Unit I (Business Environment)

UNIT SNAPSHOT UGC NET MANAGEMENT

Unit VIII

OPERATIONS MANAGEMENT

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OPERATIONS MANAGEMENT

The term “operations” refers to a function or system that transforms inputs into outputs of

greater value.

Operations are often defined as a transformation or conversion process wherein inputs such

as materials, machines, labour and capital are transformed into outputs (goods and services).

In a productive system, if the outputs are strictly tangible goods, such a system is referred

to as a “production system” and the transformation process is referred to as “production”.

Nowadays, the service system in which the output is predominantly a service or even a pure

service, is also treated as a productive system and often referred to as an “operating system”

instead of a “production system”

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Operations Management concern with the conversion of inputs into outputs, using

physical resources, so as to provide the desired utilities to the customer while meeting the

other organizational objectives of effectiveness, efficiency and adoptability.

It distinguishes itself from other functions such as personnel, marketing, finance, etc. by its

primary concern for ‘conversion by using physical resources’.

Operations Management implies the management of day to day business activities, so as to

ensure smoothness and effectiveness of operations in the organization.

It involves administration of production, manufacturing and provision of services in an

organisation.

Operations Management is all about the optimum utilization of company’s resources, i.e.

the resources must be utilized as much as possible, by minimizing the loss, wastage and

underutilization.

PRODUCTION MANAGEMENT

When the principles of management are applied to the production function of the

organisation, it is known as production management.

It is a process of planning, scheduling, supervising and controlling the activities involved

in the production of goods and services, i.e. the transformation of various resources into the

value-added product, in an efficient manner.

In this process, the decision regarding the quality, quantity, price, packaging, design, etc.

are taken by the production manager, so as to ensure that the output produced confirms the

specifications.

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The primary objective of production and operations management is to effectively manage and

utilize those resources of the firm that are essential for the production of goods and services.

Production management refers to the management of activities related to the production of

goods.

On the other hand, operations management is a step ahead of production management, or it

can be said that the production management is a part of the operations management.

Operations Management, as the name suggests is the administration of business operations,

by the managers of the organization.

NATURE OF PRODUCTION/OPERATIONS

The nature of production or operations can be better understood by viewing the

manufacturing function as:

(i) Production/operations as a system,

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(ii) Production/operations as an organisational function,

(iii) Production/operations as a conversion or transformation process and

(iv) Production/operations as a means of creating utility

Production/operations as a system:

This view is also known as "systems concept of production". A system is defined as the

collection of interrelated entities. The systems approach views any organisation or entity as

an arrangement of interrelated parts that interact in ways that can be specified and to some

extent predicted. Production is viewed as a system which converts a set of inputs into a set of

desired outputs. A production system has the following elements or parts :

(i) Inputs,

(ii) Conversion process or transformation process,

(iii) Outputs

(iv) Transportation subsystem,

(v) Communication subsystem and

(vi) Control or decision making subsystem.

Production/Operations as an Organisational Function

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To create goods and services, all organisations whether manufacturing goods or providing

services perform four basic functions. They are

(i) Marketing function

(ii) Production or Operations function.

(iii) Finance function and

(iv) Human Resources function.

Production/Operations as a Conversion/Transformation Process

The conversion or transformation sub-system is the core of a production system because it

consists of processes or activities wherein workers, materials, machines and equipment are

used to convert inputs into outputs, i.e.,

The conversion process may include manufacturing processes such as cutting, drilling,

machining, welding, painting, etc., and other processes such as packing, selling, etc. Any

conversion process consists of several small activities referred to as "operations" which are

some steps in the overall process of producing a product or service that leads to the final

output.

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Production/Operations as a Means of Creating Utility

Production is defined as the process of adding to the value of outputs or the process of

creating utility in outputs. "Utility" is the power of satisfying human needs. During the

process of converting the raw materials into finished goods, various types of utilities are

created while adding value to the outputs. These types of utilities are:

(i) Form utility: which is created by changing the size, shape, form, weight, colour, smell of

inputs in order to make the outputs more useful to the customers. For example, iron ore is

changed to steel, wood is changed to furniture, etc.

(ii) Place utility: which is created by changing the places of inputs or transporting the inputs

from the source of their availability to the place of their use to be converted into outputs. For

example the iron ore and coal are transported from the mines to the steel plant to be used in

the conversion process.

(iii) Time utility: which is created by storage or preservation of raw materials or finished

goods which are in abundance sometime, so that the same can be used at a later time when

they become scarce due to higher demand exceeding the quantity available.

(iv) Possession utility: which is created by transferring the possession or ownership of an

item from one person to another person. For example, when a firm purchases materials from

a supplier, the possession utility of the materials will increase when they are delivered to the

buying firm.

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(v) Service utility: which is the utility created by rendering some service to the customer.

For example, a doctor or a lawyer or an engineer creates service utility to a client/customer

by rendering service directly to the client/customer.

(vi) Knowledge utility: which is created by imparting knowledge to a person. For example, a

sales presentation or an advertisement about some product communicates some information

about the product to the customer, thereby imparting knowledge.

Scope of production and operations management

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 Planning and Control.

6. Quality Control.

7. Materials Management.

8. Maintenance Management.

Role of Operation Management:

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Operation Management is defined as the design, operation and improvement of production

systems that create the firm’s primary product or services.

The Operations resources consist of five P’s of Operations Management as follows:

Facility Location and Layout

FACILITY LOCATION

1. People are the direct or indirect workforce

2. Plants include factories or service branches where production is carried out

3. Parts includes the material or supplies that go through the system

4. Processes includes equipment and steps by which production is carried out

5. Planning and Control system are the procedures and information management used to operate the system

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Facility location is refers to the location of service organizations.

It is known as factory location in production organizations.

Facility location may be defined as a place where the facility will be set up for producing

goods or services.

The need for location selection may arise under any of the following conditions:

a. When a business is newly started.

b. When the existing business unit has outgrown its original facilities and expansion is not

possible; hence a new location has to be found.

c. When the volume of business or the extent of market necessitates the establishment of

branches.

d. When the lease expires and the landlord does not renew the lease.

e. Other social or economic reasons.

Facility location refers to selection of specific site for establishment of the physical unit of

production process.

The success of the organization is also depends on the decision of facility location. It is a

strategic decision of an organization.

Needs of Location Selection:

The need for location selection may arise under any of the following conditions:

a. When a business is newly started.

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b. When the existing business unit has outgrown its original facilities and expansion is not

possible; hence a new location has to be found.

c. When the volume of business or the extent of market necessitates establishment of

branches.

d. When the lease expires and the landlord does not renew the lease.

e. Other social or economic reasons.

Need for Facility Location Planning

1. Required for providing a cost benefit to the organization.

2. Should help in reducing the transportation cost for the organization, which ultimately

helps in decreasing the cost of production and generating cost advantage for the organization.

3. To identify proximity to the sources of raw materials and transportation facilities.

4. Should ideally be located at a place where raw materials are available, which necessary

for maintaining continuity in the production process.

Factors Affecting Facility Location Decisions

While selecting a facility location, an organization should consider various factors that may

have significant impact on its performance. These factors are

Primary Factors Affecting Plant

Location.

Secondary Factors Affection Plant

Location

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1. Nature of Inputs ( Raw Materials)

2. Nature of Outputs ( Product and

Services)

3. Nature of Technology Employed

1. Availability of Labors and their skill

2. Transportation and Communication

Facilities

3. Availability of Services

4. Suitability of Land and Climate

5. Opportunity for Expansion

6. Political, Cultural and Economic

Situation and Regional Regulation.

7. Special Grants, Regional Tax and

Import Export Barriers

Procedure for Selecting Facility Location

An organisation follows certain steps to make a correct location choice. These steps are:

Techniques for Selecting Facility Location:

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Following are some main techniques used in making location decisions:

➢ Location rating factor technique: In this technique, first of all an organisation needs to

identify the factors that influence its location decision. Next, each factor is provided a weight

between ‘0’ to ‘1’ according to the level of importance, where ‘0’ denotes least important and

‘1’ denotes most important.

➢ Centre-of-gravity technique: This technique emphasises on transportation cost in the

determination of facility location. Transportation cost mainly depends on distance, weight of

merchandise and the time required for transportation. Centre-of-gravity maps various supplier

locations on a Cartesian plane and suggests a central facility location with respect to the

locations of suppliers.

FACILITY LAYOUT

Facility layout may be defined as the arrangement of machinery, equipment, and other

amenities in a facility, which should ensure a smooth movement of materials.

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According to Moore, facility layout is the plan of or the act of planning an optimum

arrangement of facilities, including personnel, operating equipment, storage space, material

handling equipment, and all other supporting services along with the design of the best

structure to contain these facilities.

Objectives of an Effective Facility Layout

1. Minimum Material Handling

2. Elimination of Bottlenecks

3. Shorter Production Cycles

4. Reduction in Production Delays

5. Improved Quality Control

6. Efficient Utilization of Labour

7. Improved Employee Morale

Types of Facility Layouts

1. Process Layout

2. Product Layout

3. Fixed Position Layout

4. Cellular Manufacturing Layout

5. Combination or Hybrid Layout

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Process layout: Process layout, also called functional layout or batch production layout,

is characterized by the grouping together of similar machines, based upon their operational

characteristics.

Advantages of fixed process layout

1. A high degree of flexibility exists relative

to equipment or manpower allocation for

specific tasks.

2. Smaller investment in equipment as

duplication is not necessary unless volume is

large.

3. The diversity of tasks offers a more

interesting and satisfying occupation for the

operator.

4. Supervisors for each department become

highly, knowledgeable about their functions.

5. Better utilization of machines can result

in fewer machines used.

Disadvantages of fixed process layout

1. Lack of process efficiency as back

tracking and long movements may occur in

the handling of materials.

2. Lack of efficiency in timing as workers

must wait between tasks.

3. Complications of production planning and

control

4. Workers must have broad skills and must

be paid higher wages than assembly line

workers.

5. Comparatively large amounts in process

inventory as space and capital are tied up by

work in process. .

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Product layout: In product layout, also called straight line layout, machinery is arranged in

one line as per the sequence of production operations. Materials are fed into the first

machine and finished products come out of the last machine.

Advantages of fixed Product layout

1. Total production time per unit is short.

2. Simple, smooth logical flow lines result due

to fixes sequence of operation.

3. Small work in process inventories due to

work from one process is fed directly into the

next.

4. Low cost of material handling, due to

straight and short route and absence of

backtracking.

5. Little skill is usually required by operators

at the production line; hence, training is

simple, short, and inexpensive.

Disadvantages of fixed Product layout

1. Whenever breakdown of one machine

stops the entire line in the presence of

enough manpower.

2. Lack of process flexibility, since the

layout is determined by the product, a

change in product design may require

major alternations in the layout

3. Lack of flexibility in timing, as the

product cannot flow through the line faster

than the slowest task can be accomplished

unless that task is performed at several

stations.

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Fixed position layout: This type of facility layout is used to assemble products that are too

large, heavy or fragile to move to a location for completion. In the fixed position layout,

machinery, men, as well as other pieces of material, are brought to the location where the

product is to be assembled.

6. Simple production planning control systems

are possible.

7. Less space is occupied by work in transit

and for temporary storage

4. Supervision is general, rather than

specialized.

5. Comparatively high investment is

required, as identical machines (a few not

fully utilized) are sometimes distributed

along the line.

6. Worker fatigue as workers may become

bored by the endless repetition of simple

tasks.

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Advantages of fixed position layout

1. Material movement is reduced, minimizes

damage or cost of moving.

2. Promotes job enlargement by allowing

individuals or teams to perform the whole

job.

3. Continuity of operations and

responsibility results from team. This

reduces the problems of re-planning and

instructing people each time a new type of

activity is to begin.

4. Highly flexible; can accommodate

changes in product design, product mix, and

product volume.

5. Independence of production centers

allowing scheduling to achieve minimum

total production time.

Disadvantages of fixed position layout

1. Increased movement of personnel and

equipment may be expensive.

The necessary combination of skills may

be difficult to find and high pay levels may

be necessary.

2. Equipment duplication may occur.

3. Higher skill requirements for personnel

as they are involved in more operations.

4. General supervision required.

5. Cumbersome and costly positioning of

material and machinery.

6. Low equipment utilization as equipment

may be left at a location where it will be

needed again in a few days rather than

moved to another location where it would

be productive.

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Cellular manufacturing layout: In Cellular Manufacturing (CM) layout, machines are

grouped into cells, which function somewhat like a product layout in a larger shop or a

process layout. Each cell in the CM layout is formed to produce a single part family, that is, a

few parts with common characteristics.

Advantages of cellular Layout

1. Reduced in process inventory

2. Increase operator expertise

3. Improved human relations, job

enlargement tend to occur.

4. Supports the use of general purpose

equipment

5. Increased machine utilization.

Disadvantages of cellular layout

1. General supervision required.

2. Higher skills level required of

employees than for product layout.

3. Reduced shop flexibility

4. Depends on balanced material flow

between product layout and process

layout, otherwise buffers and work in

process storage are required.

5. Lower machine utilization than for

process layout

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Combination or hybrid layout: It is difficult to use the principles of product layout, process

layout, or fixed location layout in facilities that involve fabrication of parts and assembly.

Fabrication tends to employ the process layout, while assembly areas often employ the

product layout.

ENTERPRISE RESOURCE PLANNING SYSTEM (ERP)

Enterprise Resource Planning System (ERP), just by considering name we can simply

define ERP as System or software that used to manage all the resources of the whole

enterprise.

Right from employee payments to a single screw coming into the enterprise, everything

can be managed & tracked by using ERP Systems.

Why ERP is necessary??

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ERP is cross-functional software that supports all the business processes within the

organization.

In an organization, ERP helps to manage business processes of various departments &

functions through the centralized application.

We can make all the major decisions by screening the information provided by ERP.

There are many vendors in the market which are providing traditional ERP solutions or

Cloud-based ERP solutions.

Depending on organizations need required components are integrated & customized ERP

system is formed.

Implication of ERP: All the below-mentioned modules can be found in an ERP system;

1. Human Resource

2. Inventory

3. Sales & Marketing

4. Purchase

5. Finance & Accounting

6. Customer Relationship Management(CRM)

7. Engineering/ Production

8. Supply Chain Management (SCM)

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1) Human Resource Module(HR):

Human Resource module

Helps to HR team for efficient management of human resources.

Helps to manage employee information, track employee records like performance reviews,

designations, job descriptions, skill matrix, time & attendance tracking.

One of the important sub modules in the HR module is Payroll System which helps to

manage salaries, payment reports etc.

It can also include Travel Expenses & Reimbursement tracking. Employee Training

tracking can also be managed by ERP.

2) Inventory Module:

Inventory module can be used to track the stock of items.

Items can be identified by unique serial numbers.

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Using that unique numbers inventory system can keep track of item and trace its current

location in the organization.

e.g. you have purchased 100 hard disks, so using inventory system you can track how

many hard disks are installed, where they are installed, how many hard disks are remaining

etc.

Inventory module includes functionalities like inventory control, master units, stock

utilization reporting etc.

There may be an integration of the inventory module with the purchase module of ERP.

3) Sales Module :

Typical sales process includes processes like Sales queries & inquiry analysis & handling,

quotation drafting, accepting sales orders, drafting sales invoices with proper taxation,

dispatch/Shipment of material or service, tracking pending sales order.

All these sales transactions are managed by the sales module of ERP.

CRM module can take the help of the Sales module for future opportunity creation & lead

generation.

4) Purchase Module:

As the name indicates, purchase modules take care of all the processes that are part of the

procurement of items or raw materials that are required for the organization.

Purchase module consists of functionalities like supplier/vendor listing, supplier & item

linking, sending quotation request to vendors, receiving & recording quotations, analysis of

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quotations, preparing purchase orders, tracking the purchase items, preparing GRNs(Good

Receipt Notes) & updating stocks & various reports.

Purchase module is integrated with Inventory module & Engineering/production module

for updating of stocks.

5) Finance & Accounting module:

Whole inflow & outflow of money/capital is managed by the finance module.

This module keeps track of all account-related transactions like expenditures, Balance

sheet, account ledgers, budgeting, bank statements, payment receipts, tax management etc.

Financial reporting is an easy task for this module of ERP.

Any Financial data that is required for running the business is available on one click in

Finance module.

6) Customer Relationship Management (CRM) module:

CRM department is helping to boost the sales performance through better customer service

& establishing a healthy relationship with customers.

All the stored details of the customer are available in the CRM module.

CRM module helps to manage & track detailed information of the customer like

communication history, calls, meetings, details of purchases made by the customer, contract

duration etc. CRM module can be integrated with the

Sales module to enhance sales opportunities.

7) Engineering / Production module:

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Production module is a great help for the manufacturing industry for delivering the

product.

This module consists of functionalities like production planning, machine scheduling, raw

material usage, (Bill of material) preparation, track daily production progress production

forecasting & actual production reporting.

8) Supply Chain Management (SCM):

SCM module manages the flow of product items from manufacturer to consumer &

consumer to manufacturer.

Common roles involved are a manufacturer, Super Stockiest, Stockiest, distributors,

retailers etc. SCM involves demand & supply management, sales returns & replacing process,

shipping & transportation tracking etc.

ACTIVITIES OF PLANNING AND CONTROL

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Scheduling in Production and Operation Management

Scheduling can be defined as “prescribing of when and where each operation necessary to

manufacture the product is to be performed.” It is also defined as “establishing of times at

which to begin and complete each event or operation comprising a procedure”. The principle

aim of scheduling is to plan the sequence of work so that production can be systematically

arranged towards the end of completion of all products by due date.

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Principles of Scheduling

1. The principle of optimum task size: Scheduling tends to achieve maximum efficiency

when the task sizes are small, and all tasks of same order of magnitude.

2. Principle of optimum production plan: The planning should be such that it imposes an

equal load on all plants.

3. Principle of optimum sequence: Scheduling tends to achieve the maximum efficiency

when the work is planned so that work hours are normally used in the same sequence.

Inputs to Scheduling

1. Performance standards: The information regarding the performance standards (standard

times for operations) helps to know the capacity in order to assign required machine hours

to the facility.

2. Units in which loading and scheduling is to be expressed.

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3. Effective capacity of the work centre.

4. Demand pattern and extent of flexibility to be provided for rush orders.

5. Overlapping of operations.

6. Individual job schedules.

Scheduling Strategies

Scheduling strategies vary widely among firms and range from ‘no scheduling’ to very

sophisticated approaches. These strategies are grouped into four classes:

1. Detailed scheduling: Detailed scheduling for specific jobs that are arrived from

customers is impracticable in actual manufacturing situation. Changes in orders, equipment

breakdown, and unforeseen events deviate the plans.

2. Cumulative scheduling: Cumulative scheduling of total work load is useful especially for

long range planning of capacity needs. This may load the current period excessively and

under load future periods. It has some means to control the jobs.

3. Cumulative detailed: Cumulative detailed combination is both feasible and practical

approach. If master schedule has fixed and flexible portions.

4. Priority decision rules: Priority decision rules are scheduling guides that are used

independently and in conjunction with one of the above strategies, i.e., first come first serve.

These are useful in reducing Work-In-Process (WIP) inventory.

Types of Scheduling

Types of scheduling can be categorized as forward scheduling and backward scheduling.

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1. Forward scheduling: is commonly used in job shops where customers place their orders

on “needed as soon as possible” basis.

Forward scheduling determines start and finish times of next priority job by assigning it

the earliest available time slot and from that time, determines when the job will be finished

in that work centre.

Since the job and its components start as early as possible, they will typically be

completed before they are due at the subsequent work centers in the routing.

The forward method generates in the process inventory that are needed at subsequent

work centers and higher inventory cost. Forward scheduling is simple to use and it gets jobs

done in shorter lead times, compared to backward scheduling.

2. Backward scheduling: is often used in assembly type industries and commit in advance

to specific delivery dates.

Backward scheduling determines the start and finish times for waiting jobs by assigning

them to the latest available time slot that will enable each job to be completed just when it is

due, but done before.

By assigning jobs as late as possible, backward scheduling minimizes inventories since a

job is not completed until it must go directly to the next work centre on its routing.

Forward and backward scheduling methods are shown in the following figure.

Forward and backward scheduling

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LOADING

Loading involves assigning jobs to work centers and to various machines in the work

centers.

If a job can be processed on only one machine, no difficulty is presented. However, if a

job can be loaded on multiple work centers or machines, and there are multiple jobs to

process, the assignment process becomes more complicated.

Two Approaches Are Used For Loading Work Centers:

1. Infinite loading

2. Finite loading.

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Infinite loading:

Jobs are assigned to work centers without regard for capacity of the work center.

Priority rules are appropriate for use under the infinite loading approach.

Jobs are loaded at work centers according to the chosen priority rule.

This is known as vertical loading.

Finite loading:

Considers the capacity of each work center and compares the processing time so that

process time does not exceed capacity.

Finite loading projects the actual start and stop times of each job at each work center.

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With finite loading the scheduler loads the job that has the highest priority on all work

centers it will require. Then the job with the next highest priority is loaded on all required

work centers, and so on.

This process is referred to as horizontal loading.

The scheduler using finite loading can then project the number of hours each work center

will operate.

A drawback of horizontal loading is that jobs may be kept waiting at a work center, even

though the work center is idle.

This happens when a higher priority job is expected to arrive shortly.

If the firm has limited capacity (e.g., already running three shifts), finite loading would be

appropriate since it reflects an upper limit on capacity. If infinite loading is used, capacity

may have to be increased through overtime, subcontracting, or expansion, or work may have

to be shifted to other periods or machines.

SEQUENCING

https://www.referenceforbusiness.com/knowledge/Limit_superior_and_limit_inferior.html

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Sequencing is concerned with determining the order in which jobs are processed. Not

only must the order be determined for processing jobs at work centers but also for work

processed at individual work stations.

When work centers are heavily loaded and lengthy jobs are involved, the situation can

become complicated.

The order of processing can be crucial when it comes to the cost of waiting to be

processed and the cost of idle time at work centers.

There are a number of priority rules or heuristics that can be used to select the order of

jobs waiting for processing.

Some well-known ones are presented in a list adapted from Vollmann, Berry, Whybark, and

Jacobs (2005):

Random (R). Pick any job in the queue with equal probability. This rule is often used as

a benchmark for other rules.

First come/first served (FC/FS). This rule is sometimes deemed to be fair since jobs are

processed in the order in which they arrive.

Shortest processing time (SPT). The job with the shortest processing time requirement

goes first. This rule tends to reduce work-in-process inventory, average throughput time, and

average job lateness.

Earliest due date (EDD). The job with the earliest due date goes first. This seems to

work well if the firm performance is judged by job lateness.

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Critical ratio (CR). To use this rule one must calculate a priority index using the

formula (due date–now)/(lead time remaining). This rule is widely used in practice.

Least work remaining (LWR). An extension of SPT, this rule dictates that work be

scheduled according to the processing time remaining before the job is considered to be

complete. The less work remaining in a job, the earlier it is in the production schedule.

Fewest operations remaining (FOR). This rule is another variant of SPT; it sequences

jobs based on the number of successive operations remaining until the job is considered

complete. The fewer operations that remain, the earlier the job is scheduled.

Slack time (ST). This rule is a variant of EDD; it utilizes a variable known as slack.

Slack is computed by subtracting the sum of setup and processing times from the time

remaining until the job's due date. Jobs are run in order of the smallest amount of slack.

Slack time per operation (ST/O). This is a variant of ST. The slack time is divided by

the number of operations remaining until the job is complete with the smallest values being

scheduled first.

Next queue (NQ). NQ is based on machine utilization. The idea is to consider queues

(waiting lines) at each of the succeeding work centers at which the jobs will go. One then

selects the job for processing that is going to the smallest queue, measured either in hours or

jobs.

Least setup (LSU). This rule maximizes utilization. The process calls for scheduling first

the job that minimizes changeover time on a given machine.

MONITORING AND CONTROL PROCESS

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Evaluation and comparison of actual measured results against those planned is the

fundamental principle of project monitoring process.

Whenever there is a variance, corrective action is required to keep the project on schedule

and to budget.

The inputs are the project plan and progress reports that contain data collected from the

project team.

Where progress deviates significantly, and this usually means outside of a predetermined

tolerance limit, it is important to identify the underlying causes and take corrective action.

Following diagram shows the project monitoring cycle to be followed at regular period of

intervals of the project duration.

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Monitoring and controlling activities

Involves tracking, reviewing, and regulating project progress

Includes status reporting, progress measurement, and forecasting

Reports on scope, schedule, cost, resources, quality, and risks

Controls project and project document changes

Includes control of scope, schedule, costs, and risks

Formalizes acceptance of deliverables

Records quality control results

Implements risk treatment plans and actions

Administers suppliers

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QUALITY MANAGEMENT SYSTEM

A quality management system is a particular management system driving the organization

with regard to quality.

In other words, it assists companies and organizations in enhancing customer

satisfaction.

This is the result of products capable of satisfying the ever changing customer needs and

expectations that consequently require the continuous improvement of products, processes,

and production systems.

The basic steps for developing and implementing a quality management system are:

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determination of needs and expectations of customers and other involved parties;

definition of the organization’s quality policy and quality objectives;

determination of processes and responsibilities for quality assessment;

identification and choice of production resources necessary to attain the quality objectives;

determination and application of methods to measure the effectiveness and efficiency of each process within the production system;

prevention of nonconformities and deletion of the related causes;

definition and application of a process for continuous improvement of the quality management system.

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STATISTICAL QUALITY CONTROL (SQC):

Statistical Quality Control (SQC) is the term used to describe the set of statistical

tools used by quality professionals.

Statistical Quality Control (SQC) developed in the United States in 1930-40 by W.A

Shewhart, and used for decades in American and Japanese companies.

SQC is used to analyze the quality problems and solve them.

Statistical quality control refers to the use of statistical methods in the monitoring

and maintaining of the quality of products and services.

All the tools of SQC are helpful in evaluating the quality of services.

SQC uses different tools to analyze quality problem.

1- Descriptive Statistics

2- Statistical Process Control (SPC)

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3- Acceptance Sampling

1- Descriptive Statistics involves describing quality characteristics and relationships.

2- SPC involves inspect random sample of output from process for characteristic.

3- Acceptance Sampling involves batch sampling by inspection.

Statistical quality control (SQC) is defined as the application of the 14 statistical and

analytical tools (7-Qc and 7-Supp) to monitor process outputs (dependent variables).

Statistical process control (SPC) is the application of the same 14 tools to control process

inputs (independent variables). Although both terms are often used interchangeably,

statistical quality control includes acceptance sampling where statistical process control does

not.

The 7 Quality Control (7-Qc) Tools

In 1974 Dr. Kaoru Ishikawa brought together a collection of process improvement tools in his

text Guide to Quality Control.

In addition to the basic 7-QC tools, there are also some additional statistical quality tools

known as the seven supplemental (7-SUPP) tools

The 7 quality control (7-QC) tools The 7 Supplemental (7-Supp) Tools

1. Cause-and-effect diagram (also 1. Data stratification

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called Ishikawa or fishbone chart)

2. Check sheet

3. Control chart

4. Histogram

5. Pareto chart

6. Scatter diagram analysis

7. Stratification

2. Defect maps

3. Events logs

4. Process flowcharts/maps

5. Progress centers

6. Randomization

7. Sample size determination

QUALITY CIRCLE

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According to Juran, quality circle defined as “a group of work force level people, usually

from within one department, who volunteer to meet weekly (on company time) to address

quality problems that occur within their department.”

The concept of the Quality Circle is based on “respect for the human individual” as against

the traditional assumption based on suspicion and mistrust between management and its em-

ployees.

A quality circle is a group of 5 to 8 employees performing similar work, who volunteer

themselves to meet regularly, to identify the cause of their on-the-job problems, employ

advanced problem-solving techniques to reach solutions and implement them.

Characteristics of Effective Quality Circles:

1. The atmosphere should be informal, comfortable and relaxed. The members should feel

involved and interested.

2. Everyone should participate.

3. The objectives should be clear to the members.

4. The members should listen to each other.

5. The group should feel comfortable even when there are disagreements.

6. The decisions should generally be taken by a kind of consensus and voting should be

minimum.

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7. When an action is required to be taken, clear assignments should be made and accepted by

all the members.

8. The leader should not dominate the group. The main idea should not be as to who controls

but how to get the job done.

9. Until a final solution is found and results are attained feedback is necessary.

Benefits of QC

The most important benefit of quality circles is their effect on people’s attitudes fall into three

categories:

Quality Circles Effect on Individual Characteristics

Quality Circles Effect on Individuals Relations with Other

Quality Circles Effect on Workers and Their Attributes

1. Quality Circles Effect on Individual Characteristics

a. Quality circles enable the individual to improve personal capabilities group participation

and learning specific problem-solving tools.

b. Quality circles increase the individual’s self-respect.

c. Quality circles help worker change certain personality characteristics shy person become as

active.

2. Quality Circles Effect on Individuals Relations with Other

a. Quality circles increase the respect of the supervisor for the worker.

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b. Quality circles increase workers understanding of the difficulties faced by supervisor’s

problem selection, solving and implementations.

c. Quality circle increase management’s respect for worker.

3. Quality Circles Effect on Workers and Their Attributes

a. Quality circles change some workers negative attitudes.

b. Quality circle reduces conflict stemming from the working environment.

c. Quality circles help workers to understand better the reasons while many problems solved

quickly.

Quality circles, as a management tool, are based on the following basic principles of people:

People want to do a good job.

People want to be recognized as intelligent, interested employees and to participate in decisions affecting their work.

People want information to better understand goals and problems of their organization and make informed decisions.

Employees want recognition and responsibility and a feeling of self-esteem

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TOTAL QUALITY MANAGEMENT (TQM)

Total Quality Management (TQM) is an enhancement to the traditional way of doing

business.

It is a proven technique to guarantee survival in world-class competition.

Only by changing the actions of management will the culture and actions of an entire

organization be transformed. TQM is for the most part common sense.

TQM six basic Concepts

Management commitment to TQM principles and methods & long term Quality plans

for the Organization

Focus on customers – internal & external

Quality at all levels of the work force.

Continuous improvement of the production/business process.

Treating suppliers as partners

Establish performance measures for the processes.

The key elements of the TQM

1. Focus on the customer.

2. Employee involvement

3. Continuous improvement

Focus on the customer

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It is important to identify the organization’s customers.

External customers consume the organization’s product or service.

Internal customers are employees who receive the output of other employees.

Employee involvement

Since the quality is considered the job of all employees, employees should be involved in

quality initiatives.

Front line employees are likely to have the closest contact with external customers and thus

can make the most valuable contribution to quality.

Therefore, employees must have the authority to innovate and improve quality.

Continuous improvement

The quest for quality is a never-ending process in which people are continuously

working to improve the performance, speed and number of features of the product or

service.

Continuous improvement means that small, incremental improvement that occurs on a

regular basis will eventually add up to vast improvement in quality.

TQM is the management process used to make continuous improvements to all

functions.

TQM represents an ongoing, continuous commitment to improvement.

The foundation of total quality is a management philosophy that supports

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Different techniques for TQM:

When an organization / company want to maintain a level of quality that satisfy their

customers at the appropriate time and price then that organization must follow some quality

management techniques for fulfill those principles and planning. The techniques are:

1) Benchmarking

2) Kaizen

3) Quality Circle

4) Quality Function Deployment (QFD)

5) Business Process Reengineering

6) Total Productive Maintenance

7) Six Sigma,

8) Poka Yoka etc

BENCHMARKING

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Benchmarking is the process of measuring an organization’s internal processes then

identifying, understanding, and adapting outstanding practices from other organizations

considered to be best-in-class.

Benchmarking is defined as “measuring our performance against that of best-in- class

companies, determining how the best-in-class achieve those performance levels and using the

information as a basis for our own company’s targets, strategies and implementation.”

REASONS FOR BENCHMARKING:

There are several reasons that benchmarking is becoming more commonly used in industry;

Benchmarking is a more efficient way to make improvements. Managers can eliminate trial

and error process improvements. Practicing benchmarking focuses on tailori tailoring existing

processes to fit within the organization.

Benchmarking speeds up organization’s ability to make improvements.

Compare business practices with those of world class organizations

Challenge current practices and processes

Create improved goals and practices for the organization

Change the perspective of executives and managers.

TYPES OF BENCHMARKING

1. Process benchmarking –It’s where we go beyond performance measures and also

compare how business processes are performed. The initiating firm focuses its observation

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and investigation of business processes with a goal of identifying and observing the best

practices from one or more benchmark firms. Activity analysis will be required where the

objective is to benchmark cost and efficiency; increasingly applied to back-office processes

where outsourcing may be a consideration.

2. Financial benchmarking - Performing a financial analysis and comparing the results in an

effort to assess your overall competitiveness.

3. Performance benchmarking - allows the initiator firm to assess their competitive position

by comparing products and services with those of target firms.

4. Product benchmarking - the process of designing new products or upgrades to current

ones. This process can sometimes involve reverse engineering which is taking apart

competitors products to find strengths and weaknesses.

5. Strategic benchmarking - comparison of strategic decisions and dispositions at a higher

level. It involves observing how others compete. This type is usually not industry specific

meaning it is best to look at other industries.

6. Functional benchmarking - comparison against organizations that are not necessarily

competitors, but that performs related tasks within the same technological area. In the school

analogy, this will be benchmarking against someone from another school, but of the same

type.

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7. Internal benchmarking, comparison against the best within the same organization or

corporation, often called benchmarking within your own class.

8. Competitive benchmarking, comparison against the best direct competitors, which then

can be termed benchmarking against someone in the parallel class.

9. External benchmarking, it involves seeking outside organizations that are known to be

best in class. It provides opportunities of learning from those who are at the leading edge,

although it must be remembered that not very best practice solution can be transferred to

others.

10. International benchmarking. Is used where partners are sought from other countries

because best practitioners are located elsewhere in the world and/or there are too few

benchmarking partners within the same country to produce valid results.

PROCESS OF BENCHMARKING

Organizations that benchmark, adapt the process to best fit their own needs and culture.

Although number of steps in the process may vary from organization to organization, the

following six steps contain the core techniques:

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It involves the following;

1. Plan: Critical success factors, select a process for benchmarking, document the

process, and develop performance measures

2. Search: Find bench-marking partners

3. Observe: Understand and document the partners’ process, both performance and

practice

4. Analyze: Identify gaps in performance and find the root causes for the performance

gaps

5. Adapt: Choose “best practice”, adapt to the company’s conditions, and implement

changes.

Decide what to benchmark

Understand the current performance of your organization

Do proper planning of what, how and when of benchmarking endeavor.

Study others well (the practices or system you wish to benchmark

Gather data and learn from it.

Use the findings.

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KAIZEN

“Kaizen” refers to a Japanese word which means “improvement” or “change for the

better”.

Kaizen is defined as a continuous effort by each and every employee (from the CEO to

field staff) to ensure improvement of all processes and systems of a particular organization.

Kaizen is an approach to creating continuous improvement based on the idea that small,

ongoing positive changes can reap major improvements.

Typically, it is based on cooperation and commitment and stands in contrast to

approaches that use radical changes or top-down edicts to achieve transformation.

Kaizen is core to lean manufacturing, or The Toyota Way.

It was developed in the manufacturing sector to lower defects, eliminate waste, boost

productivity, encourage worker purpose and accountability, and promote innovation.

The process of Kaizen helps Japanese companies to outshine all other competitors by

adhering to certain set policies and rules to eliminate defects and ensure long term superior

quality and eventually customer satisfaction.

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Kaizen works on the following basic principle. “Change is for good”.

Kaizen is complementary to Six Sigma.

Ten principles of Kaizen

Because executing Kaizen requires enabling the right mindset throughout the company, 10

principles that address the Kaizen mindset are commonly referenced as core to the

philosophy. They are:

1. Let go of assumptions.

2. Be proactive about solving problems.

3. Don't accept the status quo.

4. Let go of perfectionism and take an attitude of iterative, adaptive change.

5. Look for solutions as you find mistakes.

6. Create an environment in which everyone feels empowered to contribute.

7. Don't accept the obvious issue; instead, ask "why" five times to get to the root cause.

8. Cull information and opinions from multiple people.

9. Use creativity to find low-cost, small improvements.

10. Never stop improving.

https://searchcio.techtarget.com/definition/Six-Sigma

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Five S of Kaizen

“Five S” of Kaizen is a systematic approach which leads to foolproof systems, standard

policies, rules and regulations to give rise to a healthy work culture at the organization.

You would hardly find an individual representing a Japanese company unhappy or

dissatisfied.

Japanese employees never speak ill about their organization.

Yes, the process of Kaizen plays an important role in employee satisfaction and

customer satisfaction through small continuous changes and eliminating defects.

Kaizen tools give rise to a well organized workplace which results in better productivity

and yield better results.

It also leads to employees who strongly feel attached towards the organization.

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1. SEIRI - SEIRI stands for Sort Out.

According to Seiri, employees should sort out and organize things well. Label the items as

“Necessary”, ”Critical”, ”Most Important”, “Not needed now”, “Useless and so on.

Throw what all is useless. Keep aside what all is not needed at the moment. Items which

are critical and most important should be kept at a safe place.

2. SEITION - Seition means to Organize.

Research says that employees waste half of their precious time searching for items and

important documents.

Every item should have its own space and must be kept at its place only.

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3. SEISO - The word “SEISO” means shine the workplace.

The workplace ought to be kept clean. De-clutter your workstation.

Necessary documents should be kept in proper folders and files. Use cabinets and drawers

to store your items.

4. SEIKETSU-SEIKETSU refers to Standardization.

Every organization needs to have certain standard rules and set policies to ensure superior

quality.

5. SHITSUKE or Self Discipline –

Employees need to respect organization’s policies and adhere to rules and regulations.

Self discipline is essential.

Do not attend office in casuals. Follow work procedures and do not forget to carry your

identity cards to work.

It gives you a sense of pride and respect for the organization.

Real-life Kaizen examples

Toyota is arguably the most-famous for its use of Kaizen, but other companies have used the

approach successfully. Here are three examples:

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Lockheed Martin. The aerospace company is a well-known proponent of Kaizen.

Through the use of Kaizen, it has successfully reduced manufacturing costs, reduced

inventory and cut delivery time.

Ford Motor Company. When lean devotee Alan Mulally became CEO of Ford in 2006,

the auto giant was on the brink of bankruptcy. Mulally used Kaizen to execute one of the

most famous corporate turnarounds in history.

Pixar Animation Studios. Pixar has taken a continuous improvement model that reduced

risks of expensive movie failure by using quality control checks and iterative processes.

Six Sigma

Six Sigma is a disciplined, statistical-based, data-driven approach and continuous

improvement methodology for eliminating defects in a product, process or service.

It was developed by Motorola and Bill Smith in the early 1980’s based on quality

management fundamentals, and then became a popular management approach at

General Electric (GE) with Jack Welch in the early 1990’s.

The approach was based on the methods taught by W. Edwards Deming, Walter

Shewhart and Ronald Fisher among many others.

Hundreds of companies around the world have adopted Six Sigma as a way of doing

business.

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Six Sigma is:

A Business Strategy: Using Six Sigma Methodology, a business can strategize its plan

of action and drive revenue increase, cost reduction and process improvements in all parts of

the organization.

A Vision: Six Sigma Methodology helps the Senior Management create a vision to provide

defect free, positive environment to the organization.

A Benchmark: Six Sigma Methodology helps in improving process metrics. Once the

improved process metrics achieve stability; we can use Six Sigma methodology again to

improve the newly stabilized process metrics. For example: The Cycle Time of Pizza

Delivery is improved from 60 minutes to 45 minutes in a Pizza Delivery process by using Six

Sigma methodology. Once the Pizza Delivery process stabilizes at 45 minutes, we could

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carry out another Six Sigma project to improve its cycle time from 45 minutes to 30 minutes.

Thus, it is a benchmark.

A Goal: Using Six Sigma methodology, organizations can keep a stringent goal for

themselves and work towards achieving them during the course of the year. Right use of the

methodology often leads these organizations to achieve these goals.

A Statistical Measure: Six Sigma is a data driven methodology. Statistical Analysis is used

to identify root-causes of the problem. Additionally, Six Sigma methodology calculates the

process performance using its own unit known as Sigma unit.

A Robust Methodology: Six Sigma is the only methodology available in the market today

which is a documented methodology for problem solving. If used in the right manner, Six

Sigma improvements are bullet-proof and they give high yielding returns.

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Goals of Six Sigma

1) To reduce variation

2) To reduce defects /rework

3) To improve yield /productivity

4) To enhance customer satisfaction

5) To improve the bottom-line

6) To improve top-line

ISO 9000

ISO 9000 is defined as a set of international standards on quality management and quality

assurance developed to help companies effectively document the quality system elements

needed to maintain an efficient quality system.

They are not specific to any one industry and can be applied to organizations of any size.

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ISO 9000 can help a company satisfy its customers, meet regulatory requirements, and

achieve continual improvement.

It should be considered to be a first step or the base level of a quality system.

It was originally introduced in 1987 and over the years has established itself in the global

economy having been adopted in over 178 countries with over one million registrations.

ISO 9000 standards expect firms to have a quality manual that meets ISO guidelines,

documents, quality procedures and job instructions, and verification of compliance by third-

party auditors. ISO 9000 series has five international standards on quality managements.

They are:

ISO 9000 — Quality management and Quality assurance standards

ISO 9001 — Quality systems: Quality in design

ISO 9002 — Quality systems: Production and Installation

ISO 9003 — Quality systems: Final inspection and test

ISO 9004 — Quality management and systems

Objectives of ISO 9000 Series:

The objectives of ISO 9000 series are listed in the following table.

ISO 9000 series

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Benefits of ISO 9000 Series

ISO 9000 series provides several tangible and intangible benefits which are listed below:

1. This gives competitive advantage in the global market.

2. Consistency in quality, since ISO helps in detecting non-conformity early which makes it

possible to take corrective action.

3. Documentation of quality procedures adds clarity to quality system.

4. ISO 9000 ensures adequate and regular quality training for all members of the

organization.

5. ISO helps the customers to have cost effective purchase procedure.

6. The customers while making purchases from companies with ISO certificate need not

spend much on inspection and testing. This will reduce the quality cost and lead-time.

7. This will help in increasing productivity.

8. This will aid to improved morale and involvement of workers.

9. The level of job satisfaction would be more.

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Steps in ISO 9000 Registration

1. Selection of appropriate standard from ISO 9001, ISO 9002 and ISO 9003 using the

guidelines given in ISO 9000.

2. Preparation of quality manual to cover all the elements in the selected model.

3. Preparation of procedures and shop floor instructions which are used at the time of

implementing the system. Also document these items.

4. Self-auditing to check compliance of the selected model.

5. Selection of a registrar and making application to obtain certificate for the selected model.

Operations Research

In Operations Research, the nature and complexity of a model defines the type of method

to be selected for the solution.

Operational Research was first studied in Health Care settings in 1952.

In England , Norman Bailey published “Operational Research in Medicine” in the June

issue in Operational Research Quarterly. (Bailey June 1952).

There doesn’t exist one single general technique, which can solve the quantitative models

arising out in everyday routines.

Most techniques determine the solution by algorithms (repetitive iterations) instead of any

closed form solutions.

WHO defines OR as the Systematic Research Techniques for program to achieve a specific

outcome.

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In layman’s terms OR is defined as the application of scientific methods, techniques and

tools

To problems involving the operations of a system so as to provide those in control of

system with optimum solutions to problems.

LPP: Linear Programming

Linear Programming is the method of choosing the best (optimal) alternative amongst the

available (feasible) alternatives for either profit maximization or cost minimization, when the

objective function and the constraints are mathematically expressed

Applications: Product-Mix, Scheduling, Routing, Facility Planning etc

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LPP: Transportation

Distribution models help to determine the efficient transportation routes for moving the

goods from factory / plants to different warehouses

Applications: Transport / Logistics Industry (Distribution / Warehousing)

LPP: Assignment

This is a variant of Transportation Model which provides the basis for optimal allocation of

tasks to facilities at minimum cost or time

Applications: Allocating People, Jobs, Machines etc.

Sequencing

Sequencing models provide basis for the choice as to the ‘order in which multiple tasks can

be performed’ in minimum duration

Applications: Aircraft Landings, Machining, Banking etc (Loading and Scheduling)

Queuing (Waiting Line)

The technique strikes an optimum balance between the costs of waiting against service-

provided. It is the study of arrival of the customers for service, rate of providing service to

customers and time spent by the customer in the line.

Applications: Waiting Lines (queue) formed anywhere

Replacement Theory

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Whenever a new equipment offers better service-conditions than the existing one;

replacement theory comes into picture. This theory concerns the forecasting of replacement

costs and deciding the optimum replacement policy.

Applications: Purchasing decision about existing similar equipment

PERT / CPM

This involves listing the activities in a project, setting relationship, determining sequence

and drawing schedule of these activities in order to minimize the overall time and cost of the

project

Applications: Project Management, Scheduling (Infrastructure / Construction Industry…)

Games Theory

Games theory is concerned with Decision-Making in the conditions wherein multiple

opponents are competing with conflicting interests towards winning. i.e. It deals with

maximizing WINS or minimizing LOSSES before commencing of action.

Applications: Advertising / Sales Promotion / Branding etc

Dynamic programming

Dynamic Programming deals with relatively large and complex problems and involves

sequencing of related decisions.

It is a mathematical optimizing technique applied to multistage decision-making processes.

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It involves breaking a large problem into smaller ones’ and finding the solution by working

backwards from end of the problem to the beginning.

Applications: Cargo loading, Bidding, EOQ, Traveling Salesmen Problem, Product

Standardization

Simulation

Simulation provides solution to the problems which are too expensive for experimental

analysis and too complicated for mathematical treatment.

To simulate means to imitate and experiment on the model of real-life phenomenon.

Applications: Inventory control, Queuing problems, Investment, Demand-Supply etc."

Unit I (Business Environment)

Documents