Understanding Cycle Time, JIT Production, and Inventory Costs in Production, Summaries of Business Mathematics

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DBA 1651 PRODUCTION MANAGEMENT 1 NOTES Anna University Chennai 1.1 Introduction 1.2 Learning objectives 1.3 System 1.3.1 Business System 1.3.2 Production System 1.3.3 Production and Operations Managements 1.4 History of operations Management 1.5 Types of operation system 1.5.1 Flow Shop 1.5.1.1Continuous Production 1.5.1.2Mass Production 1.5.1.3Batch Production 1.5.2 Job Shop 1.5.3 Project Production 1.6 Production activities and communication link 1.7 Computer Integrated Manufacture ring (CIM) 1.7.1 CIM sub systems 1.7.2 Functional Areas of CIM 1.7.2.1 Computer aided production planning 1.7.2.2 Computer aided process planning 1.7.3 Conceptual frame work of CIM 1.7.4 Group Technology 1.7.4.1 Definition 1.7.4.2 History of GT 1.7.4.3 Advantages of GT 1.7.4.4 Organizational Suitability for GT 1.7.4.5 Group technology in CIM 1.8 Global Supply Chain 1.8.1 Global Complexities 1.8.2 How to transform into Global Supply Chain UNIT - I INTRODUCTION TO PRODUCTION AND OPERATION MANAGEMENT DBA 1651 PRODUCTION MANAGEMENT 2 NOTES Anna University Chennai INTRODUCTION TO PRODUCTION AND OPERATION MANAGEMENT 1.1 INTRODUCTION This unit starts with a definition of a system. In this unit production system and its objectives are explained along with the components of a system. The history of operations management is portrayed. The various functions of production system and their interlinking are explained through a flow chart. The components of computer, integrated manufacturing and their purpose are dealt. Finally, the recent trend in the operations, namely, Global Supply Chain is introduced in this unit. 1.2 LEARNING OBJECTIVES • To know the importance of the production system in an organization. • To understand the link between various activities of the production system. • To comprehend the history of operations management. • To understand the components of computer integrated manufacturing 1.3 SYSTEM It consists of elements or components. The elements or components are interlinked together to achieve the objective for which it exists. Eg: human body, educational institutions, business organizations. Components of a system: The input, processing, output and control of a system are called the components of a system. UNIT - I DBA 1651 PRODUCTION MANAGEMENT 5 NOTES Anna University Chennai 1.3.3 What is operation management (OM)? Operation Management is a way or means through which the listed objectives of an operating system is achieved. There is always a confusion between the word OM & PM (Production Management). It is accepted norm that OM includes techniques which are enabling the achievement of operational objectives in an operation system. The operation system includes both manufacturing sector as well as service sector, but when you use the word PM, you should be careful to note that it refers to the manufacturing sector but not the service sector. Suppose, you are designing a layout for the hospital you should say that you are applying Operations Management Technique not the Production Management Technique. When you design a layout for a manufacturing sector you can say that you are applying Production Technique or Operation Technique or vice versa. From, the above discussion we can come to a conclusion that production management is a subset of Operations Management. Review questions – 1. What are the components of a system? 2. What are the differences between the Production Management and the Operations Management? 3. List the objectives to be fulfilled by an Operation System. 1.4 HISTORY OF OM Table 1.1 – History of OM Year / Period of Concept/Tools and System Used Developers/ Concept Originators (14-16) Evolution of Production system Century 18th New Technology for Production Process Adam Smith and Century Management harles Babbage 1895 Scientific Management Principles (Work Study) F.W.T. Taylor Motion Study for Psychological Factors Frank & Lillian Activity Scheduling Chart Gilbreth Henry Gantt 1935 Hawthrone Studies of Worker Motivation Elton Mayo 1950’s Operation Research for Decision Making Long Many Researcher term Medium term, Short term decision by DBA 1651 PRODUCTION MANAGEMENT 6 NOTES Anna University Chennai Critical Path Method (CPM), Program Evaluation and…… Technique (PERT), Waiting-Line Theory 1970’s Computers for Inventory Control Material IBM, Joseph Resource Planning (MRP) Orlicky, Oliver Wieght 1980’s Just In Time (JIT), Total Quality Control (TQC) Toyota Kanban System, CAD/CAM, Computer Integrated Manufacturing (CIM) Flexible Manufacturing System (FMS) 1990’s 1.Total Quality Asqc(U.S.). IOS Management (TQM), Concurrent (CIM), (England), Engineering, Value Engineering Michael Hammer 2. Business Process Engineering Oracle, SAP 3. Supply Chain Management (Germany) 2000’s Logistics, Enterprise Resource Planning (ERP), E-Commerce, E-Business Review questions - 1. What is the contribution of GANTT? 2. Who is the father of Scientific Management? 1.5 TYPES OF OPERATION SYSTEM The type of Operation System to be adopted should be known to the people, and then only you may choose the system based on the nature of the product that you are going to manufacture. The types of operation system are classified based on the following criteria. Product flow pattern in conversion system Output of the product Specification of the output Figure 1.5 - Types of Operation System Production Flow Pattern Output of the product Specification of the output Flow shop Job shop Flow shop Continuous Production Batch Production Mass Production Goods Services Customized Standard DBA 1651 PRODUCTION MANAGEMENT 7 NOTES Anna University Chennai The characteristics of the Operation System based on the product flow pattern: 1.5.1 Flow Shop In this kind of production, the productive resources are arranged according to the sequence of operation required by the product design. Assume that you are engaged in the ready to wear clothing, if you want to adopt the flow shop production, then the productive resources are kept according to the sequence of operations required by the product like Cutting Joining by sewing Adding, buttons, zippers etc Quality checking Packaging Mostly Flow shop production are adopted when there is untapped market for the product, customers are price sensitive and more competition in the market. Flow shop production as shown in the figure is further divided into Continuous Production, Mass Production and Batch production. 1.5.1.1 Continuous Production The industries involved in the following activities are classified as Continuous Production • Oil refining. • Fertilizer production. • Chemical processing etc. • In this type of production the product flows continuously without much interruption. • This type of production lacks in flexibility. 1.5.1.2 Mass Production The industries involved in the following activities are classified as the Mass Production Industries: Auto Manufacturing TV Manufacturing Cigarettes This kind of flow shop produces the same type of output, it has little flexibility compared to Continuous Production. 1.5.1.3 Batch Production The industries involved in the following activities are classified as the Intermittent Production. • Shoe manufacturing • Bottling plant • Cloth manufacturing DBA 1651 PRODUCTION MANAGEMENT 10 NOTES Anna University Chennai Project production consists of many activities where the activities are interlinked, time phased and resources committed. In this kind of production, scheduling the activities is important so that you can complete the project within the time and budget constraint. The resources, namely, manpower, machines, material are brought to the workplace where the product is manufactured. There is no movement of the product. Review Questions 1. Which type of the production system in the process inventory is less? 2. In which type of production system flexibility is more? 3. Tell the important characteristic of Batch Production about the product? 4. In which type of production system there is no product movement? 1.6 COMMUNICATION IN POM As it is mentioned in the above section, operation management is meant to achieve the objectives for which the operation system is intended for. Based on the objective set by the top management, the system design is established. The system design involves designing the product and process, designing the methods, measuring the work, identifying the location, and designing the layout. By keeping the system design as a framework in the aggregate planning various production alternatives are analyzed and the best feasible production alternatives are chosen. Then keeping the aggregate planning as a input, resource allocation and sequencing of day to day activities are done. The inventory also kept at minimum to satisfy the organization’s inventory objectives. The maintenance activity ensures the availability workstations. Quality control ensures the quality in the input, processing and output stages of production system. (See figure 1.4- Communication in POM). Review Questions- 1. List the activities in system design? 2. What are the phases of scheduling? DBA 1651 PRODUCTION MANAGEMENT 11 NOTES Anna University Chennai Figure 1.4- Communication in POM 1.7 COMPUTER INTEGRATED MANUFACTURING AND SERVICE SYSTEM Computer Integrated Manufacturing (CIM), a strategic thrust, is an operating philosophy. Its objective is to achieve greater efficiencies within the business, across whole cycle of product design, manufacturing and marketing. International competition has intensified the requirement for high quality products that can compete in the global market place. As a result of this increased competition, the pace of development has been quickened and thus forcing manufacturers to enter into an era where the continuous External: Socio, Political, Economic environment Top Management Strategy Marketers Policy Financial Policy Human Resource Policy Production Policy Forecasting Product Design Capacity Planning Process Design Plant location & layout Work Design and measurement Scheduling Maintenance Quality Control Material Capital Information Manpower Product Service System DesignLong term forecast Aggregate Planning Inventory Control Short term Forecasting Medium term forecast T o p M a n a g e m e n t O p e ra tio n M a n a g e m e n t P ro d u c tio n S ys te m Figure1.4 DBA 1651 PRODUCTION MANAGEMENT 12 NOTES Anna University Chennai quality improvement is maintained as a matter of survival, not simply being competitive As the time scale of product life cycle has decreased and the demand for the quality increased, attention has focused on improving the product quality and promoting the competitive ability of industries through better design, manufacturing, management and marketing. Global manufacturing industry is now undergoing a rapid structural change. As this process is continuous, manufacturing industry is encountering difficulties as it confronts with a more changed and more competitive environment and also the market place. In order to share the international market, manufacturers need to implement two strategies. The first is, to improve the Enterprise Management. The second one is, to develop and apply a Systematic and Scientific Technology, i.e.., CIM. With the rapid growth of the complexity of manufacturing process and the demand for high efficiency, greater flexibility, better product quality and lower cost, industrial practice has approached the more advanced level of automation. Nowadays, much attention has been given by both industry and academia to CIM. Currently, most of the industries have highly automated facilities. To stimulate industrial companies for utilizing the newest manufacturing technology, this has compelled to develop a system architecture that does not only replace the existing manufacturing facilities, operational environments, but effectively utilizes the knowledge and facilities that are available in the industry. To overcome the difficulties and solve the problems mentioned above automatic techniques and methodologies should be Introduced into real industrial manufacturing. 1.7.1 CIM Subsystems Significant progress has been made in the manufacturing technology in recent years. Numerically control machine tools, automated material handling systems and controlled systems have been widely used in industrial companies. The Flexible Manufacturing System (FMS), Computer Integrated Manufacturing (CIM) or Systems or Automated Manufacturing Systems (AMS) can be attributed to and increasing number of companies. The advancing manufacturing and computer technology has brought new challenges to the designers of products, processes and system as well as to the managers. The traditional design and management tools can not effectively cope with problems arising in the modern manufacturing systems. DBA 1651 PRODUCTION MANAGEMENT 15 NOTES Anna University Chennai According to Arthur D.Little and Co., GT is the important technology among the others and it will play a major role in the factory of the future. The GT concept is considered a center road towards a higher level of CIM. 1.7.4 Group Technology Group technology (GT) is a concept that is currently attracting a lot of attention from the manufacturing community. GT offers a number of ways to improve productivity in the batch manufacturing. The essence of GT is to capitalize on similarities on recurring tasks. GT is, very simply, a philosophy to exploit similarities and achieve efficiencies grouping like problems. 1.7.4.1 Definition of GT “Group technology is the realization that many problems are similar and that, by grouping similar problems, single solution can be found to a set of problems, thus saving time and effort” 1.7.4.2 History of GT Prior to 1913, the era of Henry Ford and his model T, all machining models were similar to our present job shop techniques with machines laid out usually in lines or blocks of similar machines. The work was loaded onto the machines usually by the manual progress control system. Ford introduced the assembly line and that, in turn, led to automated transfer machines. However, the majority of engineering do not produce items in quantity that justify such methods and so the jobbing shop philosophy continued. GT is mainly a coordination of normal good engineering practices. It is impossible to say who first practiced GT. There are reports of it having been used in Germany in the 1930s. In an international Conference held in Stockholm in 1947, the basic groups were explained by C.B.Nanthorst. In Italy M. Patrignany was an early exponent of this technology. However, little of this appears to have been in English. First published work was from the USSR by S.P.Mitrofanov in 1959 and there after subsequent books were published by F.S.Denyanyuk and E.K. Ivanov.The first reported work on GT outside Russia was done by a French Forges et Ateliers de Construction Electriques de Jeurmont - and this was about in Machinery in 1962. Subsequently, several British companies conducted considerable work in this field. There have also been considerable studies done by various consultants in the Universities. The significant contribution by J.L.Burbidge in the 1 960s led to GT as A total Manufacturing Philosophy. DBA 1651 PRODUCTION MANAGEMENT 16 NOTES Anna University Chennai 1.7.4.3 Advantages of GT According to Burbidge, following are the advantages after introducing GT in manufacturing. a. Short throughput times because machines are closed together. b. Better quality because groups complete parts and the machines are closed together under one foreman. c. Lower material handling costs because machines are closed together under one foreman. d. Better accountability because machines complete parts. The foreman can be made responsible for costs, quality, and completion by due date. e. Training for promotion for promotion since GT provides a line of succession, because a group is a mini-department. f. Automation GT is a first evolutionary step in automation. g. Reduced set up time since similar parts brought together on the same h. Morale and job satisfaction since most workers prefer to work in groups. Studies undertaken by N.L.Hyer indicate the following significant savings after implementing GT Snead prepared a summary matrix, listing the benefits listing benefits achieved for the various GT. Table1.4 - Advantages of GT Applications implemented set up time 20-60% Planned labor 15-25% Tooling 20-30% Rework & scrap 15-75% Machine tool expenditures 15-75% WIP carrying costs 20-50% 1.7.4.4 Organizational suitability for GT The suitability of a firm for the introduction of GT depends on several factors. The survey of Willey and Dale give a tentative description of a company profile likely to achieve the greatest benefits from GT, some of these are: DBA 1651 PRODUCTION MANAGEMENT 17 NOTES Anna University Chennai a. The company must be a relatively small organization with a reasonably small machine tools, and manufacturing equipment. b. The company should not be typified by either large or small component variety. c. The batch sizes and the batch size range of products of the companies it is relatively small. Athersmith and Crookall Rajagopal and Smith Gupta Andand Grayson have suggested another way of finding out the suitability of GT for a batch production industry. Computer simulation has been used by the effect of introduction of GT in the batch production industries based on the parameters such as throughput time, WIP inventory and plant utilization Further GT is considered a desirable stepping stone for establishing Just-In-Time production. 1.7.4.5 Group Technology in CIM One may question whether a cellular concept is applicable to CIM systems. Some studies have shown that grouping machines to machine cells may limit the manufacturing system flexibility. However, industrial applications have proven that it is virtually impossible to implement a large scale CIM subsystem using a cellular concept. Here after, the automated manufacturing systems that cellular approach can be called as, Cellular Automated Manufacturing (CAMS). Four crucial factors of CAMS as identified by Kusiak are: 1. Volume of information Volume of information a large-scale CIM subsystem is typically large, and it is too expensive to effectively process information without the system’s decomposition. 2. Material handling system In a typical CIM subsystem, automated material handling carriers are used (AGVs and Robots). Each of the two carriers can tend a limited number of machines. 3. Technology Requirement Some machines have to be grouped together due to technological requirements. For example, a forging machine and a heat treatment section. 4. Management Although in most of the currently CIM subsystems, the degree of automation is higher than in classical manufacturing systems, humans will be, for a long time, an integral DBA 1651 PRODUCTION MANAGEMENT 20 NOTES Anna University Chennai ~ Currency exchange and risk. ~ Counter trade opportunities and requirements. ~ Varying laws and jurisdictional questions. ~ Cultural differences. ~ Language differences. ~ Labor and training availability, practices, laws, regulations. ~ Transportation, packing, shipping, storing, import, export, customs. ~ Security: materials, products, personnel, intellectual property. Challenges and Barriers to Transforming Global Supply Chains into Value Chains In the varying environments encountered internationally, there are a number of challenges and barriers involved in building global supply chains. Many of these are rarely concerned with the domestic supply chains. Some of these include: ~ Uncertain political stability, self-serving governments. ~ Lack of infrastructure in some countries (roads, port facilities, trained labor, utilities, communications). ~ Lack of critical market mass in particular countries. ~ High transaction costs. ~ Requirements to use in-country agents or partners and local content requirements. ~ Lack of potential for repeat purchases. ~ Slower adoption of e-business than in the domestic market. ~ No or limited free trade zone availability. ~ Partner/contract limitations requiring bidding for all procurement activities and alliance-building. ~ High logistics and transportation costs. ~ Different time zones (communication difficulties). ~ Financial risks are higher, e.g. potential for war, terrorism, government changes. ~ The nature of global activity (may be fragmented and/or scattered). ~ Long/unpredictable supplier lead times. ~ Protectionism (tariffs, duties, quotas, inspections). ~ Limited number of qualified global suppliers. ~ Difficult to link global project work to “run and maintain” global activities. ~ Limited availability of trained personnel for purchasing or supply management positions inhibiting. DBA 1651 PRODUCTION MANAGEMENT 21 NOTES Anna University Chennai 1.8.2 How to Transform Global Supply Chains Improve the quality/cost ratio of your supply chain. Strive for the highest quality at the lowest cost. Leverage value across the supply chain Understand what constitutes value and to whom it is valuable in your supply chain. Identify and evaluate trade-offs between value added and profitability. Leverage knowledge to create and deliver the value. Where commodity markets are involved, be proactive in initiating change that will benefit you. Redefine the boundaries of business Redefine the boundaries of your business in the context of what provides continuing competitor and customer advantage. Evaluate any existing vertical integration structures and replace with virtual sourcing if value can be added by doing so. Evaluate what to insource and what to outsource. Use all capabilities of existing or potential supply chains in the development of new products. Develop relational competence View relationships with other members of your supply chains as a continuum ranging from spot relationships to strategic alliance or co-ownership but recognizing that most relationships will be somewhere between these extremes. Determine where more competition will add value and where more collaboration will add value and seek the best combination of competition and collaboration. Manage at the right level Determine which strategies and activities best add value with global management and which best add value with local management. Determine the best level of autonomy for local management within supply chain activities. Analyze supply chains for each category of material or service that is significant to the organization to determine the best value -adding approach for management and control. Develop supply chain responsiveness Determine how the degree of responsiveness to customer needs such as re- supply time or product mix adjustment matches with customer requirements in each such area. Consider techniques such as supplier managed inventory, supplier integration, DBA 1651 PRODUCTION MANAGEMENT 22 NOTES Anna University Chennai and consignment stocking. Pay particular attention to the quality of demand forecasts throughout the supply chain. Drive down purchase costs. Capture cost saving opportunities and share benefits with contributing supply chain members. Pay attention to the differing cost management and purchase strategy needs of various categories of purchases. For example, commodities, specialty items, custom-made items, MRO materials. Service purchases can be similar. Bring About Change Change Management 1-1. It refers to transforming supply chains which involves a collateral change management. Consider purchases in the broadest possible sense - do not exclude anything which is purchased by the organization, material or service effort. This includes the following activities: ~ Seek Top Management mandate with visible support. ~ Identify the local sponsors and supporters of the supply chain, change early in the transformation process. ~ Use coordinated communication efforts to develop a dialog about the benefits and obstacles for implementation. ~ Target quick wins and immediate opportunities. ~ Focus on overcoming obstacles to implementation by creating a cross functional approach (Team) to address issues. ~ Perform a competitive advantage review in order to leverage the core competencies of the supply chain members . ~ Develop a supply chain agenda, manage the overall program and frame goals to address major gaps in supply chain performance. ~ Develop a business plan that will integrate the activities of the supply chain members. ~ Formulate key performance metrics and measurements, tracking quarterly. ~ Review results and make modifications as necessary to achieve supply chain optimization. DBA 1651 PRODUCTION MANAGEMENT 25 NOTES Anna University Chennai 2.7 Inventory models 2.7.1 Need for Inventory 2.7.2 Types of Inventory 2.7.3 Inventory costs 2.7.4 Deterministic model 2.7.4.1 EOQ model 2.7.4.2 EBQ model 2.7.4.3 Quantity discount model 2.7.5 Probabilistic model 2.7.5.1 ‘Q’ model 2.8 Material Requirement Planning (MRP) 2.8.1 Introduction 2.8.2 Overview of MRP system 2.8.3 Inputs of MRP system 2.8.4 MRP Process 2.8.5 MRP output 2.9 Manufacturing Resource Planning (MRPII) 2.9.1 Introduction 2.9.2 Closed loop MRP system 2.9.3 Master Production Schedule 2.9.4 Capacity planning 2.9.5 Forward scheduling and backward scheduling 2.9.6 Benefits of MRPII 2.9.7 Drawbacks of MRPII 2.10 Enterprise Resource Planning (ERP) 2.10.1 Need for ERP 2.10.2 Evolution of ERP 2.10.3 Advantages of ERP system 2.10.4 Disadvantages of a ERP system 2.10.5 Limitation of ERP 2.11 E-Business and E-Commerce DBA 1651 PRODUCTION MANAGEMENT 1 NOTES Anna University Chennai 1.1 Introduction 1.2 Learning objectives 1.3 System 1.3.1 Business System 1.3.2 Production System 1.3.3 Production and Operations Managements 1.4 History of operations Management 1.5 Types of operation system 1.5.1 Flow Shop 1.5.1.1Continuous Production 1.5.1.2Mass Production 1.5.1.3Batch Production 1.5.2 Job Shop 1.5.3 Project Production 1.6 Production activities and communication link 1.7 Computer Integrated Manufacture ring (CIM) 1.7.1 CIM sub systems 1.7.2 Functional Areas of CIM 1.7.2.1 Computer aided production planning 1.7.2.2 Computer aided process planning 1.7.3 Conceptual frame work of CIM 1.7.4 Group Technology 1.7.4.1 Definition 1.7.4.2 History of GT 1.7.4.3 Advantages of GT 1.7.4.4 Organizational Suitability for GT 1.7.4.5 Group technology in CIM 1.8 Global Supply Chain 1.8.1 Global Complexities 1.8.2 How to transform into Global Supply Chain UNIT - I INTRODUCTION TO PRODUCTION AND OPERATION MANAGEMENT DBA 1651 PRODUCTION MANAGEMENT 2 NOTES Anna University Chennai INTRODUCTION TO PRODUCTION AND OPERATION MANAGEMENT 1.1 INTRODUCTION This unit starts with a definition of a system. In this unit production system and its objectives are explained along with the components of a system. The history of operations management is portrayed. The various functions of production system and their interlinking are explained through a flow chart. The components of computer, integrated manufacturing and their purpose are dealt. Finally, the recent trend in the operations, namely, Global Supply Chain is introduced in this unit. 1.2 LEARNING OBJECTIVES • To know the importance of the production system in an organization. • To understand the link between various activities of the production system. • To comprehend the history of operations management. • To understand the components of computer integrated manufacturing 1.3 SYSTEM It consists of elements or components. The elements or components are interlinked together to achieve the objective for which it exists. Eg: human body, educational institutions, business organizations. Components of a system: The input, processing, output and control of a system are called the components of a system. UNIT - I DBA 1651 PRODUCTION MANAGEMENT 5 NOTES Anna University Chennai 1.3.3 What is operation management (OM)? Operation Management is a way or means through which the listed objectives of an operating system is achieved. There is always a confusion between the word OM & PM (Production Management). It is accepted norm that OM includes techniques which are enabling the achievement of operational objectives in an operation system. The operation system includes both manufacturing sector as well as service sector, but when you use the word PM, you should be careful to note that it refers to the manufacturing sector but not the service sector. Suppose, you are designing a layout for the hospital you should say that you are applying Operations Management Technique not the Production Management Technique. When you design a layout for a manufacturing sector you can say that you are applying Production Technique or Operation Technique or vice versa. From, the above discussion we can come to a conclusion that production management is a subset of Operations Management. Review questions – 1. What are the components of a system? 2. What are the differences between the Production Management and the Operations Management? 3. List the objectives to be fulfilled by an Operation System. 1.4 HISTORY OF OM Table 1.1 – History of OM Year / Period of Concept/Tools and System Used Developers/ Concept Originators (14-16) Evolution of Production system Century 18th New Technology for Production Process Adam Smith and Century Management harles Babbage 1895 Scientific Management Principles (Work Study) F.W.T. Taylor Motion Study for Psychological Factors Frank & Lillian Activity Scheduling Chart Gilbreth Henry Gantt 1935 Hawthrone Studies of Worker Motivation Elton Mayo 1950’s Operation Research for Decision Making Long Many Researcher term Medium term, Short term decision by DBA 1651 PRODUCTION MANAGEMENT 6 NOTES Anna University Chennai Critical Path Method (CPM), Program Evaluation and…… Technique (PERT), Waiting-Line Theory 1970’s Computers for Inventory Control Material IBM, Joseph Resource Planning (MRP) Orlicky, Oliver Wieght 1980’s Just In Time (JIT), Total Quality Control (TQC) Toyota Kanban System, CAD/CAM, Computer Integrated Manufacturing (CIM) Flexible Manufacturing System (FMS) 1990’s 1.Total Quality Asqc(U.S.). IOS Management (TQM), Concurrent (CIM), (England), Engineering, Value Engineering Michael Hammer 2. Business Process Engineering Oracle, SAP 3. Supply Chain Management (Germany) 2000’s Logistics, Enterprise Resource Planning (ERP), E-Commerce, E-Business Review questions - 1. What is the contribution of GANTT? 2. Who is the father of Scientific Management? 1.5 TYPES OF OPERATION SYSTEM The type of Operation System to be adopted should be known to the people, and then only you may choose the system based on the nature of the product that you are going to manufacture. The types of operation system are classified based on the following criteria. Product flow pattern in conversion system Output of the product Specification of the output Figure 1.5 - Types of Operation System Production Flow Pattern Output of the product Specification of the output Flow shop Job shop Flow shop Continuous Production Batch Production Mass Production Goods Services Customized Standard DBA 1651 PRODUCTION MANAGEMENT 7 NOTES Anna University Chennai The characteristics of the Operation System based on the product flow pattern: 1.5.1 Flow Shop In this kind of production, the productive resources are arranged according to the sequence of operation required by the product design. Assume that you are engaged in the ready to wear clothing, if you want to adopt the flow shop production, then the productive resources are kept according to the sequence of operations required by the product like Cutting Joining by sewing Adding, buttons, zippers etc Quality checking Packaging Mostly Flow shop production are adopted when there is untapped market for the product, customers are price sensitive and more competition in the market. Flow shop production as shown in the figure is further divided into Continuous Production, Mass Production and Batch production. 1.5.1.1 Continuous Production The industries involved in the following activities are classified as Continuous Production • Oil refining. • Fertilizer production. • Chemical processing etc. • In this type of production the product flows continuously without much interruption. • This type of production lacks in flexibility. 1.5.1.2 Mass Production The industries involved in the following activities are classified as the Mass Production Industries: Auto Manufacturing TV Manufacturing Cigarettes This kind of flow shop produces the same type of output, it has little flexibility compared to Continuous Production. 1.5.1.3 Batch Production The industries involved in the following activities are classified as the Intermittent Production. • Shoe manufacturing • Bottling plant • Cloth manufacturing DBA 1651 PRODUCTION MANAGEMENT 10 NOTES Anna University Chennai Project production consists of many activities where the activities are interlinked, time phased and resources committed. In this kind of production, scheduling the activities is important so that you can complete the project within the time and budget constraint. The resources, namely, manpower, machines, material are brought to the workplace where the product is manufactured. There is no movement of the product. Review Questions 1. Which type of the production system in the process inventory is less? 2. In which type of production system flexibility is more? 3. Tell the important characteristic of Batch Production about the product? 4. In which type of production system there is no product movement? 1.6 COMMUNICATION IN POM As it is mentioned in the above section, operation management is meant to achieve the objectives for which the operation system is intended for. Based on the objective set by the top management, the system design is established. The system design involves designing the product and process, designing the methods, measuring the work, identifying the location, and designing the layout. By keeping the system design as a framework in the aggregate planning various production alternatives are analyzed and the best feasible production alternatives are chosen. Then keeping the aggregate planning as a input, resource allocation and sequencing of day to day activities are done. The inventory also kept at minimum to satisfy the organization’s inventory objectives. The maintenance activity ensures the availability workstations. Quality control ensures the quality in the input, processing and output stages of production system. (See figure 1.4- Communication in POM). Review Questions- 1. List the activities in system design? 2. What are the phases of scheduling? DBA 1651 PRODUCTION MANAGEMENT 11 NOTES Anna University Chennai Figure 1.4- Communication in POM 1.7 COMPUTER INTEGRATED MANUFACTURING AND SERVICE SYSTEM Computer Integrated Manufacturing (CIM), a strategic thrust, is an operating philosophy. Its objective is to achieve greater efficiencies within the business, across whole cycle of product design, manufacturing and marketing. International competition has intensified the requirement for high quality products that can compete in the global market place. As a result of this increased competition, the pace of development has been quickened and thus forcing manufacturers to enter into an era where the continuous External: Socio, Political, Economic environment Top Management Strategy Marketers Policy Financial Policy Human Resource Policy Production Policy Forecasting Product Design Capacity Planning Process Design Plant location & layout Work Design and measurement Scheduling Maintenance Quality Control Material Capital Information Manpower Product Service System DesignLong term forecast Aggregate Planning Inventory Control Short term Forecasting Medium term forecast T o p M a n a g e m e n t O p e ra tio n M a n a g e m e n t P ro d u c tio n S ys te m Figure1.4 DBA 1651 PRODUCTION MANAGEMENT 12 NOTES Anna University Chennai quality improvement is maintained as a matter of survival, not simply being competitive As the time scale of product life cycle has decreased and the demand for the quality increased, attention has focused on improving the product quality and promoting the competitive ability of industries through better design, manufacturing, management and marketing. Global manufacturing industry is now undergoing a rapid structural change. As this process is continuous, manufacturing industry is encountering difficulties as it confronts with a more changed and more competitive environment and also the market place. In order to share the international market, manufacturers need to implement two strategies. The first is, to improve the Enterprise Management. The second one is, to develop and apply a Systematic and Scientific Technology, i.e.., CIM. With the rapid growth of the complexity of manufacturing process and the demand for high efficiency, greater flexibility, better product quality and lower cost, industrial practice has approached the more advanced level of automation. Nowadays, much attention has been given by both industry and academia to CIM. Currently, most of the industries have highly automated facilities. To stimulate industrial companies for utilizing the newest manufacturing technology, this has compelled to develop a system architecture that does not only replace the existing manufacturing facilities, operational environments, but effectively utilizes the knowledge and facilities that are available in the industry. To overcome the difficulties and solve the problems mentioned above automatic techniques and methodologies should be Introduced into real industrial manufacturing. 1.7.1 CIM Subsystems Significant progress has been made in the manufacturing technology in recent years. Numerically control machine tools, automated material handling systems and controlled systems have been widely used in industrial companies. The Flexible Manufacturing System (FMS), Computer Integrated Manufacturing (CIM) or Systems or Automated Manufacturing Systems (AMS) can be attributed to and increasing number of companies. The advancing manufacturing and computer technology has brought new challenges to the designers of products, processes and system as well as to the managers. The traditional design and management tools can not effectively cope with problems arising in the modern manufacturing systems. DBA 1651 PRODUCTION MANAGEMENT 15 NOTES Anna University Chennai According to Arthur D.Little and Co., GT is the important technology among the others and it will play a major role in the factory of the future. The GT concept is considered a center road towards a higher level of CIM. 1.7.4 Group Technology Group technology (GT) is a concept that is currently attracting a lot of attention from the manufacturing community. GT offers a number of ways to improve productivity in the batch manufacturing. The essence of GT is to capitalize on similarities on recurring tasks. GT is, very simply, a philosophy to exploit similarities and achieve efficiencies grouping like problems. 1.7.4.1 Definition of GT “Group technology is the realization that many problems are similar and that, by grouping similar problems, single solution can be found to a set of problems, thus saving time and effort” 1.7.4.2 History of GT Prior to 1913, the era of Henry Ford and his model T, all machining models were similar to our present job shop techniques with machines laid out usually in lines or blocks of similar machines. The work was loaded onto the machines usually by the manual progress control system. Ford introduced the assembly line and that, in turn, led to automated transfer machines. However, the majority of engineering do not produce items in quantity that justify such methods and so the jobbing shop philosophy continued. GT is mainly a coordination of normal good engineering practices. It is impossible to say who first practiced GT. There are reports of it having been used in Germany in the 1930s. In an international Conference held in Stockholm in 1947, the basic groups were explained by C.B.Nanthorst. In Italy M. Patrignany was an early exponent of this technology. However, little of this appears to have been in English. First published work was from the USSR by S.P.Mitrofanov in 1959 and there after subsequent books were published by F.S.Denyanyuk and E.K. Ivanov.The first reported work on GT outside Russia was done by a French Forges et Ateliers de Construction Electriques de Jeurmont - and this was about in Machinery in 1962. Subsequently, several British companies conducted considerable work in this field. There have also been considerable studies done by various consultants in the Universities. The significant contribution by J.L.Burbidge in the 1 960s led to GT as A total Manufacturing Philosophy. DBA 1651 PRODUCTION MANAGEMENT 16 NOTES Anna University Chennai 1.7.4.3 Advantages of GT According to Burbidge, following are the advantages after introducing GT in manufacturing. a. Short throughput times because machines are closed together. b. Better quality because groups complete parts and the machines are closed together under one foreman. c. Lower material handling costs because machines are closed together under one foreman. d. Better accountability because machines complete parts. The foreman can be made responsible for costs, quality, and completion by due date. e. Training for promotion for promotion since GT provides a line of succession, because a group is a mini-department. f. Automation GT is a first evolutionary step in automation. g. Reduced set up time since similar parts brought together on the same h. Morale and job satisfaction since most workers prefer to work in groups. Studies undertaken by N.L.Hyer indicate the following significant savings after implementing GT Snead prepared a summary matrix, listing the benefits listing benefits achieved for the various GT. Table1.4 - Advantages of GT Applications implemented set up time 20-60% Planned labor 15-25% Tooling 20-30% Rework & scrap 15-75% Machine tool expenditures 15-75% WIP carrying costs 20-50% 1.7.4.4 Organizational suitability for GT The suitability of a firm for the introduction of GT depends on several factors. The survey of Willey and Dale give a tentative description of a company profile likely to achieve the greatest benefits from GT, some of these are: DBA 1651 PRODUCTION MANAGEMENT 17 NOTES Anna University Chennai a. The company must be a relatively small organization with a reasonably small machine tools, and manufacturing equipment. b. The company should not be typified by either large or small component variety. c. The batch sizes and the batch size range of products of the companies it is relatively small. Athersmith and Crookall Rajagopal and Smith Gupta Andand Grayson have suggested another way of finding out the suitability of GT for a batch production industry. Computer simulation has been used by the effect of introduction of GT in the batch production industries based on the parameters such as throughput time, WIP inventory and plant utilization Further GT is considered a desirable stepping stone for establishing Just-In-Time production. 1.7.4.5 Group Technology in CIM One may question whether a cellular concept is applicable to CIM systems. Some studies have shown that grouping machines to machine cells may limit the manufacturing system flexibility. However, industrial applications have proven that it is virtually impossible to implement a large scale CIM subsystem using a cellular concept. Here after, the automated manufacturing systems that cellular approach can be called as, Cellular Automated Manufacturing (CAMS). Four crucial factors of CAMS as identified by Kusiak are: 1. Volume of information Volume of information a large-scale CIM subsystem is typically large, and it is too expensive to effectively process information without the system’s decomposition. 2. Material handling system In a typical CIM subsystem, automated material handling carriers are used (AGVs and Robots). Each of the two carriers can tend a limited number of machines. 3. Technology Requirement Some machines have to be grouped together due to technological requirements. For example, a forging machine and a heat treatment section. 4. Management Although in most of the currently CIM subsystems, the degree of automation is higher than in classical manufacturing systems, humans will be, for a long time, an integral DBA 1651 PRODUCTION MANAGEMENT 20 NOTES Anna University Chennai ~ Currency exchange and risk. ~ Counter trade opportunities and requirements. ~ Varying laws and jurisdictional questions. ~ Cultural differences. ~ Language differences. ~ Labor and training availability, practices, laws, regulations. ~ Transportation, packing, shipping, storing, import, export, customs. ~ Security: materials, products, personnel, intellectual property. Challenges and Barriers to Transforming Global Supply Chains into Value Chains In the varying environments encountered internationally, there are a number of challenges and barriers involved in building global supply chains. Many of these are rarely concerned with the domestic supply chains. Some of these include: ~ Uncertain political stability, self-serving governments. ~ Lack of infrastructure in some countries (roads, port facilities, trained labor, utilities, communications). ~ Lack of critical market mass in particular countries. ~ High transaction costs. ~ Requirements to use in-country agents or partners and local content requirements. ~ Lack of potential for repeat purchases. ~ Slower adoption of e-business than in the domestic market. ~ No or limited free trade zone availability. ~ Partner/contract limitations requiring bidding for all procurement activities and alliance-building. ~ High logistics and transportation costs. ~ Different time zones (communication difficulties). ~ Financial risks are higher, e.g. potential for war, terrorism, government changes. ~ The nature of global activity (may be fragmented and/or scattered). ~ Long/unpredictable supplier lead times. ~ Protectionism (tariffs, duties, quotas, inspections). ~ Limited number of qualified global suppliers. ~ Difficult to link global project work to “run and maintain” global activities. ~ Limited availability of trained personnel for purchasing or supply management positions inhibiting. DBA 1651 PRODUCTION MANAGEMENT 21 NOTES Anna University Chennai 1.8.2 How to Transform Global Supply Chains Improve the quality/cost ratio of your supply chain. Strive for the highest quality at the lowest cost. Leverage value across the supply chain Understand what constitutes value and to whom it is valuable in your supply chain. Identify and evaluate trade-offs between value added and profitability. Leverage knowledge to create and deliver the value. Where commodity markets are involved, be proactive in initiating change that will benefit you. Redefine the boundaries of business Redefine the boundaries of your business in the context of what provides continuing competitor and customer advantage. Evaluate any existing vertical integration structures and replace with virtual sourcing if value can be added by doing so. Evaluate what to insource and what to outsource. Use all capabilities of existing or potential supply chains in the development of new products. Develop relational competence View relationships with other members of your supply chains as a continuum ranging from spot relationships to strategic alliance or co-ownership but recognizing that most relationships will be somewhere between these extremes. Determine where more competition will add value and where more collaboration will add value and seek the best combination of competition and collaboration. Manage at the right level Determine which strategies and activities best add value with global management and which best add value with local management. Determine the best level of autonomy for local management within supply chain activities. Analyze supply chains for each category of material or service that is significant to the organization to determine the best value -adding approach for management and control. Develop supply chain responsiveness Determine how the degree of responsiveness to customer needs such as re- supply time or product mix adjustment matches with customer requirements in each such area. Consider techniques such as supplier managed inventory, supplier integration, DBA 1651 PRODUCTION MANAGEMENT 22 NOTES Anna University Chennai and consignment stocking. Pay particular attention to the quality of demand forecasts throughout the supply chain. Drive down purchase costs. Capture cost saving opportunities and share benefits with contributing supply chain members. Pay attention to the differing cost management and purchase strategy needs of various categories of purchases. For example, commodities, specialty items, custom-made items, MRO materials. Service purchases can be similar. Bring About Change Change Management 1-1. It refers to transforming supply chains which involves a collateral change management. Consider purchases in the broadest possible sense - do not exclude anything which is purchased by the organization, material or service effort. This includes the following activities: ~ Seek Top Management mandate with visible support. ~ Identify the local sponsors and supporters of the supply chain, change early in the transformation process. ~ Use coordinated communication efforts to develop a dialog about the benefits and obstacles for implementation. ~ Target quick wins and immediate opportunities. ~ Focus on overcoming obstacles to implementation by creating a cross functional approach (Team) to address issues. ~ Perform a competitive advantage review in order to leverage the core competencies of the supply chain members . ~ Develop a supply chain agenda, manage the overall program and frame goals to address major gaps in supply chain performance. ~ Develop a business plan that will integrate the activities of the supply chain members. ~ Formulate key performance metrics and measurements, tracking quarterly. ~ Review results and make modifications as necessary to achieve supply chain optimization. DBA 1651 PRODUCTION MANAGEMENT 25 NOTES Anna University Chennai 2.7 Inventory models 2.7.1 Need for Inventory 2.7.2 Types of Inventory 2.7.3 Inventory costs 2.7.4 Deterministic model 2.7.4.1 EOQ model 2.7.4.2 EBQ model 2.7.4.3 Quantity discount model 2.7.5 Probabilistic model 2.7.5.1 ‘Q’ model 2.8 Material Requirement Planning (MRP) 2.8.1 Introduction 2.8.2 Overview of MRP system 2.8.3 Inputs of MRP system 2.8.4 MRP Process 2.8.5 MRP output 2.9 Manufacturing Resource Planning (MRPII) 2.9.1 Introduction 2.9.2 Closed loop MRP system 2.9.3 Master Production Schedule 2.9.4 Capacity planning 2.9.5 Forward scheduling and backward scheduling 2.9.6 Benefits of MRPII 2.9.7 Drawbacks of MRPII 2.10 Enterprise Resource Planning (ERP) 2.10.1 Need for ERP 2.10.2 Evolution of ERP 2.10.3 Advantages of ERP system 2.10.4 Disadvantages of a ERP system 2.10.5 Limitation of ERP 2.11 E-Business and E-Commerce DBA 1651 PRODUCTION MANAGEMENT 26 NOTES Anna University Chennai MATERIAL AND INVENTORY MANAGEMENT 2.1 INTRODUCTION In this unit the productivity of material resources is discussed. The role of materials management in an organization and the latest material handling devices like Automated Guided Vehicle (AGV), Automatic Storage and Retrieval System (AS / RS) and Robots are illustrated. The deterministic and probabilistic inventory models are illustrated with examples. Detailed discussions are carried out about material requirement planning and manufacturing resource planning. The evolution of ERP system is dealt. In addition, introduction about e-business and e-operation strategies are also explained. 2.2 LEARNING OBJECTIVES • To know the importance of material resources. • To understand functions of materials management. • To understand the computer controlled material handling devices. • To know the importance of deterministic and probabilistic inventory models. • To know the working of MRP – I and MRP – II systems. • To highlight the E-business and e-operation strategies. 2.3 MATERIAL MANAGEMENT 2.3.1 Definition and Scope We can define Materials Management as the function responsible for the coordination of planning, sourcing, purchasing, moving, storing and controlling materials in an optimum manner so as to provide a pre-decided service to the customer at a minimum cost. 2.3.2 Objectives However, within the broader management objectives of any industry or business, Materials Management’s contribution towards objectives may be divided into two categories: UNIT - II DBA 1651 PRODUCTION MANAGEMENT 27 NOTES Anna University Chennai 1) Primary and 2) Secondary. The former contributes directly to the Materials Management function and the latter, helps other departments to achieve their objectives. 2.3.2.1 Primary Objectives Purchasing: Materials play a vital part in the field of cost-control and operating expenditure of any organization and therefore, materials have a direct bearing on the cost of a product, manufactured. If the Materials Department can reduce the overall materials cost through an efficient system of buying, it can directly contribute its share to the enhancement of profit. Thus lower prices, lower procurement and possession costs are important objectives of Materials Management. Price consciousness or less materials cost means more profit as embodied in the phrase, “Purchasing for Profit” which is readily recognized by Management. It is therefore a prime functional responsibility of the Materials Management department. Stores and inventory management: Arriving at the right balancing point in the inventory investment like investment in any other capital assets has always been a perplexing problem to industries. Inventory Management function is more complex, more subtle and the balance of costs and gains is much more difficult to find out. Briefly, Materials Management objective here is to have the correct quantity and right quality of material on hand at the time required with a minimum of investment expenditure, consistent with business experience. When inventory turnover is high, storage and carrying costs are low. Continuity of supply: This is an other important objective of Materials Management. Specially in automated processes, where costs are rigid and are not easily amenable to reduction due to lack of production materials, the question of continuity of supply gains prominence. This foreshadows all other objectives, because idle-time costs of men and machines push up overall costs of production and expediting supply means additional transport costs. Quality of materials: Where quality of materials presents cost plus production engineering problems, it may well become one of the prime objectives of Materials Management, where other objectives are sacrificed at quality-cost. Good supplier relations: A good supplier relation, on which depends much of the product-reputation of the company, is also one of the key objectives of Materials Managers. Suppliers respond DBA 1651 PRODUCTION MANAGEMENT 30 NOTES Anna University Chennai objectives of an organization play, therefore, a vital part in determining how quickly the structure should be developed, what it should look like, its operating cost and permanency. What we want to accomplish should be kept clearly in mind while determining and setting up its structure. Obviously, the organization structure of a large corporation is much more complex, and therefore, slowly developed. Here too, objectives affect the structure. Once the objectives are clearly determined, the development of structure will follow the natural path dictated by the desire to reach these objectives. An organization structure should never hinder the achievement of these objectives; instead it should facilitate the mechanism that will enable the organization to accomplish things more easily and effectively than when left in unorganized things more easily and effectively than when left in an unorganized fashion. Thus, if it is decided that the company should add to a new line of product, and therefore, expand its marketing territory, such an objective and its concomitant Materials Management activities would necessarily affect the final structure of the organization. 2. Determination of the areas of activity: Organization itself is nothing but the application of the universal law of specialization. Through organization, a person’s actions and responsibilities are narrowed to one or a few functions, specializing in these few and thereby, increasing efficiency. Specialization by division of work into functional areas enables one to understand his job more thoroughly. Therefore, effective organization must include specialization as an element of efficiency for the performance of one or a very few leading functions. As far as possible, similar functions should be combined into one position. Although its advantages are universally recognized, yet it has its limits which should not be exceeded. 3. Determination of the ideal structure to accomplish the desired activities: Physical listing of activities will in itself suggest possible areas within which it needs to consolidate work. Each of the groupings will then lead to an ‘ideal’ organization structure to carry out the functions. Products, tools and processes may be considered as possible areas of functional activities. This ‘ideal’ structure may then represent the long range or ultimate organization with available personnel, funds, etc., so as to reconcile the ‘ideal’ with the ‘working’ organization. 4. Authority and Responsibility: Authority is the right to give orders and the power to exact obedience. Authority is not to be conceived apart from responsibility, that is, apart from sanction – reward or penalty, which goes with the exercise of that power. Delegation of authority is the key point of organization. Without delegation there would be no organization and this is the core of all formal processes of organization. A major task of top management is the delegation of authority to proper individuals in order to secure appropriate actions. But often, we hear of responsibility being delegated without power to command or act. DBA 1651 PRODUCTION MANAGEMENT 31 NOTES Anna University Chennai Such an organization set-up makes for ease and efficiency in determining responsibility and delegating necessary authority. Since it would not be just to hold a person responsible for performance of a task without first giving him the authority, responsibility should always be coupled with commensurate authority. Here, authority can be delegated, responsibility cannot. 5. Span of Control: By span of control, we mean the number of individuals one supervises and directs. There is a definite limit to this number and this, to a great extent, determines the units of an organization. There may be a tendency to over supervise and this may, in effect, mean scant or ineffective supervision. On the other hand, when too few report to one supervisor, his time is not effectively used. However, no hard and fast rule can be established and it depends upon the type of work performed. 6. Personal Ability: Simply assigning jobs to individuals does not mean that they will be accomplished. Individuals differ in capacity and ability and these differences as well as personal limitations should be considered before placing an individual in an organization. In developing an organization, therefore, proper regard should be paid to the personal ability of individuals assigned to various components. An organization is referred to the people and its structure reflects the ability of its members which again largely determines the structure. 7. Unity of Command: For any action whatsoever, an employee should receive orders from one superior only. Such is the rule of unity of command. No one in any organization should report to more than one line supervisor and everyone should know to whom he reports and who reports to him. In fact, receiving directions from more than one individual may easily result in confusion, conflict, lack of action and poor morale. Each member of an organization, therefore, should receive directions from only one boss, his immediate superior and should be responsible to him alone. 8. Job Assignment: Logical groupings or related functions should be made in developing the organization structure. It is often desirable to have the responsibility for each of these functions assigned to specific individuals with these persons turning to the leader charged with the accomplishment of the overall function. 9. Regulations: Rules and regulations aid improper operation of an enterprise. A complete statement of the operating objective of an enterprise as well as the responsibility and DBA 1651 PRODUCTION MANAGEMENT 32 NOTES Anna University Chennai the authority of each individual should be formulated and should be made available in writing to all personnel in the organization. They may be broad and specific. Even detailed methods manuals to describe how the tasks are to be carried out may be valuable. They define the authority which certain individuals have over particular functions. 10. Two way communication: Despite the fact that line of authority provides channels downward and upward, they are often used only to pass directives downward and never as a means of communicating attitudes, feelings or ideas upward. Such blocks in communication occur in a great many organizations. In fact, one of the most immediate and costly results of poor organization is the breakdown of intra-organizational communication. In as much as an organization is developed to aid in accomplishing an objective, good communication is necessary if all employees are to know what to do to reach this objective. 11. Flexibility: The environment in which an organization exists and the individuals who make it up are constantly changing. Organizations change because of technological, economic or personnel changes or changes in the objectives. An organization possessing flexibility withstands minor pressures, but gives way to the demand for genuine change permitting their expansion or contraction without seriously altering the basic functions of various segments of the structure. 12. Line and Staff activity: Line and staff functions should not be combined in one individual where separation of functions is possible. Line functions, as has been said before, are those which directly affect the product or service. Staff functions are those that aid the line or, are auxiliary to the line function. Because confusion may result, line and staff functions should be separate wherever possible. Staff specialists are useful and there will always be a need for them. Especially in large materials organizations, where materials management is treated as an integrated activity, there should be less need for staff experts in a variety of functions. Among the major staff services value analysis, economic forecasting and administrative planning may be essential. A staff expert on ‘trade relations’ is also a common feature in large-scale industrial purchasing. Leadership Question: Leadership is obviously more than personal ability and skill. Leadership is important to the effective set up and operation of every organization because leadership is the one force that charts and makes possible the economic accomplishment of the objectives. A ‘weak’ organization structure with effective leaders will probably accomplish more than a so called ‘strong’ organization with weak leaders. DBA 1651 PRODUCTION MANAGEMENT NOTES Platformn cruck (high-lift type) 35 Anna University Chennai DBA 1651 PRODUCTION MANAGEMENT 36 NOTES Anna University Chennai 2.4.2 Robot The word “robot” is also used in a general sense to mean any machine that mimics the actions of a human, in the physical sense or in the mental sense. It comes from the word robota, labor or work. The word robot first appeared in Karel Capek’s science fiction play R.U.R. (Rossum’s Universal Robots) in 1921. The word was brought into popular Western use by famous science fiction writer Isaac Asimov. A robot is an electro-mechanical or bio-mechanical device or group of devices that can perform autonomous or preprogrammed tasks. A robot may act under the direct control of a human or autonomously under the control of a programmed computer. Robots may be used to perform tasks that are too dangerous or difficult for humans to implement directly, such as radioactive waste clean-up, or may be used to automate mindless repetitive tasks that should be performed with more precision by a robot than by a human, such as automobile production. Robot can also be used to describe an intelligent mechanical device in the form of a human, a humanoid robot. The word robot is used to refer to a wide range of machines, the common feature of which is that they are all capable of movement and can be used to perform physical tasks. Robots take on many different forms, ranging from humanoid, which mimic the human form and way of moving, to industrial, whose appearance is dictated by the function they are to perform. DBA 1651 PRODUCTION MANAGEMENT 37 NOTES Anna University Chennai Asimov proposed three ‘laws’ which for many years were recognized as principles in the use of robotics: A robot must not harm a human being or, through inaction, allow a human to come to harm. A robot must always obey human beings unless this is in conflict with the first law. A robot must protect itself from harm unless this is in conflict with the first or second law. Robots can be grouped generally Mobile robots (e.g. autonomous vehicles) Manipulator robots (e.g. industrial robots) Self reconfigurable robots, which can conform themselves to the task at hand. An industrial robot has been defined as: “A reprogrammable multifunctional manipulator designed to move material, parts, tools, or specialized devices through various programmed motions for the performance of a variety of tasks”. The definition says the robot is a reprogrammable and multifunctional. The reprogrammability means, through computer the programmed instructions can be written fed and also can be edited. Multifunctional is in the sense of its versatility. It can perform various activities. 2.4.2.1 Advantages of Robots in Industry: We can analyze the various advantages of robots in three perspectives. Technical factors: When comparing robot and human performance it is generally considered that humans cannot match the speed, quality, reliability, endurance and predictability of robotics systems. However, robots cannot compete with hard automation if the cycle times are short and flexibility is not an important factor. Robots therefore provide a link between the rigidity of dedicated automation and the flexibility of the human operator, in that they offer: High flexibility of product type and variation. Lower preparation time than hard automation. Better product quality. Fewer rejects and less waste than labor-intensive production. DBA 1651 PRODUCTION MANAGEMENT 40 NOTES Anna University Chennai Deburring Sanding Grinding Cutting Forming Assembly Mating components Riveting small assemblies Inspection In-process measuring and quality control, searching the missing parts Others Heat-treatment, applications of adhesives etc. 2.4.2.4 Applications of robotics in other fields: 1. Hazardous environments Mining Exploration Search and rescue Tunneling for main roadways Operations in short passages Municipal services Fire fighting Underground (dangerous gas-filled) Sewer clearing Maintenance of atomic reactors Space Space vehicles Undersea Oil/mineral exploration Salvage operations 2. Medical Rehabilitation engineering for handicapped Non-invasive diagnostics Surgery 3. Distribution Warehousing Retailing (for food industry or for retail industry) DBA 1651 PRODUCTION MANAGEMENT 41 NOTES Anna University Chennai 4. Agriculture 5. Hobby/household purposes 6. Military applications of robots may be in both manufacturing and non-manufac- turing areas. 2.4.2.5 Dangers and disadvantages: Although robots have not developed to the stage where they pose any threat or danger to society, fears and concerns about robots have been repeatedly expressed in a wide range of books and films. The principal theme is the robots’ intelligence and ability to act could exceed that of humans that they could develop a conscience and a motivation to take over or destroy the human race. Currently, malicious programming or unsafe use of robots may be the biggest danger. Although industrial robots may be smaller and less powerful than other indus- trial machines, they are just as capable of inflicting severe injury on humans. However, since a robot can be programmed to move in different trajectories depending on its task, its movement can be unpredictable for a person standing in its reach. Therefore, most industrial robots operate inside a security fence which separates them from human workers. Even without malicious programming, a robot, especially a future model mov- ing freely in a human environment, is potentially dangerous because of its large moving masses, powerful actuators and unpredictably complex behavior. Designing and programming robots to be intrinsically safe and exhibit safe be- havior in a human environment is one of the great challenge in robotics. Some people suggest that developing a robot with a conscience may be helpful in this regard. 2.4.3 Automated Storage and Retrieval System (AS/RS) An integrated FMS, AGVS, and AS/RS system provides an efficient and ef- fective production system for manufacturing. Receiving, identification and sorting, dis- patching, placing in storage, retrieving from storage, packing, shipping, and record keeping have traditionally been considered the functions of storage systems. An AS/RS attempts to achieve these functions by automating most of these procedures in a cost- effective and efficient manner. An automated storage and retrieval system is defined as: A combination of equipment and controls, which handles, stores and retrieves materials with precision, accuracy and speed under a defined degree of automation. Different operations of AS/RS: • Automatic removal of an item from a storage location • Transportation of this item to a specific processing or interface point DBA 1651 PRODUCTION MANAGEMENT 42 NOTES Anna University Chennai • Automatic storage of an item in a predetermined location, having received an item from a processing or interface point. An automated storage and retrieval system comprises the following: • A series of storage aisles having storage racks. • Storage and retrieval (SIR) machines, normally one machine per aisle, to store and retrieve materials • One or more pickup and delivery stations where materials are delivered for entry to the system and materials are picked up from the system. 2.4.3.1 Types of AS/RS Several types of AS/RSs are distinguished based on certain features and applications. Some of the important categories include: 1. Unit load 2. Miniload 3. Person-on-board 4. Deep-lane 5. Automated item retrieval system 1. Unit Load AS/RS The unit load AS/RS is used to store and retrieve loads that are palletized or stored in standard-size containers. In general, a unit load system is computer con- trolled; having automated machines designed to handle unit load containers. Each ma- chine is guided by rails in the floor. These are the load-supporting mechanisms that moves loads to and from storage locations and the pickup-and-deposit stations. 2. Miniload AS/RS: A miniload system is designed to handle small loads such as individual parts, tools, and supplies. The system is suitable for use where there is a limit on the amount of space that can be utilized and where the volume is too low for a full-scale unit load system and too high for a manual system. A smaller investment and flexibility of handling small items make it a popular choice in industry. 3. Person-on-Board Systems The person-on-board system allows storage of items in less than unit load quantities. A person rides on a platform with the S/R machine to pick up individual items from a bin or drawer. This provides in-aisle order-picking ability, which can reduce the time it takes to fill an order. The operator can select the items and place them in a tote or module, which is then carried by the S/R machine to the end of the aisle or to a conveyor to reach its destination. DBA 1651 PRODUCTION MANAGEMENT 45 NOTES Anna University Chennai • Remote dispatch control system: In this system a human operator is required to issue instructions to the vehicle through a remote control station. The control system sends destination instructions directly to the vehicle. Therefore, the human operator does not have any direct control over the AGVS vehicle. • Manual control system: In the manually controlled system, the operator gives commands to AGVS. The operator gives instructions like loading the vehicle, entering a destination and unloading. A manually controlled system is simple and the least expensive of all control systems. The efficiency of the system depends on the skill and performance of the operator. 2.4.4.2 Applications of AGVS AGVS have numerous applications and have already been applied by many manufacturing plants and companies. New applications are being developed as technology improves and as experience is gained. Some of the most common applications of the AGVS are: • Raw material storage • Finished goods storage • Assembly operations • Flexible manufacturing systems • Manufacturing operations Technical and Economic Benefits of AGVs • Economic Justification: AGV systems are proving to be the most economical method of moving material. • Interface with Other Systems: AGV systems are designed to interface with other material-handling systems including conveyors, automatic storage/retrieval systems, production lines, and other devices. • System Accountability: Computer control means planned delivery, transaction audit records, on-line interface to production and inventory control systems and management information on the vehicle and workstation production. • Reduced Labor/increased Productivity: In cases where driverless vehicles are used, substantial savings are realized due to labor reduction. • Guide path Easily Expanded: As material movement needs change or plant size increases, AGV systems can be expanded or modified quickly and at low cost. DBA 1651 PRODUCTION MANAGEMENT 46 NOTES Anna University Chennai • Expandable System Capacity: As material movement needs an increase, load movement capacity in the AGV system is easily accomplished by adding one or more vehicles. • Unobstructed Aisles: Control wires for AGV systems are installed in the floor and therefore, leave no ‘above-floor obstructions’. • Destinations Unlimited: AGV systems can be designed with an unlimited number of pick-up and delivery points. • Less Equipment Damage: There is less product and equipment damage when AGV systems are used to move material because the vehicles travel on a predetermined route. • Reliable System Control: All automatic guided vehicles are equipped to allow manual override for the special material or vehicle movement situations. • Energy Conservation: AGV systems require very little energy to operate. • Ease of Installation: AGV systems can be installed in less time than most other material handling systems. • Installation in Existing Buildings: AGV systems can be installed in existing buildings with minimum interference to ongoing operations. Review Questions: 1. Name any two Conveyors. 2. List any two component of Robotics. 3. Name any two trucks. 4. Name any two cranes. 5. State any two advantages of Robots in Industry. 6. Name any two components of Robots. 7. List three benefits of AS/RS. 8. Expand AGV. 2.5 JUST IN TIME Just In Time (JIT) is a philosophy, wherever an organization adopts this philosophy to strive for excellence in their activities. JIT is considered to be a production strategy which enables to identify the non value added activities and eliminate those activities. The activities include the activities starting from the design to delivery of the product. JIT helps in achieving the listed objectives like. — Zero defects — Zero lead time — Zero Breakdowns — Zero Handling — Zero Set uptime — Zero lot excesses — Zero Surging DBA 1651 PRODUCTION MANAGEMENT 47 NOTES Anna University Chennai 2.5.1 Problems of Conventional Production Systems: The well known Conventional Production Systems like Continuous Production System and the Intermittent Production System have their own limitations as you have read in the previous sections. The continuous production system has the shortcomings like for eg; this kind of system is not suitable for variety production. If there is a change in the product design, this system needs to be changed as it lacks in flexibility. The work forces are specialized work forces. But the workstations are properly balanced, comparatively you need less work in progress inventory. The manufacturing cycle time is comparatively low. In the case of intermittent production system, the system is more of process based. Since, it does the variety of products. The product has to wait for long time in the queue for the processing. This results in more in process inventory. But this system has the advantage of producing more no of variety production. Flexibility is in built in this system. Since the traditional system have these kinds of problems, so we need a system incorporating flexibility, balanced work station with multi skilled work force, with less waiting time of the products. JIT provides solution for the problems of conventional production system. 2.5.2 Conventional Vs. JIT Attitudes Table2.1 - Conventional Vs. JIT Attitudes Conventional Attitudes JIT Attitudes Some defects are acceptable Zero defects are necessary and attainable Large lots are efficient (more better) Ideal lot size is one (less is better) Fast production is efficient Balanced production is efficient Inventory provides safety Safety stock is a waste Inventory smoothes production Inventory is undesirable Inventory is an asset Inventory is a liability Queues are necessary Queue should be eliminated Suppliers are adversaries Suppliers are partners. Supply sources lead to safety Sources of supply lead to control Breakdown maintenance is enough Preventive maintenance is essential Long lead time is better Short lead time is better Setup time is given Setup time should be zero Management is by edict Management is by consensus Work force is specialized Work force is multifunctional DBA 1651 PRODUCTION MANAGEMENT 50 NOTES Anna University Chennai Process time: It is the actual operation time on a product. This usually contributes less than 10% of the total manufacturing time. Wait time: This is the waiting time of the product to be moved for the next operation. This time is reduced provided the movement of material and the completion of operation are synchronized. This time is reduced through proper material handling planning. Move time: This is the movement time from one work station to another work station. This time is lessened if the work stations are adjacent. Queue time: This represents major portion of the manufacturing cycle time. This is the idle time of the product, waiting for the operations because the machine center from which the processing sought for, engaged by another product. This time depends upon the routing procedure adopted, priority rule assigned for the product. If you reduce the non value added times by the way and means mentioned above, the investment on, namely, the material, labor and manufacturing overhead in work in progress, inventory gets reduced. This is possible by adopting the group technology principle, Kanban production control, assuming machine reliability through preventive maintenance. Finished Good Inventory Reduction: Finished good inventory is reduced if you reduce the uncertainty related with the timing and the quantity of the customer requirement. The means for the uncertainty reduction: • Production based on the customer orders. • Accurate forecasting or free from errors . • Through better customer relationship, retaining the customer helps in executing agreement. • To fulfill the customers future requirement. • Retaining the customer through better customer relationship enables the organization in executing agreement to fulfill his future requirement. DBA 1651 PRODUCTION MANAGEMENT 51 NOTES Anna University Chennai Group Technology: This is already explained in the previous unit‘s section (1.7.4 Group Technology) 2.5.4 KANBAN Production control system: KANBAN is a Japanese word, meaning, CARD. There are two types of KANBAN one is called CONVENANCE KANBAN and the other one is PRODUCTION KANBAN CONVENANCE KANBAN acts as a move order authorizing the movement of material from one center to another work center. PRODUCTION KANBAN acts as a work order authorizing the work center to start production. You can understand the working of KANBAN Production control systems by considering intermediary work centers n-1, n and n+1 in a manufacturing. 2.5.4.1 Working of KANBAN 1. The production centers know in advance the production schedule. 2. The operator in the production center ‘n+1’ goes with conveyance KANBAN to the production center ‘n’. Where a container have the parts required for the production center ‘n+1’. Then he removes the production KANBAN and keeps it in the rack of the production center ‘n’. 3. Then he keeps the conveyance KANBAN in the container and move with the container to his work station n+1. 4. The order in which the production KANBAN in the rack gives indication to the operator in the work center ‘n’ about the priority based on which the product have to be processed in the centre ‘n’. 5. In the production center ‘n’ based on the production schedule, when the time for starting his operation reaches. - He goes with conveyance KANBAN to the production center ‘n-1’. - Remove the production KANBAN in the container and keep it in the rack of center n-1 and keep the conveyance KANBAN in the container and move with the container to the workstation ‘n’ to start further processing on the product. The whole sequences of activities are portrayed in the figure2.5. DBA 1651 PRODUCTION MANAGEMENT 52 NOTES Anna University Chennai From the above sequence you can understand that the JIT operates in the pull system basis. That is the down stream pulls the components from the upper stream for the production. But, in the case of traditional production system, it operates, based on Figure2.5 - Working of KANBAN DBA 1651 PRODUCTION MANAGEMENT 55 NOTES Anna University Chennai Illustrated Example: 2.1 1. Bulchand & Co. company inventories 20 items. The company decides to setup an ABC inventory system with 10 % of A items, 20% of B items and 70% of C items. The company records provides the information, which is as follows: Table 2.2 Item Code Annual usage in units Cost per unit (Rs) G 2,500 150 H 15,000 90 I 12,000 100 J 8,000 50 K 1,00,000 50 L 25,000 300 M 80,000 500 N 2,000 300 O 3,000 70 P 6,500 60 Q 10,000 75 R 6,000 20 S 20,000 50 T 40,000 90 U 1,20,000 350 V 20,000 200 W 1,500 350 X 4,000 100 Y 4,500 200 Z 7,000 40 Analyze the above items into ABC categories on the basis of the information and prepare a report showing your findings with comments. DBA 1651 PRODUCTION MANAGEMENT 56 NOTES Anna University Chennai Solution Table 2.3 Item code Annual usage Cost per unit Consumption Ranking in units (Rs.) Value G 2,500 150 3,75,000 17 H 15,000 90 13,50,000 7 I 12,000 100 12,00,000 8 J 8,000 50 4,00,000 14 K 1,00,000 50 50,00,000 4 L 25,000 300 75,00,000 3 M 80,000 500 400,00,000 2 N 2,000 300 6,00,000 12 O 3,000 70 2,10,000 19 P 6,500 60 3,90,000 16 Q 10,000 75 7,50,000 11 R 6,000 20 1,20,000 20 S 20,000 50 10,00,000 9 T 40,000 90 36,00,000 6 U 1,20,000 350 420,00,000 1 V 20,000 200 40,00,000 5 W 1,500 350 5,25,000 13 X 4,000 100 4,00,000 15 Y 4,500 200 9,00,000 10 Z 7,000 40 2,80,000 18 Table2.4 Ordered Item Consumption Cumulative Percentage of Ranking Code Value consumption Cumulative Class value consumption value 1 U 420,00,000 420,00,000 37.90 A 2 M 400,00,000 820,00,000 74.14 3 L 75,00,000 895,00,000 80.92 B 4 K 50,00,000 945,00,000 85.44 DBA 1651 PRODUCTION MANAGEMENT 57 NOTES Anna University Chennai 5 V 40,00,000 985,00,000 89.05 6 T 36,00,000 1021,00,000 92.31 7 H 13,50,000 1034,50,000 93.53 C 8 I 12,00,000 1046,50,000 94.62 9 S 10,00,000 1056,50,000 95.52 10 Y 9,00,000 1065,50,000 96.33 11 Q 7,50,000 1073,00,000 97.01 12 N 6,00,000 1079,00,000 97.55 13 W 5,25,000 1084,25,000 98.03 14 J 4,00,000 1088,25,000 98.39 15 X 4,00,000 1092,25,000 98.75 16 P 3,90,000 1096,15,000 99.10 17 G 3,75.000 1099,90,000 99.44 18 Z 2,80,000 1102,70,000 99.70 19 O 2,10,000 1104,80,000 99.89 20 R 1,20,000 1106,00,000 100 Table2.5 Class No. of items % of items Consumption Cut-off % of Value in Lac Rs. Consumption value A 6 30 450 73.48 B 7 35 120 19.59 C 7 35 42.25 6.9 DBA 1651 PRODUCTION MANAGEMENT 60 NOTES Anna University Chennai 1,2,3,4 are the basic types of Inventory whereas others are named based on their usage. Supplies: Materials which are used other than those used for production of finished goods. Ex: lubricants, pencil, pen, paper, spare parts. Pipeline inventory: It can be raw material, work in progress or finished goods inventory. Ex: Assume supplier is far away. Consumption per day is 20 units, 5 days for transportation 20X5= 100 units are required for the period of transportation. So if you keep 100 units in your stock it becomes your pipeline inventory. Decoupling inventory Inventory “decouples” in different stages. It might be raw material, WIP, finished goods inventory. Ex: customer has inventory for 10 days for the consumption. For 10 days the customer is decoupled from the producer. So, decoupling inventory is the one which decouples the customer and the producer. Safety stock: This stock may be raw material, WIP or finished goods which are extra stock required to take care of fluctuation or uncertainties in the demand or lead time. Usually in a business organization two things are uncertain namely, · Demand · Lead time Inventory models adopted by organizations depend upon the level of uncertainty with the lead time or demand. The following table portrays the type of inventory model of organizations has to be adopted against the lead time and demand situations. Table 2.6 – Demand and lead time in different types of model to be adopted Situations Demand Lead time Type of Model to be adopted 1 Constant Constant Deterministic Model 2 Constant Variable Probabilistic Model 3 Variable Constant Probabilistic Model 4 Variable Variable Probabilistic Model DBA 1651 PRODUCTION MANAGEMENT 61 NOTES Anna University Chennai Lead time: There are two types of leadtime - Supply lead time - Manufacturing lead time Supply lead time: This time refers to the time lapse between placing of order with the supplier and receiving it by the customer. Manufacturing Lead time: The average time consumed by the product in the plant. Supply lead time (l) L=T1+T2+T3+T4+T5 T1= order genesis time and transit time (selection of supplier). T2= manufacturing time of the product by suppliers. T2= 0 If the product is readily available with the supplier. T3= inspection time. T4= transit time. T5=receiving time. If L is high, more inventory is needed to take care of high lead time. 2.7.3 Inventory cost: Types of inventory cost are -Ordering cost / setup cost. -Carrying cost. - Shortage cost / Back ordering cost. - Purchase cost. Inventory cost varies according to decisions namely. Ordering quantity Ordering cost: (Co) It is measured per order. Fig: Ordering Cost behavior against the Ordinary Quantity. Figure 2.8 – Ordering Cost Curve Component of Ordering Cost • Tender and Bidding Cost • Purchase negotiations • Selection of vendor • Preparation and sending of order etc. DBA 1651 PRODUCTION MANAGEMENT 62 NOTES Anna University Chennai Suppose we produce internally without ordering, then there is no ordering cost . It becomes Setup cost. Setup cost: (Co) It is measured per setup. Figure 2.9 – Setup cost Curve As we have seen in both cases, it varies with decision making i.e. how much to order? Carrying cost: (Cc) It is the penalty cost which organization incurs because of carrying inventory. Components of carrying cost: • Capital Cost • Storage Cost • Insurance • Obsolescence • Deterioration • Tax etc Cc = cost of holding one unit per unit time* avg. amount of inventory held per unit time. Carrying cost is measured in terms of percentage. Example 2.2 Assume that the average inventory in a year for an item = 2000 units Price of the item = Rs. 100 Average Investment on Inventory = 2000X100 = Rs. 2, 00,000 Component of setup cost are • Cost of cleaning and adjusting production equipment • Inspection • Bringing required raw materials. • Changing dies etc. DBA 1651 PRODUCTION MANAGEMENT 65 NOTES Anna University Chennai Decision The decision regarding inventory will be mostly of how much to order?, and when to order? How much to order is related with ordering the quantity but when to order is related with the frequency of ordering and reorder level. Relevant Cost The relevant costs, namely, ordering cost, carrying cost, shortage costs are relevant cost. A cost is said to be relevant cost, provided the cost varies with the decision. If the ordering quantity (Q) is more that results in less shortage cost and ordering cost but the inventory carrying cost will be high. The purchase price is considered to be relevant only when the supplier offers discount. The purchase cost becomes relevant because the decision, namely, the ordering quantity varies according to the offers provided by the supplier. 1.7.4 Deterministic Model 2.7.4.1 Figure below portrays EOQ model the deterministic inventory model. This is shown time vs. inventory Level. Figure 2.12 - Deterministic Model Demand (D) Demand rate is uniform and is known. D is the annual demand. Lead time (L) Lead time is known and constant. Costs Ordering cost, carrying cost are known. Purchase cost is irrelevant it means no price discount is offered. Shortage cost is not permitted. D e t e r m i n s t ic m o d e l (E O Q m o d e l ) q u a n t i t y In v e n to ry L e ve l R e o r d e r L e ve l L e a d t im e DBA 1651 PRODUCTION MANAGEMENT 66 NOTES Anna University Chennai Decision to be taken: How much to order? - Ordering quantity (Q) When to order? - Reorder Level To answer for the questions related with the decisions, you have to proceed as follows: • Any organization, it has to minimize the total inventory cost. • Total annual inventory cost = ordering cost +carrying cost+ purchase cost +short age cost • With regard to this model, the shortage cost is not permitted. • Total annual inventory cost = ordering cost + carrying cost + purchase cost Since you should find the ordering quantity and re-order level, next you should consider relevant cost. (i.e.) total annual relevant cost = ordering cost + carrying cost = (no. of orders) (ordering cost per order) + (average inventory) (Carrying Cost) D/Q=No. of Orders Average inventory according to the figure = (min. inventory+ max. inventory)/2 = (0+Q)/2 = Q/2 Total annual relevant inventory cost = (D/Q)×Co+ (Q/2)×Cc Since you have to establish ‘Q’ Differentiating w.r.t. Q and equate it to zero. = - (D/Q)×Co+ Cc/2=0s Or Or = 2DCo/Cc Or Q=?[2DCo/Cc] Answer to the question how much to order DBA 1651 PRODUCTION MANAGEMENT 67 NOTES Anna University Chennai Total annual relevant inventory cost = (D/Q)Co+(Q/2)Cc Substituting q=?[2DCo/Cc] =(D/?[DCoCc/Cc])Co + (?[DCoCc/Cc]/2)Cc = =(?[DCoCc])/?2+?[DCoCc]/?2 =(2/?2) ?[DCcCO] =?[2DCoCc] Total annual inventory cost = Total annual ordering cost + Total annual carrying cost + Total annual purchase cost D Q Co + TC= Q 2 CC + D.C = Purchase cost + total annual relevant inventory cost = DCp+ ?[2DCoCp] Graphically also you can approximate, find out EOQ as follows. Figure 2.13 – Economic Order Quantity Example 2.4 The demand for a certain item is 4800 unit per year. Each unit cost Rs.100. Inventory cost charges are estimated at 15%. No shortage cost is allowed. The order- ing cost Rs. 400 per order. Lead time is one day. Assume 250 working days. Find the following: 1. EOQ 2. Time between the orders. DBA 1651 PRODUCTION MANAGEMENT 70 NOTES Anna University Chennai Figure 2.16 – Graphical Calculation of EOQ 2.7.4.2 Economic Batch Quantity Model: 1. Demand: -It is known and constant. -It is nothing but the annual production requirement. 2. Production rate: -It is known and is estimated based on the capacity of the plant. 3. Lead time: It is known and constant. 4. Cost: Setup/ordering cost: Since there is no purchase there is no ordering cost. Only setup cost comes into picture in the place of ordering cost .this is known. Carrying cost: It is known and constant. Product cost: assume that product cost per unit does not vary with the production i.e. unit is irrelevant of the quantity of production. Decision How much to produce? When to produce? The inventory model for this case will be as shown in the figure2.16. DBA 1651 PRODUCTION MANAGEMENT 71 NOTES Anna University Chennai Figure 2.17 – Inventory Model (Economic Batch Quantity) t p - It is the production period. t - It is the time interval between the two productions. From the fig. it is concluded that up to the period, both production and consumption take place and inventory is built up at the rate of (p-d). Where ‘d’ is the demand rate. Once the t p period is reached there is no production, there is only consumption at the rate of ‘d”. Next production starts after ‘tth’ period. To find the quantity of production ‘Q’, production time period t p and time interval between production ‘t’. The following procedure is carried out. Total inventory cost= setup cost+ carrying cost + production cost + shortage cost. Total relevant inventory cost= setup cost + carrying cost. Shortage and production costs are zero because no shortage is allowed and the pro- duction cost becomes an irrelevant cost. From the fig. the average inventory is calculated as follows: Avg.inventory = (Imax +Imin)/2. = (Imax+0)/2 = Imax/2. DBA 1651 PRODUCTION MANAGEMENT 72 NOTES Anna University Chennai To find Imax , from the fig. Imax/tp = (p-d). So, Imax=(p-d)t p . To find tp, t p ×p=Q t p =Q/p Imax = (p-d) Q/p Imax = (1-d/p) Q. Total relevant inventory cost =setup cost + carrying cost Setup cost = (number of setup ) × setup cost per setup = (D/Q) Co Carrying cost = (Average inventory)× carrying cost per unit = [(Imax+Imin)/2 ]×Cc =(1-d/p)×(Q/2) Cc Total relevant inventory cost = (D/Q)Co+(1-d/p)(Q/2)Cc For cost minimization, differentiate w.r.t. Q and equate it to zero. DC 0 /Q2=(1-d/p)Cc Q=?[2DCo/Cc(1-d/p) Total annual relevant inventory cost = D/v [2DCo/ (1-d/p) Cc] + v [2DCO/ (1-d/p] Cc)/2 =v [DCoCc(1-d/p)/v2 + v[DCoCc(1-d/p)]/v2 = (2/v2) v[DCoCc(1-d/p)] =v[2DCoCc(1-d/p)] Total annual inventory cost =v2DCcCo(1-d/p)+CpD Deducing EOQ from EBQ model It is known that in case of EOQ model, the production rate is infinity i.e. there is an instantaneous replenishment. Now EBQ=v [(2DCo)/(1-d/p)Cc] So when p = 8 EBQ=EOQ DBA 1651 PRODUCTION MANAGEMENT 75 NOTES Anna University Chennai Figure 2.19 – Quantity Discount Model Solution: Start with the lowest price i.e. Rs 9 and to find whether Q is more than or equals to 5000. EOQ= v(2DCo/ Cc) = v(2×25000×60)/ 2.7) = 1054.06 approx. 1055 units This is not a feasible solution because we expected that Q will be more than or equals to 5000 but the EOQ came as 1055. By taking the next least value i.e. Rs 11 and to find whether Q is more than 1000 and less than 5000. EOQ=v (2×25000×60)/ 3.3) =956 units This is also not a feasible solution because we expected Q will be more than 1000 and less than 5000 but the EOQ came as 956. By taking the next least value i.e. Rs 12 and to find whether Q is equals to 1000. DBA 1651 PRODUCTION MANAGEMENT 76 NOTES Anna University Chennai EOQ=v (2×25000×60)/ 3.6) =912.87 approx. is 913units This is a feasible solution The total cost of inventory at EOQ is TC=v (2×D×Cc×Co) + D×P = v (2×25000×60×3.6) + (25000×12) = Rs 303286.33 Total inventory cost at other ordering quantities are - Total inventory cost for Q equals to 5000 TC= (D/Q) ×Co + (Q/2) ×Cc + D×P = (25000/5000) 60 + (5000/2) 2.7 + (25000*9) = 232000 Total inventory cost for Q between = 1000 and 5000 TC= (D/Q)*Co + (Q/2)*Cc + D*P = (25000/1000) 60 + (1000/2) 3.3 + (25000*11) = 278150. The possible savings is equal to total inventory cost at feasible EOQ, total inventory cost at 5000 units. The possible savings are = 303286-232000 = 71,286 A ordinary quantity 5000, the total annual inventory cost is 2, 32,000 2.7.5 Probabilistic Models In the previous section, it is assumed that the lead time and demand are constant. But in real life situations it is not so. The demand is always uncertain because it is difficult to exactly estimate the required quantity by the customer and the supplier is also usually not reliable. In the sense, he doesn’t supply in the specified time period. Considering this kind of situation, the decision should be taken regarding the quantity of ordering, time at which the order to be placed, the time between the orders and how much inventory to be kept against the uncertainty of demand and the lead time become cumbersome. To deal with the above scenarios, the inventory model to be adopted is known as Probabilistic Inventory Model. DBA 1651 PRODUCTION MANAGEMENT 77 NOTES Anna University Chennai The inventory models called probabilistic inventory model because the demand or lead time or both are random variables. The probability distribution of demand and lead time should be estimated.. The inventory models answers for questions related to the decision raised above are called Probabilistic Inventory Model. 2.7.5.1 One such model is Fixed Order Quantity Model (FOQ). In this model, 1. The demand (D) is uncertain, you can estimate the demand through any one of the forecasting techniques and the probability of demand distribution is known. 2. Lead time (L) is uncertain, probability of lead time distribution is known. 3. Cost(C) all the costs are known. -Carrying costs Cc -Ordering costs Co Stock out Cost It is difficult to calculate stock out cost because it consists of components diffi- cult to quantify so indirect way of handling stock out cost is through service levels. Service levels means ability of organization to meet the requirements of the customer as on when he demands for the product. It is measured in terms of percentage. For example: if an organization maintains 90% service level, this means that 10% is “stock out” level. This way the stock out level is addressed. Safety stock It is the extra stock or buffer stock or minimum stock. This is kept to take care of fluctuations in demand and lead time. If you maintain more safety stock, this helps in reducing the chances of being “stock out”. But at the same time it increases the inventory carrying cost. Suppose the organization maintains less service level that results in more stock out cost but less inventory carrying cost. It requires a tradeoff between inventory carrying cost and stock out cost. This is explained through the following figure2.19 DBA 1651 PRODUCTION MANAGEMENT 80 NOTES Anna University Chennai Application of fixed order quantity system 1. It requires continuous monitoring of stock to know when the reorder point is reached. 2. This system could be recommended to” A” class because they are high consumption items. So we need to have fewer inventories. This system helps in keeping less inventory comparing to other inventory systems. Advantages 1. Since the ordering quantity is EOQ, comparatively it is meaningful. You need to have less safety stock. This model relatively insensitive to the forecast and the parameter changes. 2. Fast moving items get more attention because of more usage. Weakness 1. We can’t club the order for items which are to be procured from one supplier to reduce the ordering cost. 2. There is more chance for high ordering cost and high transaction cost for the items, which follow different reorder level. 3. You can not avail supplier discount. While the reorder level fall in different time periods. Illustrative Example 2.7 1. ABC company requires components at annual usage rate of 1200 units. The cost of placing an order is Rs 100 and has a five day lead time. Inventory holding cost is estimated as Rs 30 per unit per year. The plant operates 250 days per year. The daily demand is normally distributed with a standard deviation of 1.2 units. It has been decided at to use fixed quantity inventory system based on a 95% service level. Specify the following 1. Ordering quantity 2. Re order level Solution: Given data Demand 1200 units Ordering Cost Rs 100 Carrying cost Rs 30 per unit per year Lead Time 5 days Operating days 250 per year. Standard deviation of demand per day is 1.2 units. DBA 1651 PRODUCTION MANAGEMENT 81 NOTES Anna University Chennai To determine the ordering quantity EOQ = v(2DCo/ Cc) = v2×1200×100/30 = 89.4 approx. = 90 units To determine the reorder level Reorder level = average demand during lead time +safety stock. Safety stock calculations: To find out the safety stock as it is mentioned already that you need to use the service level. As per this problem it is given 95% service level that means 5% stock out level. We need to have safety stock level against this 5% stock level. It is also given in the problem that consumption of items follows normal distribution. The mean lead time demand distribution is = (1200/250) ×5=24 units = X L The mean of the distribution is (1200/250) ×5 = 24 units Variance of the distribution, since per day standard deviation is given. First it is to be converted into variance by taking the square (1.2)*(1.2)= 1.44 units From the per day variance, the five days variance determined as follows because leadtime equal to 5 days. If V is the variance of one day then the five day variance is V+V+V+V+V=5*V Standard deviation = ?(5V) = ?5?v=?5ó For 5 days = ?(5 ó ó = standard deviation per day In common, to convert the per unit standard deviation into lead time standard deviation, Based on above calculation it could be deduced that ó L=vL × ó Where is the standard deviation of demand during lead time. ? is the standard deviation of demand per unit time Since the demand during lead time follows the normal distribution. It is given that 95% service level and 5%stock out level. For 5% stock out level, the safety level is estimated as follows: From the distribution you can calculate the safety stock using the formula K× K is the safety factor for 5% stock out level; the K value is calculated using the standard distribution table. DBA 1651 PRODUCTION MANAGEMENT 82 NOTES Anna University Chennai To calculate K at 5% stock out level K=1.65 from the table Safety stock= K × = 1.65*2.68 = 4.42 To find the re order level = 24+4.42 = 28.42 units Figure 2.22 – Graphical Presentation of Example 2.7 Review Questions: 1. Define Inventory 2. What is pipe line inventory? 3. Give formulae for EOQ? 4. Give formulae for EBQ 5. When purchase cost become relevant? 6. In which situations one has to adopt probabilistic model? DBA 1651 PRODUCTION MANAGEMENT 85 NOTES Anna University Chennai Master Production Schedule- Example Table 2.7 2. Bill of Materials A bill of materials (BOM) file gives the complete product descriptions and documents quantities of each component, part, ingredient, or raw material needed to make that product or sub-assembly. It is also called as the product structure tree. A sample product structure tree is shown below. For producing 1 unit of product A, 4 units of B and 2 units of C are re- quired. For producing 1 unit of product B, 2 units of D and 1 unit of E are required. For producing 1 unit of product C, 3 units of D and 2 units of F are required Product Structure Tree. Figure 2.25 - Product Structure Tree B (4) E (1) D (2) C (2 F (2 D (3 A DBA 1651 PRODUCTION MANAGEMENT 86 NOTES Anna University Chennai Explosion If 20 nos. of product A is required then we require 80 nos. of B, 40 nos. of C, 280 nos. of D, 80 nos. of E and 80 nos. of F. This process of finding out the require- ment of sub components based on the requirement of final product is known as Explo- sion. 3. Inventory status records The following inventory status records goes as input to the MRP system 1. Item 2. Supplier 3. Lot size 4. Safety stock 5. Lead time 6. On hand inventory 7. Allotted 8. Level i) Item: Name or number for the item being scheduled. ii) Supplier: Name or number for the of the supplier for the scheduled item. iii) Lot size: Several lot sizing techniques are available. Few of them are listed below. a) Lot-For-Lot (LFL) ordering. The lot-for-lot (LFL) is the simplest approach and it calls for producing in period t the net requirements for period t. The LFL approach minimizes the holding cost by pro- ducing just-in-time. b) Economic Ordering Quantity (EOQ): EOQ is a fixed quantity which is ordered whenever the inventory level reaches prede- termined level. Q = Where, Q – Economic ordering quantity D – Annual demand Co – Ordering Cost (Rs. /Order) 2 ×D × Cs Cc (1- d/p) DBA 1651 PRODUCTION MANAGEMENT 87 NOTES Anna University Chennai Cc – Holding cost (Rs./Unit/Unit time) Economic Production Quantity (EPQ) EOQ is a fixed quantity which is produced whenever the inventory level reaches a predetermined level. Q = Where, Q – Economic Production quantity D – Annual demand Cs – Setup Cost (Rs. /Setup) Cc – Holding cost (Rs./Unit/Unit time) d – Demand rate p – Production rate There are also other algorithms available for lot sizing like Wagner-Whitin (WW) algorithm, Silver-Meal (SM) heuristic, part period balancing (PPB) heuristic etc. The lot sizing technique which incurs the lowest cost is chosen. 1. Safety Stock: It is the additional stock carried in order to protect against any uncertainty in demand. 2. Lead time: It is the time gap between placing an order and receiving the order. 3. On hand inventory: It is the actual quantity on hand during scheduling period. 4. Allotted: It the quantity of inventory allocated to other orders from the on hand inventory. 5. Level: It indicates the level occupied by the particular product/component in the product structure file. Figure 2.26 – Levels in the product structure file 2 ×D × Cs Cc (1- d/p) DBA 1651 PRODUCTION MANAGEMENT 90 NOTES Anna University Chennai 3. Safeguarding priority integrity. 4. Capacity requirements planning. 5. Performance control. 6. Reporting errors, incongruities, and out-of-limits situations. Inventory order action outputs occur when planned orders appear in current time-buckets. Other types of order action are increases, reductions, or cancellations of order quantities. Re-planning order priority outputs alert inventory planners to cases of diver- gence between open-order due dates and dates of actual need, resulting from changed timing of net requirements. Outputs to help Safeguard priority integrity aims at keeping order priorities honest, revealing inventory status problems caused by overstated MPS. Some compa- nies use these reports to provide guidance for planners when accepting customer or- ders for guaranteed delivery. A “trialfit” of the order as an MPS item enables a net change MRP program to determine potential component shortages. If the order does not fit (too many shortages), the planner can recommend an alternative delivery date. Capacity requirements planning outputs of MRP are open and planned shop orders in individual time periods, which are input into the load projection program. To keep load projections up-to-date and valid, they must be recomputed as MRP order schedules change. Performance control outputs are comparisons of MRP plans with actual performance, enabling management to monitor the performance of inventory planners, buyers, the shop, suppliers, and cost accounting. Outputs reporting errors, incongruities, and out-of-limits situations are called exception or action reports. Some examples: 1. Date of gross requirement is beyond the planning horizon. 2. Number of digits of quantity in gross requirement exceeds size of the field. 3. Planned order is offset into a past period but placed in current period. 4. Number of digits of quantity of open order exceeds size of the field. 5. Number of digits of quantity of net requirements exceeds size of the field. 6. Number of digits of quantity of receipt overflows size of quantity-on hand field. 7. Due date of open order is outside of planning horizon. 8. Allocated on-hand quantity exceeds current quantity on hand (potential shortage). 9. Past-due gross requirement has been included in the current period. DBA 1651 PRODUCTION MANAGEMENT 91 NOTES Anna University Chennai In addition to such exception reports, individual exception messages can be generated at the time inventory transaction are entered, listing reasons for transaction rejections. Some typical messages are 1. Part number is nonexistent. 2. Transaction code is nonexistent. 3. Part number is incorrect (using self checking digits). 4. Actual receipt exceeds quantity of scheduled receipt by x percent (test of reasonableness). 5. Quantity of reported scrap exceeds quantity on hand. 6. Quantity of disbursement exceeds quantity on hand. 7. Order being released exceeds planned quantity. Sample MRP Problem: Orders have been received for 20 units of product A and 50 units of product R with the product structures shown below for period 8. The on hand stock levels are A=1, R=4, B=74, C=19, D=190 and E=160. What is the low level code for each item? If the components are ordered as required (no fixed lot sizes), what should be the size of each order? When should the orders be released for each item? Figure 2.27 Solution Table2.8 Item Low Level Code A 0 R 0 B 1 C 1 D 2 E 2 A LT=3 B (2) LT=2 C (3) LT=3 E (4) LT=1 D (2) LT=1 E (3) LT=1 B (4) LT=2 D (2) LT=1 E (3) LT=1 R LT=4 DBA 1651 PRODUCTION MANAGEMENT 92 NOTES Anna University Chennai Figure 2.28 Table 2.9 Item Lot Lead Safety Allotted Level Period Sizing time Stock PD 1 2 3 4 5 6 7 8 Gross Requirements 20 Scheduled Receipts A Lot 3 — — 0 Projected for Lot on Hand 1 1 1 1 1 1 1 1 1 Net Require- ments 19 Planned Order Receipt 19 Planned Order Release 91 Table 2.10 Item Lot Lead Safety Allotted Level Period Sizing time Stock PD 1 2 3 4 5 6 7 8 Gross Requirements 50 Scheduled Receipts R Lot 4 — — 0 Projected for Lot on Hand 4 4 4 4 4 4 4 4 4 Net Require- ments 46 Planned Order Receipt 46 Planned Order Release 46 A LT=3 B (2) LT=2 C (3) LT=3 E (4) LT=1 D (2) LT=1 E (3) LT=1 B (4) LT=2 D (2) LT=1 E (3) LT=1 R LT=4 Level 0 Level 1 Level 2 DBA 1651 PRODUCTION MANAGEMENT 95 NOTES Anna University Chennai • Just-in-time (JIT). • Optimized Production Technology / Theory of Constraints (OPT/TOC) • Project control • Evolution of Manufacturing Resource Planning (MRP II) Figure 2.29- Evolution of Manufacturing Resource Planning (MRP II) 2.9.3 Closed Loop MRP System In an open loop MRP system the plans are sent to buyers and production personnel but it is not possible to get feedback. As a result of which the adjustments could not be made to plans in order to keep schedules valid. For example, it assumed that infinite capacity was available, and that suppliers always delivered correctly and on time. And when there is a change in sales demand it will take excessive amount of re- planning. Also, much of the demands from other sources are left out of the system and shortages become inevitable. Material requirements planning generates valid schedule that follow logically from the demand. But after planned orders are launched, some of the planning factors may begin to stray off course. Some of the examples that cause problem because of using MRP systems are shown below: · Lead time estimates differ if: machine breaks down, deliveries are delayed, goods are damaged, power fails etc. · If the system plans for 1000 of a component but 200 fail a quality inspection, this shows that the orders are arrived on time but there will be a shortage of material. · The demand that drives material requirements planning consists of both forecast orders and actual customer orders. The forecasts may turn out to be wrong and customers may change their actual orders, for example, by asking for earlier or later delivery. This throws out all component orders. In summary, ‘open loop’ material requirements planning could result in some or all of these problems: • Uncontrollable costs. • Late deliveries to customers. • Late deliveries from suppliers. • Unplanned overtime/offloading. Materials Requirement Planning Closed loop MRP Manufacturing Resource Planning DBA 1651 PRODUCTION MANAGEMENT 96 NOTES Anna University Chennai • High work-in-progress levels. • Mismatched inventories. • Over- or under-utilized resources. • Disruptions on the shop floor. • Many full-time expeditors. • Customer complaints. • High ‘past dues’. • Long queues. This is clearly not a list that any manufacturing organization could regard as acceptable.Something had to change, and so open loop MRP evolved into closed loop MRP. Closed loop MRP Material requirements planning is useful but due to the problems that are faced by the organization after implementation of MRP and lack of awareness of other re- lated production and business functions, the organization started to shift towards closed loop MRP system. The diagram below shows the much wider data horizon that is now opened up for organizations which have started using better information technology to upgrade their MRP system. Closed loop MRP Figure 2.30 – Closed loop MRP DBA 1651 PRODUCTION MANAGEMENT 97 NOTES Anna University Chennai Closed loop MRP has made feedback possible by including new functions such as file control, a master production schedule, rescheduling actions and shop floor control. It thus ‘closed the loop’, overcoming the fundamental weakness of ‘open loop’ material requirements planning. The closed loop diagram shows several additions to the open loop diagram: — The long-term production plan. This feeds information into the master production schedule about the organization’s long-term manufacturing expectations. — The master production schedule passes information to a separate rough cut capacity planning module, which estimates the amount of work achievable in a given time period. — Orders generated by MRP are split into purchase orders and work orders. — Manufacturing orders are passed to the capacity requirements planning module to see if there is sufficient labor and machine time available to carry them out in the time proposed by the master production schedule. This is a more detailed evaluation than rough cut capacity planning; it looks at individual work centers and their proposed workloads. — The shop-floor execution phase is also shown; this is used to control the on-time completion of work orders. 2.9.4 Manufacturing Resources Planning (MRP II) Manufacturing resources planning (MRP II) is an extended form of closed loop MRP that also incorporates strategic planning processes, business planning, and a number of other business functions such as human resources planning, profit calculation and cash flow analysis. MRP II uses the master production schedule as the basis for scheduling capacity, shipments, tool changes, some design work, and cash flow. Hence it requires several additions to the reference files. One is a bill of resources, which details key resources needed to produce one unit of product. These resources may include labour, machinery, tools, space and materials. The MRP II system can use the bill of resources to project shortages at specific times, giving departments advance notice of required remedial action: for example, of the need to hire or train labour. MRP II can also project needs for support resources; for example, design engineering support if a customer order entails prior design work. This additional resource is added to the bill of resources. Given still more reference data, MRP II can keep track of tool wear and recommend when to replace or reshape tooling. It can also keep track of machine loads and project machine capacity shortages, which may signal a need for more machines or a subcontractor.