Operations Management

This page

intentionally left

blank

Copyright © 2009, New Age International (P) Ltd., Publishers

Published by New Age International (P) Ltd., Publishers

All rights reserved.

No part of this ebook may be reproduced in any form, by photostat, microfilm,

xerography, or any other means, or incorporated into any information retrieval

system, electronic or mechanical, without the written permission of the publisher.

All inquiries should be emailed to [email protected]

PUBLISHING FOR ONE WORLD

NEW AGE INTERNATIONAL (P) LIMITED, PUBLISHERS

4835/24, Ansari Road, Daryaganj, New Delhi - 110002

Visit us at www.newagepublishers.com

ISBN (13) : 978-81-224-2883-4

Operations management has been recognised as an important factor in a country’s economic growth.

The traditional view of manufacturing management is the concept of Production Management

with the focus on economic efficiency in manufacturing. Later the new name Operations

Management was identified, as service sector became more prominent. Rapid changes in technology

have posed numerous opportunities and challenges, which have resulted in enhancement of

manufacturing capabilities through new materials, facilities, techniques and procedures. Hence,

managing a service system has become a major challenge in the global competitive environment.

Operations Management has been a key element in the improvement and productivity in business

around the world. Operations Management leads the way for the organisations to achieve its goals

with minimum effort. Hence, the study of the subject at undergraduate and postgraduate level has

more significance.

This book on ‘Operations Management’ covers the complete syllabus of Bachelor of Engineering

of Visvesvaraya Technical University, Karnataka, however the coverage is wide enough to include

the requirements of Bachelor and Master Degree courses of other Indian universities and professional

courses like MBA, PGDCA, BBA.

Being student friendly is the unique feature of this book. The subject matter has been presented

systematically in ten chapters, which can enable the reader master the topics covered without any

additional guidance.

Complete care has been taken to make the book error free. However, mistakes might have

crept inadvertently. Readers finding any error are requested to bring it to our notice, for enabling us

to rectify them in our future editions.

We are grateful to Mr. Saumya Gupta, Managing Director and Mr. Sudarshan of New Age

International (P) Limited Publishers for their commitment and encouragement in bringing out this

book in time with good quality and for providing us the opportunity to share our knowledge with you.

PREFACE

vi Contents

The authors wish to express their sincere thanks to Principals and Managements of respective

colleges. Our acknowledgements are also due to Dr. Poornima Anil Kumar and Mrs. Bharathi

Suresh without whose support and sacrifice this work would not have been completed by the

deadline.

Finally, our acknowledgement is due to the Almighty who has blessed us with the knowledge,

required for writing this book.

S. Anil Kumar

N. Suresh

vi Preface

Contents vii

CONTENTS

Preface v

1. OPERATIONS MANAGEMENT CONCEPTS 1–26

1.1 Introduction 1

1.2 Historical Development 1

1.3 Concept of Production 3

1.4 Production System 3

1.5 Classification of Production System 4

1.5.1 Job-Shop Production 4

1.5.2 Batch Production 5

1.5.3 Mass Production 5

1.5.4 Continuous Production 6

1.6 Production Management 7

1.6.1 Objectives of Production Management 7

1.7 Operations System 7

1.7.1 A Framework of Managing Operations 8

1.8 Operations Management 9

1.9 Operations Management Objectives 11

1.10 The Strategic Role of Operations 13

1.11 Strategic Planning 15

1.11.1 Strategic Planning for Production and Operations 15

1.11.2 Strategic Planning Approaches for Production/Operations 15

1.11.3 Strategic Planning—Forced Choice Model 15

1.11.4 A Strategic Planning Operations Model 16

1.12 The Trend: Information and Non Manufacturing Systems 17

1.13 Productivity 18

1.13.1 Modern Dynamic Concept of Productivity 18

1.13.2 Factor Productivity and Total Productivity 18

1.13.3 Productivity Analysis 19

viii Contents

1.14 Factors Affecting Productivity 19

1.15 International Dimensions of Productivity 20

1.16 The Environment of Operations 20

1.17 Scope of Operations Management 21

Exercise 25

References 26

2. OPERATIONS DECISION-MAKING 27–51

2.1 Introduction 27

2.2 Management as a Science 27

2.3 Characteristics of Decisions 28

2.4 Framework for Decision-Making 28

2.5 Decision Methodology 30

2.5.1 Complete Certainty Methods 30

2.5.2 Risk and Uncertainty Methods 30

2.5.3 Extreme Uncertainty Methods 31

2.5.4 Decision-Making Under Uncertainty 31

2.5.5 Decision-Making Under Risk 33

2.6 Decision Support System 35

2.7 Economic Models 35

2.7.1 Break-even Analysis 35

2.8 Statistical Models 43

2.8.1 Equations for Discrete and Continuous Data 45

2.9 Decision Tree 46

Exercise 49

References 51

3. SYSTEMS DESIGN AND CAPACITY 53–60

3.1 Introduction 53

3.2 Manufacturing and Service Systems 53

3.3 Design and Systems Capacity 54

3.4 Capacity Planning 55

3.5 Process of Capacity Planning 55

3.6 Importance of Capacity Decisions 57

Exercise 60

References 60

4. FACILITY LOCATION AND LAYOUT 61–103

4.1 Introduction and Meaning 61

4.2 Need for Selecting a Suitable Location 61

4.3 Factors Influencing Plant Location/Facility Location 66

Contents ix

4.3.1 General Locational Factors 66

4.3.2 Specific Locational Factors for Manufacturing Organisation 70

4.3.3 Specific Locational Factors for Service Organisation 71

4.4 Location Theories 72

4.5 Location Models 73

4.5.1 Factor Rating Method 73

4.5.2 Weighted Factor Rating Method 74

4.5.3 Load-distance Method 75

4.5.4 Centre of Gravity 77

4.5.5 Break-even Analysis 78

4.6 Locational Economics 80

4.7 Plant Layout 81

4.7.1 Objectives of Plant Layout 81

4.7.2 Principles of Plant Layout 82

4.8 Classification of Layout 82

4.8.1 Process Layout 82

4.8.2 Product Layout 83

4.8.3 Combination Layout 84

4.8.4 Fixed Position Layout 85

4.8.5 Group Layout (or Cellular Layout) 85

4.9 Design of Product Layout 87

4.10 Design of Process Layout 91

4.11 Service Layout 94

4.12 Organisation of Physical Facilities 95

Exercise 102

5. FORECASTING DEMAND 105–128

5.1 Introduction 105

5.2 Forecasting Objectives and Uses 105

5.3 Forecasting Decision Variables 105

5.4 Forecasting Methods 106

5.4.1 Opinion and Judgmental Methods 106

5.4.2 Time Series Methods 106

5.5 Exponential Smoothing 112

5.5.1 Adjusted Exponential Smoothing 113

5.6 Regression and Correlation Methods 114

5.6.1 Regression 114

5.6.2 Correlation 117

5.7 Applications and Control of Forecast 119

5.7.1 Forecast Controls 119

Exercise 125

References 128

x Contents

6. PRODUCT DEVELOPMENT AND DESIGN 129–160

6.1 Introduction 129

6.2 Purpose of a Product Design 129

6.3 Product Analysis 130

6.3.1 Marketing Aspect 131

6.3.2 The Product Characteristics 133

6.3.3 Economic Analysis 136

6.3.4 Production Aspect 150

6.4 A Framework for Process Design 150

6.4.1 Product Planning 150

6.4.2 Process Design : MACRO 152

6.4.3 Process Design : MICRO 153

6.5 Design for Manufacture (DFM) 153

6.6 Design for Excellence 156

6.6.1 Concurrent Development Activities 158

Exercise 160

References 160

7. MATERIALS MANAGEMENT 161–190

7.1 Introduction and Meaning 161

7.2 Scope or Functions of Materials Management 161

7.3 Material Planning and Control 163

7.3.1 Techniques of Material Planning 163

7.4 Purchasing 164

7.4.1 Objectives of Purchasing 164

7.4.2 Parameters of Purchasing 165

7.4.3 Purchasing Procedure 167

7.4.4 Selection of Suppliers 169

7.4.5 Special Purchasing Systems 173

7.5 Stores Management 174

7.5.1 Codification 175

7.6 Inventory Control or Management 176

7.6.1 Meaning of Inventory 176

7.6.2 Reasons for Keeping Inventories 176

7.6.3 Meaning of Inventory Control 176

7.6.4 Objectives of Inventory Control 177

7.6.5 Benefits of Inventory Control 177

7.6.6 Techniques of Inventory Control 177

7.6.7 Inventory Model 179

7.7 Standardization 183

7.7.1 Advantages of Standardization 183

7.7.2 Disadvantages of Standardization 185

Contents xi

7.8 Simplification 185

7.8.1 Advantages of Simplification 185

7.9 Value Analysis 185

7.9.1 Value Analysis Framework 186

7.9.2 Steps in Value Analysis 186

7.10 Ergonomics (Human Engineering) 187

7.10.1 Objectives of Human Engineering 187

7.11 Just-in-Time (JIT) Manufacturing 188

7.11.1 Seven Wastes 188

7.11.2 Benefits of JIT 189

Exercise 190

8. AGGREGATE PLANNING AND MASTER SCHEDULING 191–216

8.1 Introduction 191

8.2 Variables Used in Aggregate Planning 192

8.3 Aggregate Planning Strategies 195

8.4 Mixed Strategies 198

8.5 Mathematical Planning Models 200

8.6 Master Scheduling 202

8.6.1 Master Scheduling Planning Horizon 203

8.6.2 Master Scheduling Format 204

8.6.3 Available-to-Promise Quantities 205

Exercise 213

References 216

9. MATERIAL AND CAPACITY REQUIREMENTS PLANNING 217–235

(MRP AND CRP)

9.1 MRP and CRP Objectives 217

9.2 MRP Inputs and Outputs 219

9.2.1 Bill of Materials 219

9.2.2 Low-level Coding 219

9.3 MRP Logic 224

9.4 System Refinements 227

9.5 Safety Stock, Lot Sizing and System Updating 227

9.6 CRP Inputs and Outputs 231

9.7 Loading 231

9.7.1 Steps in the Loading 232

9.7.2 Loading Concepts 233

Exercise 234

References 235

xii Contents

10. SCHEDULING AND CONTROLLING PRODUCTION ACTIVITIES 237–257

10.1 Introduction 237

10.2 Concept of Single Machine Scheduling 237

10.3 Measures of Performance 238

10.4 Shortest Processing Time (SPT) Rule 239

10.5 WSPT Rule 240

10.6 Earliest Due Date (EDD) Rule 241

10.7 Minimizing the Number of Tardy Jobs 241

10.8 Flow Shop Scheduling 244

10.9 Johnson’s Problem 246

10.9.1 Johnson’s Algorithm 246

10.9.2 Extension of Johnson’s Rule 247

10.10 CDS Heuristic 249

10.11 Job-Shop Problem 251

10.12 Types of Schedules 252

10.13 Heuristic Procedures 253

10.14 Priority Dispatching Rules 253

10.15 Two Jobs and M Machines Scheduling 254

Exercise 256

References 257

Glossary 259–277

Operations Management Concepts 1

OPERATIONS MANAGEMENT CONCEPTS

1.1 INTRODUCTION

Operation is that part of as organization, which is concerned with the transformation of a range of

inputs into the required output (services) having the requisite quality level. Management is the process,

which combines and transforms various resources used in the operations subsystem of the organization

into value added services in a controlled manner as per the policies of the organization.

The set of interrelated management activities, which are involved in manufacturing certain products,

is called as production management. If the same concept is extended to services management, then

the corresponding set of management activities is called as operations management.

1.2 HISTORICAL DEVELOPMENT

For over two centuries operations and production management has been recognized as an important

factor in a country’s economic growth.

The traditional view of manufacturing management began in eighteenth century when Adam

Smith recognised the economic benefits of specialization of labour. He recommended breaking of

jobs down into subtasks and recognises workers to specialized tasks in which they would become

highly skilled and efficient. In the early twentieth century, F.W. Taylor implemented Smith’s theories

1

1.1 Introduction

1.2 Historical Development

1.3 Concept of Production

1.4 Production System

1.5 Classification of Production System

1.6 Production Management

1.7 Operations System

1.8 Operations Management

1.9 Operations Management Objectives

1.10 The Strategic Role of Operations

1.11 Strategic Planning

1.12 The Trend: Information and Non Manufactur￾ing System

1.13 Productivity

1.14 Factors Affecting Productivity

1.15 International Dimensions of Productivity

1.16 The Environment of Operations

1.17 Scope of Operations Management

• Exercise

• References

CHAPTER OUTLINE

2 Operations Management

and developed scientific management. From then till 1930, many techniques were developed prevailing

the traditional view. Brief information about the contributions to manufacturing management is shown

in the Table 1.1.

Production Management becomes the acceptable term from 1930s to 1950s. As F.W. Taylor’s

works become more widely known, managers developed techniques that focused on economic

efficiency in manufacturing. Workers were studied in great detail to eliminate wasteful efforts and

achieve greater efficiency. At the same time, psychologists, socialists and other social scientists

began to study people and human behaviour in the working environment. In addition, economists,

mathematicians, and computer socialists contributed newer, more sophisticated analytical approaches.

With the 1970s emerge two distinct changes in our views. The most obvious of these, reflected in

the new name Operations Management was a shift in the service and manufacturing sectors of the

economy. As service sector became more prominent, the change from ‘production’ to ‘operations’

emphasized the broadening of our field to service organizations. The second, more suitable change

was the beginning of an emphasis on synthesis, rather than just analysis, in management practices.

Table 1.1 Historical summary of operations management

Date Contribution Contributor

1776 Specialization of labour in manufacturing Adam Smith

1799 Interchangeable parts, cost accounting Eli Whitney & others

1832 Division of labour by skill; assignment of jobs by Skill; basics of Charles Babbage

time study

1900 Scientific management time study and work study Developed; Frederick W.Taylor

dividing planning and doing of work

1900 Motion of study of jobs Frank B. Gilbreth

1901 Scheduling techniques for employees, machines Jobs in Henry L. Gantt

manufacturing

1915 Economic lot sizes for inventory control F.W. Harris

1927 Human relations; the Hawthorne studies Elton Mayo

1931 Statistical inference applied to product quality: quality control W.A. Shewart

charts

1935 Statistical Sampling applied to quality control: inspection H.F.Dodge & H.G.Roming

sampling plans

1940 Operations research applications in world war II P.M.Blacker & others

1946 Digital Computer John Mauchlly and J.P.Eckert

1947 Linear Programming G.B.Dantzig, Williams & others

1950 Mathematical programming, on-linear and stochastic processes A.Charnes, W.W.Cooper & others

1951 Commercial digital computer: large-scale computations available Sperry Univac

1960 Organisational behaviour: continued study of people at work L.Cummings, L.Porter

1970 Integrating operations into overall strategy and policy Computer

applications to manufacturing, scheduling, and control, Material W.Skinner J.Orlicky & G. Wright

Requirement Planning (MRP)

1980 Quality and productivity applications from Japan: robotics, W.E. Deming & J.Juran

CAD-CAM