr, 2 Shift operation, with utilization factor of 90% and an efficiency factor of 105%, the Total expected number of standard hours that can be produced per day is?????1st of all let’s calculate tot no of productive hours/day, which will be:-Tot no of hrs/ day X utilization factor = 2(shifts) X 2 (emps) X 8 (hrs) X 0.9(uti factor)Now, Tot no of std hours/day = productive hrs/day X efficiency factor, i.e., 2(shifts) X 2 (emps) X 8 (hrs) X 0.9(uti factor) X 1.05 = 30.2 standard hrs / dayThe required capacity for the work center for a particular day can be calculated & Expressed by multiplying the scheduled number of parts to be manufactured by their standard hourly content:Req capacity / day = (Scheduled no of units / day) X (standard hours / unit)

Design capacityThe design capacity of a facility is the planned rate of output of goods or services under normal conditions. (E.g., a plant manufactures 300 cars a day / 100 tons of Cement a day, a transport organization has a capacity to carry 200 passengers/hr)The design capacity should reflect management’s strategy for meeting demand.

Ex:- A Co. is producing 32 units/hr on 1 of it’s production line. Now the mgmt is Planning to expand their capacity to satisfy the increasing demand. The operation Mrg. Has conducted survey & the outcome of the survey is as follows:

The operation mgr is considering 2 alternatives for deciding how much capacity to Install. What capacity is required to (a) meet 85% of the estimated peak hourlyDemand & (b) accommodate 110% of the estimated average demand plus a 25% For growth.

Number of units per hour

0 < 40 40 < 80 80 < 120 120 < 160 160 < 200

Probability (% of chance) 0.10 0.35 0.40 0.13 0.02

Cumulative Probability 0.10 0.45 0.85 0.98 1

Solution(a). From the cumulative probability given, 85% of the estimated demand is less Than 120 units per hour. Therefore:-No. of Production line required = Tot capacity (required)/Line capacity; = 120/32; 3.75, say approximately 4 lines(b). Average demand can be found by E(x) = ∑{XP (x)}, where X is the mid point ofEach class interval given in the problem. Now E(x) = 20 (0.10) + 60(0.35) + 100(0.40) + 140(0.13) + 180(0.02) ; 88 unitsTherefore base level capacity is (110/100) X 88 = 97 units / hrAdd to this 25% allowance: 97 + 0.25 X 97 = 121 units / hr, Hence No. of lines required = total (required) capacity/ Line capacity = 121/32 = 3.8 say 4 lines. So by installing 4 lines the prod mgr can satisfy both the requirements.

System CapacitySystem capacity can be defined as the maximum output of a specific product or product mix that the system of workers and machines is capable of producing as an integrated whole.

Relationship between capacities and outputsSystem efficiency = Actual output/System capacity

Tanks: Mixing heating Moulding cooling actual output

Capacity in kg/min 48 50 43 48 40kg/min

Design capacity (say 1200 units)Reduced by long range, less controllable effects such as product mix & long run market

conditions, tight quality specifications and inherent imbalances in the resources

System capacity ( say 1000 units)Reduced by short term effects like actual demand, managerial performance (scheduling, staffing, strategy & control). Worker inefficiency like skill and effort level. Machine inefficiencies like wear & tear, scrap loss and break down.

Actual output (say 970 units)

Solution: (a) system capacity = the limiting capacity in the given system is 43 kg/min. therefore the system capacity is 43 kg/min.(b). System efficiency = Actual output/system capacity: = 40/43 = 93%

Determination of Equipment requirementsSuppose we know actual requirement from a system and we need to know the amount or size of the equipment required to deliver the output, then we have to work backwards by allowing the normal system efficiencies. Capacity limitations are often stated in terms of equipment efficiencies or an amount of scrap loss. Say for example the scrap loss is 5%. And then the system efficiency is only 95%, and the required system capacity is determined by dividing 0.95 into the actual output required. By dividing this system capacity by the individual machine capacity gives us the number of machines required.

System Capacity

Q. A turning department wants to install enough semi automatic lathes to produce 2,50,000 good components per year. The turning operation takes 1.5 per component. But it is observed that the output of lathes will have 3% defectives.How many lathes will be required, if each one is available for 2000 hours of capacity per year?

Required system capacity = Actual good comps required/system efficiency = 250000/0.97 = 2,57,732 comps/year = 257732 comps per year/2000 hrs per year = 129 units/hrIndividual lathe capacity = 60 mins per hr/1.5 mins per comps = 40 comps/machine hrNo. of lathes required = 129 units per hr/40 units per machine hr = 3.2 machines = now the firm can go for 3 or 4 lathes.

Locating Production and Service facilitiesA plant is a place where men, material, money, machinery and equipment, e.t.c are brought together for manufacturing products. Plant location decisions are crucial because they commit organizations to long lasting financial, employment, and distribution patterns (along with others). This decision deserves a very careful attention of finance, marketing, and other managers, as well as that of the operation managers who manage the facilities. But location decisions may not always be ‘cast in concrete’. Relocation opportunities arises when alter their product lines, as labor or material requirements changes, or as market condition changes. So the management should always be alert to the advantages of expanding or closing the existing facilities, or developing new ones. Plant decision is not a static decision, that can be made and forgotten.Location planning for units dealing with goods and servicesDefine the location objectivesIdentify the relevant decision criteria (qualitative/quantitative)Relate the objectives to the criteria using appropriate models (BEA, Eco Cost Mod)Do field research to generate relevant data & use the models to evaluate alternate locations Select the location that best satisfies the criteria

Issues in Facility Location• Proximity to Customers• Business Climate• Total Costs• Infrastructure• Quality of Labour• Suppliers• Other Facilities• Political Risks• Government Barriers• Trading Blocks• Environmental Regulation• Host Community• Competitive Advantage

Factors of locationPrimary factors1. Availability of raw materials2. Nearness of market for the finished product3. Availability of fuel and power4. Transport facilities5. Availability of labor6. Availability of water (for paper & chemical inds) and other resources required

Secondary factors7. Soil and climate8. Industrial atmosphere9. Financial and other aids10. Availability of facilities like housing, schools, hospitals and recreation clubs11. Momentum of an early start12. Special advantage of the place(subsidies, tax holidays)13. Personal factors. 8. Historical factors 9. Political stability

Rural Vs urban locationsSelecting the site in an urban locationAdvantages:-1. Good transport facilities for the company and it’s employees2. Good market for products manufactured3. Availability of a good mix of labor(skilled/semi skilled/trained/experienced)4. Power is easily available, service of trained professionals5. Good medical facilities, availability of readily built building for rent6. Availability of Maintenance and other facilities

Disadvantages:-7. Cost of land, construction cost, and Local taxes, these are normally very high8. Expansion in the same area may be a problem, due to many constrains9. labor cost is very high and labor union problem may exist, which may strain

employee – employer relationships

Selecting a site in Rural/sub-urban areaAdvantages1. Availability of land at a reasonable price, making even future expansion easy2. Reasonable unskilled labor is available and labor union has minimum or no

influence3. Municipal/other regulation & taxes are very reasonable (seldom burdensome)4. Government will give subsidies, incentives and tax holidays

Disadvantages:-5. Transport facilities may not be as good as in the urban areas6. Difficult to find skilled labors and managers, as well as ancillary services7. Availability of continuous power, good hospitals, good schools, financial

institutions and banks might be a problem

Rural Vs urban locations

Location analysisCost analysis (comparative cost analysis):- In this method all the costs involved in establishing and operating the plant are listed and total cost is calculated. Based on the total cost the location decisions are being made.Factors (Cost of) Location 1 (cost in Rs.) Location 2 (cost in Rs.)

Land 100000 90000

Building 1200000 1300000Water 5000 6000

Power 15000 17000Labor 140000 120000Freight (In coming + out going) 280000 260000

Fuel 40000 35000Raw mat & other supplies 140000 130000

Taxes 4000 2000Total cost 1924000 1960000Community facilities, community attitude

Good, all right Excellent, Encouraging

Housing facilities Very good Good

Cost of living High Normal

Community size Small Medium

Considering cost alone location 1 is better, but considering cost plus facilities, location 2 can be recommended

ROR (Rate of return analysis) This analysis is based on the rate of return on the total investment. In this analysis location decision is made based on higher rate of return from the various AlternativesFrom the following data, select the most advantageous location for setting up a plant to manufacture electric and electronic products.

Particulars Site X Site Y Site Z

Tot initial investment 200000 200000 200000

Tot expected sales for the period

250000 300000 250000

Distribution expenses 40000 40000 75000

Raw material expense 70000 80000 90000

Power & water supply expenses

40000 30000 20000

Wages & salaries 20000 25000 20000

Other expenses 25000 40000 30000

Community attitudes Indifferent Wants business Indifferent

Employee housing facility

Poor Excellent good

Particulars Site X Rs. Site Y Rs. Site Z Rs.

Tot expenses (add amts in 3rd to 7th rows) 195000 215000 235000

ROR= (tot sales – tot expenses) X (100)/ (tot investment) 27.5% 42.5% 7.5%

ROR (Rate of return analysis) solution

Rate of return of site X = (250000 – 195000) X (100) / 200000: = 27.5%Rate of return of site Y = (300000 – 215000) X (100) / 200000: = 42.5%Rate of return of site Z = ( 250000 – 235000) X (100) / 200000: = 7.5%

Site Y has higher rate of return and it has good housing facility and community wants business. Hence it is the ideal site to start industry.

Locational Break-Even Analysis Example

Three locations:

Akron $30,000 $75 $180,000

Bowling Green $60,000 $45 $150,000

Chicago $110,000 $25 $160,000

Selling price = $120

Expected volume = 2,000 units

Fixed Variable TotalCity Cost Cost Cost

Total Cost = Fixed Cost + Variable Cost x Volume

Locational Break-Even Analysis Example

–$180,000 –

–$160,000 –$150,000 –

–$130,000 –

–$110,000 –

––

$80,000 ––

$60,000 –––

$30,000 ––

$10,000 ––

Ann

ual c

ost

| | | | | | |

0 500 1,000 1,500 2,000 2,500 3,000

Volume

Akron lowest cost

Bowling Green lowest cost

Chicago lowest cost

Chicago cost curve

Akron c

ost

curv

e

Bowling Green

cost curve

Factor-Rating Method• Popular because a wide variety of factors can be included in the

analysis• Six steps in the method

– Develop a list of relevant factors called critical success factors– Assign a weight to each factor– Develop a scale for each factor– Score each location for each factor– Multiply score by weights for each factor for each location– Recommend the location with the highest point score

Factor-Rating ExampleCritical Scores

Success (out of 100) Weighted ScoresFactor Weight France Denmark France Denmark

Labor availability and attitude .25 70 60 (.25)(70) = 17.5 (.25)(60) = 15.0People-to car ratio .05 50 60 (.05)(50) = 2.5 (.05)(60) = 3.0Per capita income .10 85 80 (.10)(85) = 8.5 (.10)(80) = 8.0Tax structure .39 75 70 (.39)(75) = 29.3 (.39)(70) = 27.3Education and health .21 60 70 (.21)(60) = 12.6 (.21)(70) = 14.7

Totals 1.00 70.4 68.0

Table 8.3

Locating service facilities• Because of the variety of service firms and the relatively low cost of

establishing a service facility compared to one for manufacturing, new service facilities are far more common than new factories and warehouses.

• Services typically have multiple sites to maintain close contact with customers. The location decision is closely tied to the market selection decision.

• Market affects the number of sites to be built and the size and characteristics of the sites.

• Whereas manufacturing location decisions are often made by minimizing costs, many service location decision techniques maximize the profit potential of various sites.

Cost vs Response TIme

Local FG

Mix

Regional FG

Local WIP

Central FG

Central WIP

Central Raw Material and Custom production

Custom production with raw material at suppliers

Cost

Response Time HiLow

Low

Hi

Layout Planning

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

Plant layout is an important decision as it represents long-term commitment. An ideal plant layout should provide the optimum relationship among output, Floor area and manufacturing process. It facilitates the production process, Minimizes material handling, time and cost, and allows flexibility of operations, Easy production flow, makes economic use of the building, promotes effectiveutilization of manpower, and provides for employee’s convenience, safety, comfort at work, maximum exposure to natural light and ventilation. It is also important because it affects the flow of material and processes, labor efficiency, supervision and control, use of space and expansion possibilities etc

Plant Layout objectivesa) Proper and efficient utilization of available floor spaceb) To ensure that work proceeds from one point to another point without

any delayc) Provide enough production capacity.d) Reduce material handling costse) Reduce hazards to personnelf) Utilize labor efficientlyg) Increase employee moraleh) Reduce accidentsi) Provide for volume and product flexibilityj) Provide ease of supervision and controlk) Provide employee safety and healthl) Allow ease of maintenancem) Allow high machine or equipment utilizationn) Improve productivity

Types of layoutIn case of manufacturing unit, plant layout may be of four types:(a) Product or line layout(b) Process or functional layout(c) Fixed position or location layout(d) Combined or group layout

Product or line layout:- Under this, machines and equipments are arranged in one line depending upon the sequence of operations required for the product. The materials move form one workstation to another sequentially without any backtracking or deviation. Under this, machines are grouped in one sequence. Therefore materials are fed into the first machine and finished goods travel automatically from machine to machine, the output of one machine becoming input of the next, e.g. in a paper mill, bamboos are fed into the machine at one end and paper comes out at the other end. The raw material moves very fast from one workstation to other stations with a minimum work in progress storage and material handling.

The grouping of machines should be done keeping in mind the followingGeneral principles.a) All the machine tools or other items of equipments must be placed at the

point demanded by the sequence of operationsb) There should no points where one line crossed another line.c) Materials may be fed where they are required for assembly but not

necessarily at one point.d) All the operations including assembly, testing packing must be included in

the line

Advantages: Product layout provides the following benefits:a) Low cost of material handling, due to straight and short route and absence

of backtrackingb) Smooth and uninterrupted operations, and Continuous flow of workc) Lesser investment in inventory and work in progress

Types of layout

d) Optimum use of floor spacee) Shorter processing time or quicker outputf) Less congestion of work in the processg) Simple and effective inspection of work and simplified production controlh) Lower cost of manufacturing per unitDisadvantages: Product layout suffers from following drawbacks:a. High initial capital investment in special purpose machineb. Heavy overhead chargesc. Breakdown of one machine will hamper the whole production processd. Lesser flexibility as specially laid out for particular product.Suitability: Product layout is useful under following conditions:1) Mass production of standardized products2) Simple and repetitive manufacturing process3) Operation time for different process is more or less equal4) Reasonably stable demand for the product & Continuous supply of

materials

Types of layout

Process layout:In this type of layout machines of a similar type are arranged together at one place. E.g. Machines performing drilling operations are arranged in the drilling department, machines performing casting operations be grouped in the casting department. Therefore the machines are installed in the plants, which follow the process layout.

Hence, such layouts typically have drilling department, milling department, Welding department, heating department and painting department etc. The work has to be allocated to each department in such a way that machines are chosen to do as many different job as possible i.e. the emphasis is on general purpose machine.The work, which has to be done, is allocated to the machines according to Loading schedules with the object of ensuring that each machine is fully loaded.

Types of layout

The grouping of machines according to the process has to be done keeping inmind the following principles:-a) The distance between departments should be as short as possible for

avoiding long distance movement of materialsb) The departments should be in sequence of operationsc) The arrangement should be convenient for inspection and supervisionAdvantages: Process layout provides the following benefitsa) Lower initial capital investment in machines and equipments. There is highdegree of machine utilization, as a machine is not blocked for a single productb) The overhead costs are relatively lowc) Change in output design and volume can be more easily adapted to the

output of variety of productsd) Breakdown of one machine does not result in complete work stoppagee) Supervision can be more effective and specializedf) There is a greater flexibility of scope for expansion.

Types of layout

Disadvantages: Product layout suffers from following drawbacksa. Material handling costs are high due to backtrackingb. More skilled labor is required resulting in higher cost.c. Time gap or lag in production is higherd. Work in progress inventory is high needing greater storage spacee. More frequent inspection is needed which results in costly

supervision

Suitability: Process layout is adopted when1. Products are not standardized2. Quantity produced is small3. There are frequent changes in design and style of product4. Job shop type of work is done5. Machines are very expensive

Types of layout

Fixed Position or Location LayoutIn this type of layout, the major product being produced is fixed at one location. Equipment labor and components are moved to that location. All facilities are brought and arranged around one work center. This type of layout is not relevant for small scale entrepreneur.

Advantages: Fixed position layout provides the following benefitsa) It saves time and cost involved on the movement of work from one workstation to another.b) The layout is flexible as change in job design and operation sequence can be easily incorporated.c) It is more economical when several orders in different stages of progress are being executed simultaneously.d) Adjustments can be made to meet shortage of materials or absence of

workers by changing the sequence of operations.

Types of layout

Disadvantages: Fixed position layout has the following drawbacksa. Production period being very long, capital investment is very heavyb. Very large space is required for storage of material and equipment near the product.c. As several operations are often carried out simultaneously, there is

possibility of confusion and conflicts among different workgroups.

Suitability: The fixed position layout is followed in following conditions1. Manufacture of bulky and heavy products such as locomotives, ships,

boilers, generators, wagon building, aircraft manufacturing, etc.2. Construction of building, flyovers, dams.3. Hospital, the medicines, doctors and nurses are taken to the patient

(product).

Types of layout

Combined layoutCertain manufacturing units may require all three processes namely Intermittent process (job shops), the continuous process (mass production shops) and the representative process combined process [i.e. miscellaneous shops]. In most of industries, only a product layout or process layout or fixed locationlayout does not exist. Thus, in manufacturing concerns where several productsare produced in repeated numbers with no likelihood of continuous production, combined layout is followed. Generally, a combination of the product and process layout or other combination are found, in practice, e.g. for Industries involving the fabrication of parts and assembly, fabrication tends to employ the process layout, while the assembly areas often employ the product layout. In soap, manufacturing plant, the machinery manufacturing soap is arranged on the product line principle, but ancillary services such as heating, the manufacturing Of glycerin, the power house, the water treatment plant etc. are arranged on a functional basis.

Types of layout

Traders (In Trading business, including different retail outlets)When two outlets carry almost same merchandise, customers usually buy in The one that is more appealing to them. Thus, customers are attracted and kept by good layout i.e. good lighting, attractive colors, good ventilation, airconditioning, modern design and arrangement and even music. All of these things mean customer convenience, customer appeal and greater business volume. The customer is always impressed by service, efficiency and quality. Hence, the layout is essential for handling merchandise, which is arranged as per the space available and the type and magnitude of goods to be sold keeping in mind the convenience of customers.

There are three kinds of layouts in retail operations today.1. Self service or modified self service layout2. Full service layout3. Special layouts

Types of layout

Services centers and establishmentServices establishments such as motels, hotels, restaurants, must give dueattention to client convenience, quality of service, efficiency in delivering Services and pleasing office ambience. In today’s environment, the clients look for ease in approaching different departments of a service organization and hence the layout should be designed in a fashion, which allows clients quick and convenient access to the facilities offered by a service establishment.FACTORS INFLUENCING LAYOUT• Factory building:• Nature of product:• Production process:• Type of machinery:• Repairs and maintenance:• Human needs:• Plant environment:

Types of layout


Unit-III (7 sessions)Organizing the conversion System

Job design, Production and Operations standards, and work measurement; Project

Management.

The operations manager uses job design techniques to structure the work so that it will meet both the physical and behavioral needs of the human worker. Work measurement methods are used to determine the most efficient means of performing a given task, as well as to set reasonable standards for performing it. People are motivated by many things, only one of which is financial reward. Operations managers can structure such rewards not only to motivate consistently high performance but also to reinforce the most important aspects of the job. Job design is the function of specifying the work activities of

an individual or group in an organizational setting.

The objective of job design is to develop jobs that meet the requirements of the organization and its technology and that satisfy the jobholder’s personal and individual requirements.

Job Design

Decisions in Job Design

UltimateJob

Structure

Who

Mental andphysicalcharacteristicsof the work force

What

Tasks to beperformed

Where

Geographiclocale of theorganization;location of work areas

When

Time of day;time of occurrence inthe work flow

Why

Organizationalrationale forthe job; object-ives and mot-ivation of theworker

How

Method of performanceandmotivation

Behavioral Considerations in Job Design

Degree of Specialization

Job Enrichment (vs. Enlargement)

Job enlargement generally entails adjusting a specialized job to make it more interesting to the job holder. A job is said to be enlarged horizontally if the worker performs a greater number or variety of tasks, and it is said to be enlarged vertically if the worker is involved in planning, organizing, and inspecting his or her own work.

Work Methods

Workers Interacting with Other Workers

A ProductionProcess

Worker at a Fixed Workplace

Worker Interacting with Equipment

UltimateJob

Design